<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 1997
REGISTRATION STATEMENT 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
DOSKOCIL MANUFACTURING COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
TEXAS 3089 75-1281683
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
4209 BARNETT
ARLINGTON, TEXAS 76017
(817) 467-5116
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DONALD J. FRITSCHEN
CHIEF FINANCIAL OFFICER
DOSKOCIL MANUFACTURING COMPANY, INC.
4209 BARNETT
ARLINGTON, TEXAS 76017
TELEPHONE: (817) 467-5116
FAX: (817) 468-3269
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
J. JAY HERRON
ROBERT L. DAVIS
O'MELVENY & MYERS LLP
610 NEWPORT CENTER DRIVE, SUITE 1700
NEWPORT BEACH, CALIFORNIA 92660-6429
TELEPHONE: (714) 760-9600
FAX: (714) 669-6994
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
---------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 1/8% Senior Subordi-
nated Notes due Septem-
ber 15, 2007........... $85,000,000 100% $85,000,000 $25,758
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(f) solely for the purpose of calculating
the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 2, 1997
PROSPECTUS
OFFER TO EXCHANGE
10 1/8% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
[LOGO OF FOR ANY AND ALL OUTSTANDING [LOGO OF
DOSKOCIL] 10 1/8% SENIOR SUBORDINATED NOTES DUE 2007 OF DOGLOO]
DOSKOCIL MANUFACTURING COMPANY, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1997
Doskocil Manufacturing Company, Inc. a Texas corporation ("Doskocil"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the
"Letter of Transmittal") to exchange its outstanding 10 1/8% Senior
Subordinated Notes Due 2007 (the "Old Notes"), of which $85,000,000 aggregate
principal amount is outstanding as of the date hereof, for a like aggregate
principal amount of its newly issued 10 1/8% Senior Subordinated Notes Due
2007, which have been registered under the Securities Act of 1933, as amended
(the "New Notes"). The New Notes are being offered hereby in order to satisfy
certain obligations of Doskocil under the Registration Rights Agreement (the
"Registration Rights Agreement"), dated September 19, 1997, among Donaldson,
Lufkin & Jenrette Securities Corporation and Nationsbanc Capital Markets, Inc.
(collectively, the "Initial Purchasers") and Doskocil. The form and terms of
the New Notes will be the same as those of the Old Notes except that the New
Notes will have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and consequently will not be subject to certain
transfer restrictions, registration rights and related liquidated damages
provisions applicable to the Old Notes. The New Notes will evidence the same
debt as the Old Notes and will be entitled to the benefits of an indenture (the
"Indenture"), dated as of September 19, 1997, by and between Doskocil and First
Trust National Associates, as trustee (the "Trustee"). The Indenture provides
for the issuance of both the Old Notes and the New Notes. The Old Notes and the
New Notes are referred to herein collectively as the "Notes" and holders of the
Notes are sometimes referred to herein as the "Holders."
The Old Notes were issued on September 19, 1997 pursuant to an offering (the
"Offering") which was exempt from registration under the Securities Act. The
Old Notes were issued in connection with, among other transactions, the
September 19, 1997 merger (the "Merger") of Dogloo, Inc., a California
corporation ("Dogloo," and together with Doskocil, the "Company"), with and
into Doskocil, with Doskocil as the surviving corporation.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE
EXCHANGE OFFER.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
(Cover continued on next page)
The date of this Prospectus is , 1997
<PAGE>
The Notes will mature on September 15, 2007. Interest on the Notes will be
payable in cash semi-annually on March 15 and September 15 of each year,
commencing on March 15, 1998. The Notes will be redeemable, in whole or in
part, at the option of the Company, at any time on or after September 15,
2002, at the redemption prices set forth herein, plus accrued and unpaid
interest and Liquidated Damages (as defined herein), if any, to the date of
redemption. In addition, at any time on or before September 15, 2000, the
Company may redeem up to 35% of the original aggregate principal amount of the
Notes with the net proceeds of an Initial Public Equity Offering (as defined
herein) at a redemption price equal to 110 1/8% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to
the date of redemption. Upon a Change of Control Redemption Event (as defined
herein), the Company will have the option, at any time on or prior to
September 15, 2002, to redeem the Notes in whole but not in part at a
redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium (as defined herein) plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption. Upon a Change of
Control (as defined herein), each holder of the Notes will have the right to
require the Company to repurchase all or any part of such holder's Notes
(unless previously redeemed in connection with a Change in Control Redemption
Event) at 101% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of repurchase.
The Old Notes are, and the New Notes will be, senior subordinated,
unsecured, general obligations of the Company, subordinated in right of
payment to all Senior Debt (as defined herein) of the Company, including
indebtedness under the New Credit Facility. The Old Notes were, and the New
Notes will be, guaranteed (the "Guarantees") by the Company's future
Guarantors (as defined herein). The Guarantees will be subordinated in right
of payment to all Senior Debt of the Guarantors. As of June 30, 1997, on a pro
forma basis after giving effect to the Transactions (as defined herein), the
Company would have had approximately $80.0 million of outstanding Senior Debt,
all of which would have been secured debt outstanding under the New Credit
Facility. The Indenture (as defined herein) will permit the Company and its
Subsidiaries (as defined herein) to incur additional indebtedness, including
Senior Debt, subject to certain limitations. See "Description of 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 from the most recent date to which
interest has been paid on the Old Notes, or if no interest has been paid on
the Old Notes, from September 19, 1997. Accordingly, if the relevant record
date for interest payment occurs after the consummation of the Exchange Offer,
registered Holders of New Notes on such record date will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid, from September 19, 1997. If, however, the relevant
record date for interest payment occurs prior to the consummation of the
Exchange Offer, registered Holders of Old Notes on such record date will
receive interest accruing from the most recent date to which interest has been
paid, or if no interest has been paid, from September 19, 1997. Old Notes
accepted for exchange will cease to accrue interest from and after the date of
consummation of the Exchange Offer, except as set forth in the immediately
preceding sentence. Holders of Old Notes whose Old Notes are accepted for
exchange will not receive any payment in respect of interest on such Old Notes
otherwise payable on any interest payment date the record date for which
occurs on or after consummation of the Exchange Offer.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "SEC") as set forth in no action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by Holders thereof (other than any such Holder which is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such Holder's business and such Holder has
no arrangement with any person to participate in the distribution of such New
Notes. However, the Company does not intend to request the SEC to consider,
and the SEC 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 SEC would
make a similar determination with respect to the Exchange Offer as in such
other circumstances. Each Holder, other than a
2
<PAGE>
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of such New Notes and has no arrangement or
understanding to participate in a distribution of New 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 states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company will not receive any proceeds from the Exchange Offer and will
pay all the expenses incident to the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event 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. See "The Exchange Offer."
The Old Notes were issued on September 19, 1997 to institutional investors
and are eligible for trading in the Private Offering, Resales and Trading
through Automated Linkages ("PORTAL") market, the National Association of
Securities Dealers' screen-based, automated market for trading of securities
eligible for resale under Rule 144A. There is no existing trading market for
the New Notes, and there can be no assurance as to the development of any
market or the liquidity of any market that may develop for the New Notes or
the price at which such Holders may be able to sell their New Notes. Although
the Initial Purchasers have advised the Company that they currently intend to
make a market in the New Notes, the Initial Purchasers are not obligated to do
so, and any market-making with respect to the New Notes may be discontinued at
any time without notice. The Company does not intend to apply to list the Old
Notes or the New Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System.
AVAILABLE INFORMATION
The Company has filed with the SEC a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the New
Notes 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 and the exhibits and schedules thereto, certain parts
of which are omitted in accordance with the rules and regulations of the SEC.
For further information with respect to the Company and the New Notes offered
hereby, reference is made to the Registration Statement. Any statements made
in this Prospectus concerning the provisions of certain documents are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected and copied at the public reference facilities maintained by
the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at
its regional offices located at Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New
York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC maintains a Web site that contains reports and
other information regarding registrants that file electronically with the SEC.
Such reports and other information may be found on the SEC's site address,
http://www.sec.gov. Copies of such material also can be obtained from the
Company upon request.
Upon completion of the Exchange Offer, the Company will be subject to
certain of the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance
3
<PAGE>
therewith, will file reports with the SEC. The Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
SEC, it will deliver to the Trustee and to each Holder of the Notes within
15 days after it is or would have been (if it were subject to such reporting
obligations) required to file such with the SEC, annual and quarterly
financial statements substantially equivalent to financial statements that
would have been included in reports filed with the SEC, if the Company were
subject to the requirements of Section 13 or 15(d) of the Exchange Act,
including, with respect to annual information only, a report thereon by the
Company's certified independent public accountants as such would be required
in such reports to the SEC, and, in each case, together with a management's
discussion and analysis of financial condition and results of operations which
would be so required and, unless the SEC will not accept such reports, file
with the SEC the annual, quarterly and other reports which it is or (if it
were subject to such reporting obligations), would have been required to file
with the SEC.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. Such
forward-looking statements are principally contained in the sections
"Prospectus Summary," "Summary Pro Forma Combined Financial Information," "The
Merger," "Unaudited Pro Forma Condensed Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and include, without limitation, the Company's expectation and
estimates as to the Company's business operations following the Merger,
including, but not limited to, the integration of Dogloo's business with
Doskocil's and the achievement of certain cost savings related thereto, the
introduction of new products, future financial performance, including growth
in net sales and earnings, cash flows from operations, capital expenditures,
and the sale of assets. In addition, in those and other portions of this
Prospectus, the words "anticipates," "believes," "estimates," "expects,"
"plans," "intends" and similar expressions, as they relate to the Company or
the Company's, Doskocil's or Dogloo's management and business, are intended to
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in this
Prospectus. In addition to factors that may be described in this Prospectus,
the following factors, among others, could cause the actual results to differ
materially from those expressed in any forward-looking statements made by the
Company, Doskocil or Dogloo; (i) difficulties or delays in integrating
Doskocil's and Dogloo's product offerings, management, systems, research and
development, manufacturing and sales and marketing efforts; (ii) difficulties
or delays in achieving estimated cost savings and operational efficiencies
related to the Merger; (iii) changes in consumer preferences and the ability
of the Company to adequately anticipate such changes; (iv) difficulties or
delays in developing and introducing products or failure of customers to
accept product offerings; (v) the seasonal nature of the Company's operations;
(vi) effects of and changes in general economic and business conditions; (vii)
actions by competitors, including new product offerings and marketing and
promotional successes; (viii) claims which might be made against the Company,
including product liability claims; (ix) the loss of any significant suppliers
or sponsors; and (x) changes in business strategy or new product lines. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected. The Company
does not intend to update these forward-looking statements.
4
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained herein. This
summary is qualified in its entirety by, and should be read in conjunction
with, the more detailed information and financial statements, including the
notes thereto, contained elsewhere in this Prospectus and incorporated herein
by reference. Market data used throughout this Prospectus were obtained from
internal company surveys and industry publications, which generally indicate
that the information contained therein has been obtained from sources believed
to be reliable, but the accuracy and completeness of such information is not
guaranteed and has not been independently verified. Unless otherwise expressly
stated or the context otherwise requires, (i) "Doskocil" refers to Doskocil
Manufacturing Company, Inc. and Spectrum Polymers, Ltd., prior to giving effect
to the Merger, (ii) "Dogloo" refers to Dogloo, Inc. prior to giving effect to
the Merger and (iii) the "Company" refers to the combined entity comprised of
Doskocil and Dogloo after giving effect to the Transactions (as defined
herein), including the Merger.
THE COMPANY
The Company, created by the Merger of Dogloo and Doskocil, is the leading
plastic pet products company in the United States, manufacturing a broad range
of plastic and other pet products sold through a distribution network of more
than 2,000 retailers, including PETsMART, Wal-Mart, K-Mart, Petco and Costco.
Doskocil brings to the combined Company its strength in the pet carrier
category, along with a broad range of products and efficient manufacturing
capabilities. Dogloo adds its strength in the pet shelter category, along with
its demonstrated product development and marketing abilities. Accordingly, the
Merger created a company with complementary pet product lines, including both
pet carriers and pet shelters, complementary customer bases and substantial
opportunities for cost reductions. The Company expects to take advantage of
Doskocil's historically under-utilized manufacturing and distribution
facilities to achieve a lower combined cost structure. The Company's cost
structure is also enhanced through Doskocil's vertically integrated
manufacturing operations which include a facility for the recycling, blending
and compounding of plastic resins, the largest raw material component in the
Company's products. The combined sales of Doskocil and Dogloo have increased
from $105.1 million in 1993 to $160.0 million in 1996, representing a compound
annual growth rate of 15.0%. On a pro forma combined basis after giving effect
to the Transactions (as defined herein), the Company's pro forma EBITDA (as
defined herein) for the twelve-month period ended June 30, 1997 would have been
$38.5 million.
The Merger combined complementary product lines in several categories in
which both companies have traditionally had a smaller presence and offers
further opportunities to expand product offerings. Doskocil produces a broad
line of plastic products, including pet products such as pet carriers, pet
shelters, cat litter boxes, bowls, feeders, waterers and cat toys, as well as
sporting goods and other products. Management believes Doskocil's Vari
Kennel(R), Sky Kennel(R), Pet Mate(R), Pet Porter(R), Pet Taxi(R) and Kennel
Cab(R) pet carrier brand names are widely known and have enjoyed increasing use
in the transportation and indoor training of pets. Management believes
Doskocil's Gun Guard(R) brand (firearms and archery cases) and Woodstream(TM)
brand (fishing tackle cases) are similarly well-recognized in the sporting
goods market. Dogloo's product line consists of plastic pet shelters, pet
carriers, pet bedding and pet feeding and watering products. Dogloo's numerous
styles and sizes of pet shelters include the Dogloo(R), Indigo(R), Ruff
Hauz(R), Barney(R), Cape Cod(TM) and Brik Hauz(R). These shelters are made from
a structural foam plastic which provides exceptional durability and insulation
relative to other types of plastic or wooden pet shelters. The Company believes
the Dogloo, Dogloo's igloo-shaped best-seller, is unique in style, wind
resistant, easy to clean and popular among breeders, kennel owners and general
consumers. In the Merger, the Company acquired Dogloo's federal configuration
trademark on its igloo-shaped pet shelters. In 1995, Dogloo successfully relied
upon this trademark to obtain a preliminary injunction against the manufacture
and sale by Doskocil of a confusingly similar product, after which Doskocil
agreed to discontinue sales of its dome-shaped pet shelters.
5
<PAGE>
As a result of the Merger, the Company has a substantially broadened customer
base and reduced customer concentration. Doskocil's principal products are sold
to a wide variety of retailers including specialty pet superstores such as
PETsMART and Petco, mass merchandisers such as Wal-Mart and K-Mart, food and
drug stores, hardware stores and a number of distributors that sell to
independent pet stores. Dogloo's products are sold through a variety of similar
retail channels, including mass merchandisers such as Wal-Mart, wholesale clubs
such as Sam's Club, home centers such as Lowe's and Menards, pet specialty
superstores such as PETsMART, farm and agricultural stores such as Tractor
Supply Company, and distributors that sell to independent pet stores. Despite
similar distribution channels, there is little overlap among the major
customers of Doskocil and Dogloo -- only three shared customers rank in the top
ten customers of each individual company. On a pro forma combined basis after
giving effect to the Transactions, no one customer accounted for more than
11.9% of the Company's total net revenues in 1996.
PET PRODUCTS INDUSTRY
The U.S. retail market for non-food pet supplies and accessories generated
approximately $4.0 billion in sales in 1995, up 29.3% from $3.1 billion in
1991, according to a study published in 1996 by Packaged Facts, an independent
research group. The study indicated that since 1991, dog and cat segments have
dominated consumption in, and have grown faster than the overall non-food pet
supplies market. The study estimated that of the $4.0 billion in 1995 non-food
pet supplies and accessories sales, the dog and cat segments represented
approximately 68.8%. The study attributed the growth in non-food pet supply and
accessories sales in recent years to both an increasing number of pets and an
increasing annual customer expenditure per pet. Packaged Facts estimated that
the total number of cats and dogs in the United States in 1995 was 121 million,
up from 116 million in 1991. Based on these estimates, the average annual
expenditure per cat and dog increased to $22.76 in 1995, up 35.4% from $16.81
in 1991. Packaged Facts attributed these increases to a number of factors,
including (i) the baby boomer generation, who are now purchasing pets for
children, (ii) the increasing senior citizen component of the population who
appreciate the companionship of pets, and (iii) the expansion of pet supply
outlets which has stimulated consumer demand. These factors are expected,
according to Packaged Facts, to increase sales of non-food pet products to
nearly $5.2 billion by the year 2000.
BUSINESS STRATEGY
The Company's strategic objectives are to further enhance its position as the
leading manufacturer and marketer of plastic pet products in the United States
and to continue its expansion internationally. The Company will seek to
leverage its competitive strengths to accomplish the following objectives:
. Capitalize on Industry Leadership Position. By combining the leaders in
plastic pet carriers and plastic pet shelters, the Company has achieved
its leading position in the plastic pet products industry. The Company
expects to strengthen its market position by continuing to develop new
products, using advertising and other promotional programs to implement
a consumer driven "pull strategy," and making strategic acquisitions of
related product lines that will take advantage of the Company's existing
markets and broad distribution channels.
. Continue to Introduce New Products. The Company is committed to
maintaining Doskocil's and Dogloo's reputations as industry leaders
through continued product development within its current product
categories and the creation of innovative new product categories.
Management believes that both Doskocil and Dogloo have demonstrated the
ability to develop and market new products to both retail consumers and
those who influence the purchasing patterns of consumers, such as
breeders and veterinarians. Doskocil and Dogloo launched a combined
total of 27 new products over the past two years. The Company expects to
launch an additional 30 new products in 1997. Net sales from new
products introduced in the calendar years 1995 and 1996 accounted for
16.7% of the Company's total pro forma combined net sales for 1996.
6
<PAGE>
. Achieve Substantial Cost Savings. The Company will seek to utilize
Doskocil's existing production and distribution capacity and the
combined Company's complementary strengths to substantially reduce the
manufacturing and operating expenses of the combined entity. The Company
intends to close Dogloo's administrative and manufacturing facilities
and centralize those operations at Doskocil's Arlington, Texas facility,
thereby eliminating redundant expenses and spreading higher production
volumes over a relatively fixed cost base. Upon complete integration of
the two companies, management estimates approximately $17.5 million in
annual cost savings resulting from the combination of Doskocil and
Dogloo. While the pro forma annual cost savings for the twelve months
ended June 30, 1997 are estimated to be approximately $9.0 million,
management believes additional annual savings estimated to be
approximately $8.5 million can be achieved over time. To achieve these
pro forma and additional cost savings, the Company intends to focus on:
(i) consolidating production and distribution facilities to Doskocil's
campus in Arlington, Texas; (ii) utilizing Doskocil's vertically
integrated resin operation for the production of Dogloo's pet shelters
and carriers; (iii) transferring production of Dogloo's carrier line to
Doskocil's production facilities (the production is currently
outsourced); (iv) rationalizing the administration, sales and marketing
overheads of the two companies; and (v) benefiting from the Company's
increased purchasing power of new materials and supplies as a larger
combined entity. There can be no assurance that the cost savings
discussed here and elsewhere will be realized or that there will not be
significant delays in achieving such cost savings. See "Risk Factors--
Risks Related to the Merger."
. Capitalize on Plastic Resin Cost Advantage. The Company's vertically
integrated plastic resin compounding facility ("Spectrum"), together
with the Company's resin compounding experience, enable the Company to
produce plastic resins using a significantly reduced proportion of prime
resins, while achieving raw material specifications which meet or exceed
the Company's product and manufacturing requirements. The Company's
principal raw materials are various plastic resins, which are either
"prime" resins purchased from petrochemical producers, or less expensive
blends of prime resins and recycled materials purchased from third-party
suppliers or produced by the Company. Spectrum has an estimated annual
capacity in excess of 100 million pounds, and uses a mixture of prime
resins and recycled materials to produce plastic resins. In 1996,
Doskocil used 49 million pounds of plastic resins, approximately 92% of
which were compounded by Spectrum. In 1996, Dogloo used approximately 28
million pounds of prime plastic resins purchased from outside suppliers.
Spectrum is expected to satisfy all of Dogloo's resin needs, which the
Company expects will substantially increase Spectrum's capacity
utilization and further reduce the Company's average resin cost per
pound.
. Exploit International Growth Opportunities. While international sales
represented approximately 12.4% of the combined Company's net sales in
1996, management believes that the international markets, especially
Europe and Latin America, represent a significant growth opportunity.
The international expansion of U.S. retailers is also expected to
provide a significant opportunity for the Company to increase
international sales. Management believes the 1996 acquisition by
PETsMART of Pet City Holdings PLC, the United Kingdom's largest pet
superstore chain, is indicative of the international expansion of such
retailers and represents one opportunity for growth in international
markets. Management is currently evaluating the establishment of
distribution facilities in continental Europe and Latin America. The
combination of Doskocil and Dogloo is also expected to allow the Company
to redeploy certain overlapping product molds for international contract
manufacturing.
7
<PAGE>
THE MERGER
On September 19, 1997, Doskocil and Dogloo entered into a merger agreement
(the "Merger Agreement"), pursuant to which Dogloo was merged with and into
Doskocil on that same date. The Company is now controlled by an investor group
(the "Investor Group") consisting of various Westar Capital entities and
certain of their affiliates, including Westar Capital L.P., a California
limited partnership ("Westar LP"), Westar Capital II, LLC, a Delaware limited
liability company ("Westar LLC"), and HBI Financial Inc., a Washington
corporation ("HBI") (collectively "Westar"), and various Enterprise Partners
funds and certain of their affiliates (collectively "Enterprise"). See
"Principal Stockholders."
Certain members of the Investor Group acquired control of Doskocil on July 1,
1997, pursuant to a leveraged recapitalization transaction (the
"Recapitalization"). The total enterprise valuation of Doskocil in the
Recapitalization, including $34.3 million of net indebtedness and amounts
required to buy out operating leases, was approximately $140.8 million. The
Investor Group controlled Dogloo prior to consummation of the Merger, and
contributed its Dogloo common stock equity and a portion of its preferred stock
equity to the Company as part of the Merger. The total enterprise valuation of
Dogloo in the Merger, including $30.0 million of net indebtedness as of June
30, 1997, was approximately $77.3 million, and the total common stock equity
value was approximately $21.2 million based on the same valuation method as was
used in the Recapitalization. Simultaneously with the Merger, a restructuring
of the capital structure of Doskocil created by the Recapitalization occurred.
The Investor Group has invested a total of $20.0 million in cash equity in the
Company and the Investor Group and other shareholders of Dogloo have
contributed Dogloo common and preferred equity estimated at $30.1 million,
based on the same valuation method used in the Recapitalization. The
Recapitalization, the Merger, the Offering, the New Credit Facility and the
application of the net proceeds therefrom, including the refinancing of the
Bridge Notes (as defined below) and the Existing Credit Facility (as defined
below), the acquisition of certain preferred stock and common stock of Doskocil
and Dogloo, and the payment of accrued dividends on shares of Doskocil
preferred stock, are collectively referred to herein as the "Transactions."
The Company operates under the "Doskocil" name with headquarters at
Doskocil's facilities in Arlington, Texas. The Company's principal executive
offices are located at 4209 Barnett, Arlington, Texas, and its telephone number
is (817) 467-5116. Principal stockholders of the Company are Westar
(approximately 70.9%) and Enterprise (approximately 17.7%). See "Principal
Stockholders."
WESTAR AND ENTERPRISE
Westar is a private investment partnership group, founded in 1987 to pursue
investment opportunities including leveraged buyouts, recapitalizations, and
private equity investments. Using capital principally from a private investor,
Westar has made 12 equity investments in a portfolio of companies with
collective 1996 revenues of more than $2.0 billion. Westar is based in Costa
Mesa, California.
Westar acquired control of Dogloo in September 1995 through a
recapitalization. Westar changed numerous management procedures and practices,
replaced or added two senior managers and actively mentored Dogloo's co-founder
and former Chief Executive Officer. Under Westar's guidance, Dogloo's operating
results improved from EBITDA of $1.6 million in 1995 to $10.0 million in 1996.
In addition to Dogloo, representative past and present Westar investments
include: Homedco Group, Inc., a home healthcare provider purchased from
National Medical Enterprises in 1987, and taken public in 1991 and merged in
1996 to form Apria Healthcare Group, Inc. (NYSE: AHG); USCS International,
Inc., a provider of software and billing services which was taken public
(NASDAQ: USCS) subsequent to Westar's 1988 investment; Tecstar, Inc., the
leading provider of high efficiency power systems for satellites and other
spacecraft; All Post, Inc., a leading video and film post-production and
restoration provider; and Scripps Clinic Management Services Organization,
Inc., a physician practice management company spun out of The Scripps Institute
of Medicine and Science of La Jolla, California.
8
<PAGE>
Enterprise is a leading venture capital firm which has raised four funds from
institutional investors since 1985, totaling in excess of $430 million.
Enterprise has made approximately 66 investments in a portfolio of companies
with collective 1996 revenues in excess of $2.8 billion. In addition to
investments in early stage and emerging growth companies, Enterprise has
selectively invested in leveraged buyouts, including those Westar investments
described above. Although Enterprise and Westar are controlled and operated
independently, the firms have enjoyed a co-investment relationship and have one
individual general partner in common.
THE EXCHANGE OFFERING
Notes Offered............... Up to $85.0 million aggregate principal amount of
10 1/8% Senior Subordinated Notes due 2007 which
have been registered under the Securities Act.
The form and terms of the New Notes will be the
same as those of the Old Notes except that the
New Notes will have been registered under the
Securities Act, and consequently will not be
subject to certain transfer restrictions,
registration rights and related liquidated
damages provisions applicable to the Old Notes.
See "Description of the Notes."
The Exchange Offer.......... The New Notes are being offered in exchange for a
like principal amount of Old Notes. The issuance
of the New Notes is intended to satisfy
obligations of the Company contained in the
Registration Rights Agreement. For procedures for
tendering, see "The Exchange Offer--Procedures
for Tendering Old Notes."
Tenders; Expiration Date;
Withdrawal.................. The Exchange offer will expire at 5:00 p.m., New
York City time, on , 1997, or such later
date and time to which it is extended. The tender
of Old Notes pursuant to the Exchange Offer may
be withdrawn at any time prior to the Expiration
Date. Any Old Note not accepted for exchange for
any reason will be returned without expense to
the tendering holder thereof as promptly as
practicable after the expiration or termination
of the Exchange Offer. See "The Exchange Offer--
Terms of the Exchange Offer; Period for Tendering
Old Notes" and "The Exchange Offer--Withdrawal
Rights."
Conditions to Exchange
Offer....................... The Exchange Offer is subject to the condition
that the Exchange Offer not violate any
applicable law, policy or interpretation of the
staff of the SEC.
Procedures for Tendering
Old Notes................... Each Holder wishing to accept the Exchange Offer
must complete and sign the Letter of Transmittal,
in accordance with the instructions contained
therein, and submits the Letter of Transmittal to
the exchange agent identified below. See "The
Exchange Offer--Procedures for Tendering Old
Notes."
Federal Income Tax
Consequences................ The exchange pursuant to the Exchange Offer
should not result in gain or loss to the Holders
or the Issuer for federal income tax purposes.
Use of Proceeds............. There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer. See "Use
of Proceeds."
Exchange Agent.............. First Trust National Association is serving as
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer.
9
<PAGE>
CONSEQUENCES OF EXCHANGING OLD NOTES
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 provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the 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 Old Notes under the Securities Act.
Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by holders thereof (other than any
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such 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 SEC to
consider, and the SEC 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 SEC
would make a similar determination with respect to the Exchange Offer as in
such other circumstances. Each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in a
distribution of 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 or intends to engage in or has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holder (i) could not rely on the
applicable interpretations of the staff of the SEC and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes must acknowledge that such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities and 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. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 180 days after the Expiration Date, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution." In addition, to comply with the state
securities laws, the New Notes may not be offered or sold in any state unless
they have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with. The Offer
and sale of the New Notes to "qualified institutional buyers" (as such term is
defined under Rule 144A of the Securities Act) is generally exempt from
registration or qualification under the state securities laws. The Company
currently does not intend to register or qualify the sale of the New Notes in
any state where an exemption from registration or qualification is required and
not available. See "The Exchange Offer--Consequences of Exchanging Old Notes"
and "Description of the Notes."
10
<PAGE>
SUMMARY DESCRIPTION OF THE NOTES
The form and terms of the New Notes will be the same as those of the Old
Notes except that the New Notes will have been registered under the Securities
Act, and consequently will not be subject to certain transfer restrictions,
registration rights and related liquidated damages provisions applicable to the
Old Notes. See "Description of the Notes--Registration Rights; Liquidated
Damages."
Company..................... Doskocil Manufacturing Company, Inc.
Guarantor................... The Old Notes are, and the New Notes will be,
guaranteed on a senior subordinated basis by all
future Subsidiaries of the Company (other than
any Receivables Subsidiaries or Foreign
Subsidiaries).
Maturity Date............... September 15, 2007.
Interest Payment Dates...... March 15 and September 15 of each year,
commencing March 15, 1998.
Ranking..................... The Old Notes are, and the New Notes will,
constitute general unsecured obligations of the
Company and will be subordinated in right of
payment to all Senior Debt of the Company. As of
June 30, 1997, on a pro forma combined basis
after giving effect to the Transactions, the
Company would have had approximately $80.0
million of outstanding Senior Debt, all of which
would have been secured debt outstanding under
the New Credit Facility. The Indenture prohibits
the Company and the Guarantors from incurring,
assuming or guaranteeing any Indebtedness that is
subordinated to any Senior Debt and senior in
right of payment to the Notes or the Guarantees,
as applicable. See "Description of the Notes--
Subordination."
Optional Redemption......... The Notes are redeemable, in whole or in part, at
the option of the Company at any time on or after
September 15, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest,
if any, thereon, plus Liquidated Damages, if any.
In addition, at any time on or before September
15, 2000, the Company may redeem up to 35% of the
original aggregate principal amount of the Notes
with the net proceeds of an Initial Public Equity
Offering at a redemption price equal to 110% of
the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
to the date of redemption; provided, however,
that at least 65% of the original aggregate
principal amount of the Notes must remain
outstanding following such redemption. See
"Description of the Notes--Optional Redemption."
Change of Control........... Upon a Change of Control Redemption Event, the
Company will have the option, at any time on or
prior to September 15, 2002, to redeem the Notes
in whole but not in part at a redemption price
equal to 100% of the principal amount thereof
plus the Applicable Premium set forth herein,
plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption. Upon
a Change of Control, each holder of the Notes
will have the right to require the Company to
repurchase all or any part of such holder's Notes
(unless previously redeemed in connection with a
Change of Control Redemption Event) at 101% of
the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
to
11
<PAGE>
the date of repurchase. See "Description of the
Notes--Optional Redemption" and "--Certain
Covenants--Repurchase of Notes at the Option of
the Holder Upon a Change of Control."
Certain Covenants........... The Indenture contains certain covenants,
including, but not limited to, covenants
limiting: (i) the incurrence by the Company and
its Subsidiaries of additional Indebtedness; (ii)
the payment of dividends on and the redemption of
capital stock by the Company; (iii) the creation
of liens securing indebtedness; (iv) restrictions
on the ability of Subsidiaries to pay dividends
or make other restricted payments; (v)
transactions with affiliates; (vi) certain sales
of assets; (vii) the ability of the Company and
the Subsidiaries to engage in certain businesses;
and (viii) the Company's ability to consolidate
or merge with or into, or transfer all or
substantially all of its assets to, another
person. See "Description of the Notes--Certain
Covenants."
Use of Proceeds............. The Company will not receive any proceeds from
the Exchange Offer. The Company used the net
proceeds of the Offering, together with
borrowings under the New Credit Facility, to
repay the Bridge Notes and the Existing Credit
Facility, to acquire certain shares of preferred
and common stock of Doskocil and certain shares
of preferred and common stock of Dogloo in
connection with the Merger, to pay accrued
dividends on shares of Doskocil preferred stock
and to pay related fees and expenses. See "Use of
Proceeds."
Risk Factors................ See "Risk Factors" for a discussion of certain
factors that should be considered by Holders in
connection with the Exchange Offer.
12
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
The following summary pro forma combined financial information was derived in
part from, and should be read in conjunction with, the historical combined
financial statements of Doskocil and the historical financial statements of
Dogloo and the respective notes thereto, the Pro Forma Financial Data (as
defined) of the Company and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
Doskocil followed a 52/53 week convention through fiscal year ended 1996; all
references to December 31 relate to Doskocil's actual year end. The historical
combined financial statements of Doskocil and the historical financial
statements of Dogloo as of and for the year ended December 31, 1996 have been
audited. The financial data for both Doskocil and Dogloo for the latest twelve
months ended June 30, 1997 have not been audited. The summary pro forma data
for the year ended December 31, 1996 and for the latest twelve months ended
June 30, 1997 give effect to the Transactions as if they had occurred on
January 1, 1996. The pro forma financial data do not purport to be indicative
of the Company's financial position or results of operations that would
actually have been obtained had the Transactions been completed as of the date
or for the periods presented, or to project the Company's financial position or
results of operations at any future date or for any future period.
LATEST TWELVE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DOSKOCIL DOGLOO ADJUSTMENTS(1) COMBINED(2)
-------- ------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $103,474 $57,209 $160,683
Gross profit.................... 29,302 20,548 $ 7,593 57,443
Operating income................ 4,716 6,430 10,361 21,507
OTHER FINANCIAL DATA:
EBITDA(3)....................... $ 19,331 $10,173 $ 8,994 $ 38,498
Interest expense, net........... 897 3,452 10,964 15,313
Depreciation and amortization... 5,908 3,361 3,980 13,249
Capital expenditures............ 2,360 1,645 13,254 17,259
EBITDA/interest expense, net(3). 2.5x
Total debt/EBITDA(3)............ 4.3x
Pro forma ratio of earnings to
fixed charges(4)............... 1.2x
MARGINS:
Gross margin.................... 28.3% 35.9% 35.7%
EBITDA(3)....................... 18.7% 17.8% 24.0%
BALANCE SHEET DATA:
Fixed assets, net............... $ 16,904 $25,441 $ 13,871 $ 56,216
Total assets.................... 50,679 42,417 85,156 178,252
Current liabilities............. 14,936 23,661 (13,689) 24,908
Long-term debt.................. 8,302 22,526 136,672 167,500
Equity (deficit)................ 29,090 (4,622) (42,686) (18,218)
</TABLE>
13
<PAGE>
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DOSKOCIL DOGLOO ADJUSTMENTS(1) COMBINED(2)
-------- ------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $103,455 $56,519 $159,974
Gross profit.................... 30,327 18,633 $7,939 56,899
Operating income................ 9,645 6,625 10,460 26,730
OTHER FINANCIAL DATA:
EBITDA(3)....................... $ 17,848 $10,031 $9,310 $37,189
Interest expense, net........... 2,176 3,599 9,538 15,313
Depreciation and amortization... 5,928 3,067 3,781 12,776
Capital expenditures............ 4,129 1,000 13,254 18,383
EBITDA/interest expense, net(3). 2.4x
Total debt/EBITDA(3)............ 4.4x
Pro forma ratio of earnings to
fixed charges(4)............... 1.5x
MARGINS:
Gross Margin.................... 29.3% 33.0% 35.6%
EBITDA(3)....................... 17.2% 17.7% 23.2%
</TABLE>
- --------
(1) For a description of pro forma adjustments, see Notes to Unaudited Pro
Forma Condensed Statements of Operations.
(2) Pro forma combined data have been adjusted to reflect the Transactions. In
order to match the combined Company's fiscal year reporting with its
seasonality, management has changed its fiscal year end to June 30. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality."
(3) The term EBITDA as used herein means the sum of operating income plus (i)
depreciation and amortization, (ii) operating lease expense related to
capital assets repurchased from operating lessors, (iii) impairment of
molds, tools and dies, (iv) unusual inventory write-offs, (v) unusual
reserves for workers' compensation, (vi) non-recurring write-offs of
intangible assets and the write-offs of certain development costs for
abandoned projects, (vii) non-recurring settlement costs and (viii)
management fees and other expenses. 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 generally accepted accounting principles, 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. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs and there can be no assurance that costs similar to
certain of the costs added back to operating income as part of EBITDA will
not be incurred again in the future. EBITDA is included herein because
management believes that certain investors find it to be a useful tool for
measuring the ability to service debt.
(4) For the purpose of determining the pro forma ratio of earnings to fixed
charges, earnings are defined as pre-tax income (loss) plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus one
third of rental expense, deemed to be representative of that portion of
rental expense estimated to be attributable to interest.
14
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical financial information was derived in part
from, and should be read in conjunction with, the historical combined financial
statements of Doskocil and the historical financial statements of Dogloo and
the respective notes thereto and "Selected Historical Financial Data," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The historical combined
financial statements of Doskocil as of and for each of the years ended December
31, 1993 through 1996, and for the six-month period ended June 30, 1997 have
been audited. The historical combined financial statements of Doskocil as of
and for the six-month period ended June 30, 1996 are unaudited. The historical
financial statements of Dogloo as of and for the years ended December 31, 1993
through December 31, 1996 have been audited. The historical financial
statements of Dogloo as of and for each of the six-month periods ended June 30,
1996 and June 30, 1997 are unaudited.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------- ----------------
1993 1994 1995 1996 1996 1997
------- ------- ------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
DOSKOCIL
INCOME STATEMENT DATA:
Net sales.............. $74,325 $92,267 $97,496 $103,455 $51,737 $51,756
Gross profit........... 26,788 29,782 25,944 30,327 14,392 13,367
Operating income
(loss)................ 9,270 9,107 5,211 9,645 4,004 (925)
OTHER FINANCIAL DATA:
EBITDA(1).............. $12,313 $13,689 $11,409 $ 17,848 $ 8,018 $ 9,501
Interest expense, net.. 240 822 2,456 2,176 1,750 471
Depreciation and
amortization.......... 2,963 4,283 5,545 5,928 2,877 2,857
Capital expenditures... 6,796 11,474 19,156 4,129 2,740 971
MARGINS:
Gross margin........... 36.0% 32.3% 26.6% 29.3% 27.8% 25.8%
EBITDA(1).............. 16.6 14.9 11.8 17.2 15.5 18.3
BALANCE SHEET DATA:
Fixed assets, net...... $17,306 $28,350 $28,078 $ 22,566 $28,019 $16,904
Total assets........... 40,524 58,663 72,876 66,135 70,431 50,679
Current liabilities.... 5,575 7,403 22,050 22,966 10,807 14,936
Long-term debt......... 8,538 21,284 21,213 9,110 9,888 8,302
Equity................. 26,411 30,462 31,148 35,638 32,225 29,090
DOGLOO
INCOME STATEMENT DATA:
Net sales.............. $30,766 $44,267 $51,520 $ 56,519 $20,351 $21,041
Gross profit........... 11,787 14,090 11,298 18,633 4,613 6,528
Operating income
(loss)................ 3,429 2,620 (4,273) 6,625 26 (169)
OTHER FINANCIAL DATA:
EBITDA(1).............. $ 3,771 $ 3,679 $ 1,597 $ 10,031 $ 1,557 $ 1,699
Interest expense, net.. 231 1,229 7,027 3,599 1,741 1,594
Depreciation and
amortization.......... 342 1,059 2,303 3,067 1,424 1,718
Capital
expenditures(2)....... 5,450 16,621 9,130 1,000 266 911
MARGINS:
Gross margin........... 38.3% 31.8% 21.9% 33.0% 22.7% 31.0%
EBITDA(1).............. 12.3 8.3 3.1 17.7 7.7 8.1
BALANCE SHEET DATA:
Fixed assets, net...... $ 6,926 $22,557 $27,547 $ 25,948 $26,355 $25,441
Total assets........... 19,995 39,364 47,250 42,438 42,895 42,417
Current liabilities.... 10,732 15,247 25,802 21,438 23,722 23,661
Long-term debt......... 2,196 17,702 27,470 23,576 26,573 22,526
Stockholders' equity
(deficit)............. 7,186 7,682 (2,517) (2,470) (4,534) (4,622)
</TABLE>
(See Note on following page)
15
<PAGE>
(Notes to table on previous page)
- --------------------
(1) The term EBITDA as used herein means the sum of operating income plus (i)
depreciation and amortization, (ii) operating lease expense related to
capital assets repurchased from operating lessors, (iii) impairment of
molds, tools and dies, (iv) unusual inventory write-offs, (v) unusual
reserves for workers' compensation, (vi) non-recurring write-offs of
intangible assets and the write-offs of certain development costs for
abandoned projects, (vii) non-recurring settlement costs and (viii)
management fees and other expenses. 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 generally accepted accounting principles, 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. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs and there can be no assurance that costs similar to
certain of the costs added back to operating income as part of EBITDA will
not be incurred again in the future. EBITDA is included herein because
management believes that certain investors find it to be a useful tool for
measuring the ability to service debt.
(2) Capital expenditures in years 1993, 1994 and 1995 include $1,645, $8,355
and $2,500, respectively for capital leases incurred for the acquisition of
machinery and equipment.
16
<PAGE>
RISK FACTORS
Prospective Holders of New Notes should consider carefully the specific
factors set forth below, as well as the other information included in this
Prospectus before deciding to tender their Old Notes in the Exchange Offer,
although the risk factors set forth below (other than "--Consequences of
Failure to Exchange and Requirements for Transfers of New Notes") are
generally applicable to the Old Notes as well as the New Notes. This
Prospectus, including the "Prospectus Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
sections, contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, which can be identified by
the use of forward-looking terminology, such as "may," "intend," "will,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. In particular, any
statement, express or implied, concerning future operating results or the
ability to generate revenues, income or cash flow to service the Notes are
forward-looking statements. The matters set forth below constitute cautionary
statements identifying important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially from those in such forward-looking statements.
CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW NOTES
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 provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the 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 Old Notes under the Securities Act.
The Company currently does not intend to register or qualify the sale of the
New Notes in any state where an exemption from registration or qualification
is required and not available. See "The Exchange Offer--Consequences of
Exchanging Old Notes."
LEVERAGE
The Company incurred substantial indebtedness in connection with the
consummation of the Transactions and will remain highly leveraged following
the Exchange Offer. As of June 30, 1997, on a pro forma combined basis after
giving effect to the Transactions, the Company would have had total
consolidated indebtedness of approximately $165.0 million. On a pro forma
basis after giving effect to the Transactions, the Company's ratio of earnings
to fixed charges would have been 1.2 to 1.0 for the latest twelve months ended
June 30, 1997. Subject to the restrictions in the New Credit Facility and the
Indenture, the Company and its subsidiaries may incur additional indebtedness
from time to time to finance capital expenditures and acquisitions and for
other general corporate purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The degree to which the Company is leveraged could have important
consequences to the holders of the Notes, including: (i) the possible
limitation in the future on the Company's ability to obtain additional
financing for working capital, product development, capital expenditures, debt
service requirements or other purposes; (ii) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of the
principal of and interest on its indebtedness, thereby reducing funds
available for operations and capital additions; (iii) certain of the Company's
borrowings, primarily the borrowings under the New Credit Facility, will be at
variable rates of interest which could cause the Company to be vulnerable to
increases in interest rates; (iv) the Company may be more vulnerable to
economic downturns and more limited in its ability to withstand competitive
pressures than its competitors that are not as highly leveraged; (v) the Notes
will mature after substantially all of the Company's other indebtedness,
including all borrowings under the New Credit Facility; and (vi) the Company's
leveraged status may affect its ability to make acquisitions in the future.
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The Company's ability to make scheduled payments of the principal of, or
interest on, or to refinance, its indebtedness, including the Notes, will
depend on its future operating performance and cash flow, which are subject to
prevailing economic conditions, prevailing interest rate levels, and
financial, competitive, business and other factors, many of which are beyond
its control, as well as the availability of borrowings under the New Credit
Facility or successor facilities. However, based upon the current and
anticipated level of operations, the Company believes that its cash flow from
operations, together with amounts available under the New Credit Facility,
will be adequate to meet its anticipated cash requirements for working
capital, capital expenditures, interest payments and scheduled principal
payments. There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels. If the Company is
unable to generate sufficient cash flow from operations in the future to
service its indebtedness, it may be required to refinance all or a portion of
its indebtedness, including the Notes, or to obtain additional financing or to
dispose of material assets or operations. The New Credit Facility and the
Indenture restrict the Company's ability to sell assets and/or use the
proceeds therefrom. There can be no assurance that any such refinancing or
asset sales would be possible under the Company's debt instruments existing at
such time, that the proceeds which the Company could realize from such
refinancing or asset sales would be sufficient to meet the Company's
obligations then due or that any additional financing could be obtained.
RESTRICTIVE COVENANTS AND ASSET ENCUMBRANCES
The New Credit Facility and the Indenture contain numerous restrictive
covenants which limit the discretion of Company management with respect to
certain business matters. These covenants place significant restrictions on,
among other things, the ability of the Company to incur additional
indebtedness, to create liens or other encumbrances, to pay dividends or make
other restricted payments, to make investments, loans and guarantees and to
sell or otherwise dispose of a substantial portion of assets to, or merge or
consolidate with, another entity. The New Credit Facility also contains a
number of financial covenants that require the Company to meet certain
financial ratios and tests and provide that a "change of control" will
constitute an event of default. A failure to comply with the obligations
contained in the New Credit Facility or the Indenture, if not cured or waived,
could permit acceleration of the related indebtedness and acceleration of
indebtedness under other instruments that contain cross-acceleration or cross-
default provisions. In addition, the obligations of the Company under the New
Credit Facility are secured by substantially all of the assets of the Company.
In the case of an event of default under the New Credit Facility, the lenders
under the New Credit Facility are entitled to exercise the remedies available
to a secured lender under applicable law. If the Company were obligated to
repay all or a significant portion of its indebtedness, there can be no
assurance that the Company would have sufficient cash to do so or that the
Company could successfully refinance such indebtedness. Other indebtedness of
the Company that may be incurred in the future may contain financial or other
covenants more restrictive than those applicable to the New Credit Facility or
the Notes. See "Description of the Notes--Certain Covenants" and "Description
of New Credit Facility."
RISKS RELATED TO THE MERGER AND INTEGRATION OF DOSKOCIL AND DOGLOO
The Merger involved the combination of two companies that previously
operated independently. The assimilation of the companies may be difficult and
requires integration and coordination of the Company's product offerings,
management, systems, research and development, manufacturing and sales and
marketing efforts. The difficulties of such assimilation may be increased by
the necessity of coordinating geographically separated organizations,
consolidating manufacturing operations in Arlington, Texas, relocating and
integrating personnel and combining different corporate cultures. In addition,
the process of integrating the manufacturing, systems and other operations of
Dogloo and Doskocil requires substantial attention from management and could
cause the interruption of, or a loss of momentum in, the business activities
of the Company, which could have an adverse effect on the Company's financial
position, results of operations and cash flows. There can be no assurance that
the Company will retain its key personnel or that the research and
development, manufacturing and sales and marketing teams of Dogloo and
Doskocil will successfully cooperate to realize any benefits or that the
Company will realize any anticipated benefits from the Merger or the
Transactions as a whole. Accordingly,
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no assurance can be given that difficulties will not be encountered in
integrating the operations of Dogloo and Doskocil or that the efficiencies and
benefits expected from such integration will be realized. In addition, the
Merger could cause customers and potential customers of the Company to delay
or cancel orders for products as a result of customer concerns and uncertainty
over product evolution, integration and support of the combined Company's
products. Such a delay or cancellation of orders could have a material adverse
effect on the Company's financial position, business, operating results or
cash flows. The Company's future success will be dependent in part upon its
continued ability to recruit, motivate and retain qualified personnel. There
can be no assurance that the Company will be successful in this regard. See
"Management."
Consistent with its desire to be a focused pet products company, management
may consider the sale or other disposition, including a sale or distribution
to existing shareholders, of the Doskocil sporting goods and other products
line described in "Business--Products--Sporting Goods and Other Products."
This product line generated sales of approximately $24 million during 1996.
Any such sale or other disposition of this product line would be subject to
obtaining the consent of the Company's lenders under the New Credit Facility
and compliance with applicable Indenture covenants.
The Pro Forma Financial Data set forth in the "Prospectus Summary" and under
"Unaudited Pro Forma Condensed Financial Data" and management's estimates of
certain additional cost savings from the Merger are based upon a number of
assumptions and estimates that, while presented with numerical specificity and
considered reasonable by the Company when taken as a whole, are inherently
subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the control of the Company, and are
based upon assumptions with respect to future business decisions that are
subject to change. The Pro Forma Financial Data, and such other estimates of
management, assume that the Company will achieve certain cost savings and
operational efficiencies related to the Merger. Certain of the assumptions
underlying the Pro Forma Financial Data are described in more detail under
"Unaudited Pro Forma Condensed Financial Data." In addition, the Pro Forma
Financial Data exclude the effect of certain non-recurring costs relating to
the Merger and the Offering that will be expensed in 1997. Accordingly, the
Pro Forma Financial Data, and such other estimates by management, are only
estimates that are necessarily speculative in nature. It can be expected that
some or all of the assumptions of the Pro Forma Financial Data will not
materialize and that actual results will vary from the Pro Forma Financial
Data, which variations may be material. The Pro Forma Financial Data do not
purport to represent what the Company's results of operations actually would
have been if the Transactions had been consummated on the date indicated, or
what such results will be for any future date or for any future period.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The business and results of operations of the Company are seasonal. Dogloo's
business and results of operations are especially seasonal due to the
increased number of pet shelters sold during periods of inclement weather;
because retailers build inventories in anticipation of these periods, sales
are typically weighted towards the third and fourth quarters of each calendar
year. Doskocil's business and results of operations are also seasonal because
of the increased number of pet shelters sold during the third and fourth
quarters of each calendar year and because of the increased number of sporting
goods and certain other products sold in anticipation of the spring and summer
selling seasons. In order to finance these seasonal variations and resulting
inventory and receivable levels, Dogloo and Doskocil have both utilized
revolving lines of credit. The outstanding balances on the revolving lines of
credit have generally followed the seasonal cycle described above, increasing
until sales and the collection of receivables could be used to reduce the
outstanding balances on the lines. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." There can be no assurances,
however, that the Company will be able to finance seasonal variations in its
liquidity requirements.
DEPENDENCE ON RAW MATERIAL PRICING AND AVAILABILITY
The major raw materials used in the manufacturing of the Company's products
are various plastic resins and recycled plastic materials, including primarily
polypropylene and polyethylene and their derivatives. The plastic resins used
by the Company are produced from petrochemical intermediates which are, in
turn, derived
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from petroleum extracts. Plastic resin prices may fluctuate as a result of
worldwide changes in natural gas and crude oil prices and capacity, as well as
changes in supply and demand for resin and petrochemical intermediates from
which they are produced. Among other industries, the automotive and housing
industries are significant users of plastic resin. As a result, significant
changes in worldwide capacity and demand in these and other industries may
cause significant fluctuations in the prices of plastic resin. In the past,
Dogloo and Doskocil have had limited ability to increase product pricing in
response to plastic resin price increases. Any future increases in the prices
of plastic resins could have a material adverse effect on the Company's
financial position, results of operations and cash flows. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Raw Materials."
Significant increases in the prices of other raw materials used to
manufacture the Company's products could have a material adverse effect on the
Company's financial position, operating results, and cash flows. There can be
no assurance that severe shortages of raw materials will not occur in the
future that could increase the cost or delay the shipment of the Company's
products and have a material adverse effect on the Company's financial
position, operating results and cash flows.
TRADEMARK, PATENT AND PROPRIETARY INFORMATION
The Company's continuing success depends in part on its ability to protect
and maintain the proprietary nature of its products through a combination of
trademarks, patents, licenses and other proprietary arrangements. The Company
intends to protect vigorously the proprietary nature of its products; however,
monitoring and identifying unauthorized use of the Company's proprietary
rights may prove difficult. There can be no assurance that the Company's
pending trademark or patent applications will issue or that, if issued, or
licensed to the Company, they will be enforceable or will provide substantial
protection from competition or be of commercial benefit to the Company, or
that the Company will possess the financial resources necessary to enforce or
defend any of its trademark and patent rights. Neither can there be any
assurances that a third party will not violate, or attempt to invalidate, the
Company's proprietary rights, possibly forcing the Company to expend
substantial legal fees. Successful challenges to certain of the Company's
patents or trademarks, particularly the federal configuration trademark
relating to its igloo-shaped pet shelter, would materially adversely affect
its financial condition, business, operating results and cash flows. While
Dogloo has successfully relied upon this configuration trademark in the past,
there can be no assurance that the Company will again be successful in this
regard. Further, there can be no assurance that actions taken by the Company
to establish and protect its proprietary rights would be adequate to prevent
imitation of its products by others or to prevent others from seeking to block
sales of the Company's products as violative of the proprietary rights of
others. Moreover, there can be no assurance that third parties will not assert
infringement claims against the Company in the future. If any of the Company's
products are found to infringe upon patents or other third party rights, the
Company could be required to obtain a license to continue to manufacture or
market such products. There can be no assurance that licenses to such patent
rights would be made available to the Company on commercially reasonable
terms, if at all. If the Company does not obtain such licenses, it could
encounter delays while it attempts to redesign these products to avoid
infringement, or it could find that the manufacture or marketing of these
products is not possible. In addition, the laws of certain foreign countries
may not protect proprietary rights to the same extent as do the laws of the
United States.
COMPETITION, MARKET DATA AND THE ECONOMY
The Company's products are sold in highly competitive markets. In each of
its markets, the Company competes with a significant number of companies of
varying sizes on the basis of quality, price, availability and service.
Competitive pressures or other factors could cause the Company to lose market
share or could result in significant price erosion, either of which could have
a material adverse effect upon the Company's financial position, results of
operations and cash flows. Some of the Company's competitors have greater
financial and other resources than the Company and may consequently have more
operating flexibility and a greater ability to expand production capacity and
increase research and development expenditures.
The market data contained in this Prospectus is based on independent
industry publications or the good faith belief of the Company's management.
However, such market data cannot be verified with certainty due in part
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to the unavailability of raw data in certain circumstances and the voluntary
nature of the data-gathering process, and estimates may be incorrect, possibly
to a material degree. In particular, the Company is not aware of the
availability of reliable statistics with respect to specific pet and sporting
goods products. Therefore, management's estimates with respect to such
specific pet and sporting goods products are based only on the limited data in
the public domain and the Company's participation in the pet and sporting
goods industries. Accordingly, no assurance can be given as to the accuracy of
management's estimates. Holders of the Notes should not place undue emphasis
on the market data and predictions of future trends contained in the
Prospectus, as there can be no assurance that such data or predictions are
accurate in all material respects.
Sales of pet products can be dependent upon discretionary consumer spending,
which may be affected by general economic conditions, as well as continued
interest in pet ownership. A decrease in consumer spending on pet products or
a reduction in pet ownership could have an adverse effect on the Company's
financial position, business, operating results and cash flows.
INABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase. However, there can be no assurance that sufficient funds will be
available at the time of any Change of Control to make any required
repurchases of Notes tendered, or that restrictions in the New Credit Facility
or under the Company's debt instruments existing at such time will allow the
Company to make such required repurchases. Notwithstanding these provisions,
the Company could enter into certain transactions, including certain
recapitalizations, that would not constitute a Change of Control but would
increase the amount of debt outstanding at such time. See "Description of the
Notes--Certain Covenants--Repurchase of Notes at the Option of the Holder Upon
a Change of Control."
SUBORDINATION OF NOTES
The Old Notes are, and the New Notes will be, unsecured senior subordinated
obligations of the Company and, as such, are, and will be, respectively,
subordinated to all existing and future Senior Debt of the Company and its
subsidiaries, including borrowings under the New Credit Facility. The Old
Notes are, and the New Notes will also be effectively subordinated to all
secured indebtedness of either the Company or any of its subsidiaries to the
extent of the assets secured by such indebtedness. As of June 30, 1997, on a
pro forma basis after giving effect to the Transactions, the Company would
have had approximately $80.0 million of outstanding Senior Debt, all of which
would have been secured debt under the New Credit Facility. By reason of such
subordination, in the event of the insolvency, liquidation, reorganization,
dissolution or other winding-up of the Company or upon a default in payment
with respect to, or the acceleration of, any Senior Debt, the holders of such
Senior Debt and any other creditors of subsidiaries, if any, must be paid in
full before the holders of the Notes may be paid. Moreover, under certain
circumstances, if any non-payment default exists with respect to certain
Senior Debt, the Company may not make any payments on the Notes for a
specified time, unless such default is cured or waived, any acceleration of
such indebtedness has been rescinded or such indebtedness has been paid in
full. See "Description of the Notes--Subordination." If the Company incurs any
additional pari passu debt, the holders of such debt would be entitled to
share ratably with the holders of the Notes in any proceeds distributed in
connection with any insolvency, liquidation, reorganization, dissolution or
other winding-up of the Company. This may have the effect of reducing the
amount of such proceeds paid to holders of the Notes.
FRAUDULENT TRANSFER CONSIDERATIONS
As described under "Use of Proceeds," the net proceeds of the Offering were
used in part to repay the Bridge Notes and all amounts outstanding under the
Existing Credit Facility, which were incurred in connection with the
Recapitalization, and to redeem certain preferred and common stock of Doskocil
and certain preferred and common stock of Dogloo. The obligations of the
Company under the indebtedness represented by the Notes may be subject to
review under relevant federal and state fraudulent transfer laws, as well as
other similar laws regarding creditors rights generally or distributions to
shareholders, if a bankruptcy case or a lawsuit (including
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circumstances not involving bankruptcy) is commenced by or on behalf of any
unpaid creditor or a representative of the Company's creditors, such as a
trustee in bankruptcy or the Company as debtor in possession. If a court, in
such a lawsuit, were to find that the Company incurred the indebtedness
represented by the Bridge Notes, the Existing Credit Facility or the Notes (i)
with the intent to hinder, delay or defraud present or future creditors or
contemplated insolvency with a design to prefer one or more creditors to the
exclusion in whole or in part of others; or (ii) received less than a
reasonably equivalent value or fair consideration for any such indebtedness
and, at the time of such incurrence (a) was insolvent; (b) was rendered
insolvent by reason of such incurrence; (c) was engaged or about to engage in
a business or transaction for which its remaining assets constituted
unreasonably small capital to carry on its business; or (d) intended to incur,
or believed or reasonably should have believed that it would incur, debts
beyond its ability to pay such debts as they matured, such court could void
the obligations under the Notes, direct the return of any amounts paid
thereunder to the Company or to a fund for the benefit of its creditors,
subordinate such obligations to all other indebtedness of the relevant obligor
or take other action detrimental to the holders of the Notes. A court would
likely conclude that the Company did not receive reasonably equivalent value
or fair consideration for incurring its obligations under the Notes to the
extent that the proceeds of the Notes were used to refinance the Bridge Notes
and the Existing Credit Facility (each as defined below) and that the Bridge
Notes and the Existing Credit Facility were used to repurchase stock of
Doskocil or Dogloo, or that the proceeds of the Notes were used to repurchase
such stock.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair salable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured. There can be no assurance as to what standard a
court would apply in order to determine whether Doskocil was "insolvent" at
the time of the Recapitalization or to determine whether the Company was
insolvent at the time the Transactions, including the Offering, were
consummated. Further, there can be no assurance that, regardless of the method
of valuation, a court would not determine that Doskocil was insolvent at the
time of the Recapitalization or that a court would not determine that the
Company was insolvent at the time the Transactions, including the Offering,
were consummated.
CONTROLLING STOCKHOLDER
Westar owns approximately 70.9% of the outstanding shares of Doskocil Common
Stock. Shares of Doskocil Common Stock are the only outstanding class of
voting capital stock of the Company. As a result, Westar has the ability to
elect the board of directors of the Company, to approve or disapprove of other
matters requiring stockholder approval and to effectively control the affairs
and policies of the Company.
LACK OF PUBLIC MARKET FOR THE NOTES
The Old Notes were issued on September 19, 1997 to institutional investors
and are eligible for trading in the PORTAL Market, the National Association of
Securities Dealers' screen-based, automated market for trading of securities
eligible for resale under Rule 144A. To the extent that Old Notes are tendered
and accepted in the Exchange Offer, the trading market for the remaining
untendered Old Notes could be adversely affected. There is no existing trading
market for the New Notes, and there can be no assurance regarding the future
development of a market for the New Notes, or the ability of holders of the
New Notes to sell their New Notes or the price at which such holders may be
able to sell their New Notes. Although the Initial Purchasers have informed
the Company that they currently intend to make a market in the New Notes, they
are not obligated to do so and any such market making may be discontinued at
any time without notice. As a result, the market price of the New Notes could
be adversely affected.
The Company does not intend to apply to list the Old Notes or the New Notes
on any securities exchange or for quotation through the National Association
of Securities Dealers Automated Quotation System.
The liquidity of, and trading market for, the Notes also may be adversely
affected by general declines in the market for similar securities, regardless
of the Company's financial performance or prospects.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD SENIOR NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on , 1997; provided, however, that if the Company,
in its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, $85,000,000 aggregate principal amount of
the Old Notes were outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1997, to all holders of
Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to the conditions that
the Exchange Offer does not violate any applicable law, policy or
interpretation of the staff of the SEC.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the holders thereof as described below.
During any such extension, all Old Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by the Company.
Any Old Notes not accepted for exchange for any reason will be returned
without expense to the tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not therefore accepted for
exchange, upon the occurrence of any of the events specified below under "--
Conditions to the Exchange Offer." The Company will give oral or written
notice of any extension, amendment, non-acceptance or termination to the
holders of the Old Notes as promptly as practicable, such notice in the case
of any extension to be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to
tender Old Notes for exchange pursuant to the Exchange Offer must transmit
either (i) a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to First
Trust National Association, as Exchange Agent, at the address set forth below
under "--Exchange Agent" on or prior to the Expiration Date, or (ii) if such
Old Notes are tendered pursuant to the procedures for book-entry transfer set
forth below, a holder tendering Old Notes may transmit an Agent's Message (as
defined herein) to the Exchange Agent in lieu of the Letter of Transmittal, in
either case on or prior to the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, along with the Letter of Transmittal or an Agent's
Message, as the case may be, must be received by the Exchange Agent prior to
the Expiration Date, or (iii) the holder must comply with the guaranteed
delivery procedures described below. The term "Agent's Message" means a
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message, transmitted to the Book-Entry Transfer Facility and received by the
Exchange Agent and forming a part of the Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgement
from the tendering Participant (as defined herein) that such Participant has
received and agrees to be bound by the Letter of Transmittal and the Company
may enforce the Letter of Transmittal against such Participant. THE METHOD OF
DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL OR AGENT'S MESSAGE AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States (collectively,
"Eligible Institutions"). If Old Notes are registered in the name of a person
other than a signer of the Letter of Transmittal, the Old Notes surrendered
for exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by, the registered Holder with
the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities of the Exchange Offer as to any particular
Old Notes either before or after the Expiration Date. The interpretation of
the terms and conditions of the Exchange Offer as to any particular Old Notes
either before or after the Expiration Date (including the Letter of
Transmittal and the instructions thereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes for exchange must be cured within such
reasonable period of time as the Company shall determine. Neither the Company,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Old
Notes for exchange, nor shall any of them incur any liability for failure to
give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the
Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the holder, that neither the holder nor
such other person has any arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the New Notes, and that neither the holder nor such other person is an
"affiliate" of the Company within the meaning of Rule 405 of the Securities
Act (or that if it is such an affiliate, it will comply
24
<PAGE>
with the registration and prospectus delivery requirement of the Securities
Act to the extent applicable). In the case of a Holder that is not a broker-
dealer, each such holder, by tendering, will also represent to the Company
that such holder is not engaged in, or does not intend to engage in, a
distribution of the New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Senior Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes. See "Plan of Distribution."
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.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Conditions to the Exchange Offer." For purposes of the
Exchange Offer, the Company shall be deemed to have accepted properly tendered
Old Notes for exchange when, as and if the Company has given oral or written
notice thereof to the Exchange Agent, with written confirmation of any oral
notice to be given promptly thereafter.
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 from the most recent date to which
interest has been paid on the Old Notes, or if no interest has been paid on
the Old Notes, from September 19, 1997. Accordingly, if the relevant record
date for interest payment occurs after the consummation of the Exchange Offer,
registered Holders of New Notes on such record date will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid from September 19, 1997. If, however, the relevant
record date for interest payment occurs prior to the consummation of the
Exchange Offer, registered Holders of Old Notes on such record date will
receive interest accruing from the most recent date to which interest has been
paid, or if no interest has been paid, from September 19, 1997. Old Notes
accepted for exchange will cease to accrue interest from and after the date of
consummation of the Exchange Offer, except as set forth in the immediately
preceding sentence. Holders of Old Notes whose Old Notes are accepted for
exchange will not receive any payment in respect of interest on such Old Notes
otherwise payable on any interest payment date the record date for which
occurs on or after consummation of the Exchange Offer. If the Exchange Offer
is not consummated within the time period set forth herein under the heading
"Description of the Notes--Registration Rights; Liquidated Damages," special
interest in the form of Liquidated Damages will accrue and be payable on the
Old Notes until the Exchange Offer is consummated.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents or, in the case of a Book-Entry
Confirmation, an Agent's Message in lieu thereof. If any tendered Old Notes
are not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount
than the holder desired to exchange, such unaccepted or non-exchanged Old
Notes will be resumed without expense to the tendering holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
procedures described below, such non-exchanged Old Notes will be credited to
an account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may
25
<PAGE>
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 such 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 or facsimile thereof, with any required
signature guarantees, or an Agent's Message in lieu of a Letter of
Transmittal, and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at one of the addresses set
forth below under "--Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender Old Notes held by
such holder and such Old Notes are not immediately available, or time will not
permit such holder's Old Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent received from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by 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 three 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, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-
Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within three
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"--Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes
to be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "--Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
26
<PAGE>
CONDITIONS TO THE EXCHANGE OFFER
The Exchange Offer is not subject to any condition, other than that the
Exchange Offer does not violate any applicable law, policy or interpretation
of the staff of the SEC.
EXCHANGE AGENT
First Trust National Association has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent addressed as follows:
Delivery To: First Trust National Association, Exchange Agent
<TABLE>
<S> <C>
By Facsimile: By Mail, Overnight Courier or Hand:
(612) 244-1537 First Trust National Association
Confirm by Telephone: First Trust Center
(612) 244-8162 180 East Fifth Street
St. Paul, Minnesota 55101
Attn: David Haugen
Specialized Finance Corporate Trust
Department
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$ .
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of the exchange. Accordingly, no gain or loss for accounting purposes
will be recognized. The expenses of the Exchange Offer and the unamortized
expenses related to the issuance of the Old Notes will be amortized over the
term of the New Notes.
CONSEQUENCES OF EXCHANGING OLD NOTES
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 provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be
27
<PAGE>
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 Old Notes under the Securities Act. See
"Description of the Notes-- Registration Rights; Liquidated Damages." Based on
interpretations by the staff of the SEC, as set forth in no-action letters
issued to third parties, the Company believes that New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by holders thereof (other than any such holder
which is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holders' business and such holders
have no arrangement or understanding with any person to participate in the
distribution of such New Notes. However, the Company does not intend to
request the SEC to consider, and the SEC 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 SEC would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Each Holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of 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 the New Notes
to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely
on the applicable interpretations of the staff of the SEC and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." In addition, to comply with state securities laws, the New
Notes may not be offered or sold in any state unless they have been registered
or qualified for sale in such state or an exemption from registration or
qualification is available and is complied with. The Offer and sale of the New
Notes to "qualified institutional buyers" (as such term is defined under Rule
144A of the Securities Act) is generally exempt from registration or
qualification under the state securities laws. The Company currently does not
intend to register or qualify the sale of the New Notes in any state where an
exemption from registration or qualification is required and not available.
28
<PAGE>
THE DOSKOCIL RECAPITALIZATION
On July 1, 1997, pursuant to the terms of a recapitalization agreement dated
July 1, 1997 (the "Recapitalization Agreement"), the following Enterprise
entities collectively acquired control of Doskocil: Enterprise Partners III,
L.P., a Delaware limited partnership ("EPIII"), Enterprise Partners III
Associates, L.P., a Delaware limited partnership ("EPIIIA"), Enterprise
Partners IV, L.P., a Delaware limited partnership "EPIV"), Enterprise Partners
IV Associates, L.P., a Delaware limited partnership ("EPIVA"), and Enterprise
Management Partners Corporation, a California corporation ("EMPC" and,
together with EPIII, EPIIIA, EPIV and EPIVA, the "Enterprise Funds").
The following events and transactions, together with certain other events
and transactions, constituted the recapitalization (the "Recapitalization") of
Doskocil: (i) the Enterprise Funds purchased, indirectly and directly, all of
the general and limited partnership interests of the partnership which
formerly owned the Spectrum facility for approximately $11.0 million, net of
debt (the "Spectrum Purchase Amount"), and subsequently contributed such
partnership interests to Doskocil in exchange for 798,612 shares of Doskocil
common stock, no par value ("Doskocil Common Stock"); (ii) the Enterprise
Funds contributed $3.0 million to Doskocil in exchange for 199,654 shares of
Doskocil Common Stock and $23.0 million in exchange for 1,530,674 shares of
Doskocil Series A Preferred Stock, no par value ("Doskocil Series A Preferred
Stock"); (iii) Doskocil Funding, Inc. and NationsBridge, L.L.C. purchased an
aggregate of $32.5 million of senior subordinated increasing rate notes (the
"Bridge Notes") from Doskocil; (iv) NationsBank of Texas, N.A. ("NationsBank
of Texas") and DLJ Capital Funding, Inc. loaned an aggregate of $65.0 million
to Doskocil (the "Existing Credit Facility"); and (v) Doskocil purchased
5,666,145 shares of Doskocil Common Stock from Mr. Benjamin Doskocil, Sr. and
his spouse for approximately $87.4 million (the "Doskocil Purchase Amount,"
and together with the Spectrum Purchase Amount, the "Purchase Amount").
THE MERGER
Pursuant to the Merger Agreement, on September 19, 1997 Dogloo merged with
and into Doskocil, with Doskocil as the surviving corporation. Except as
described below, all of the outstanding shares of Dogloo common stock, no par
value ("Dogloo Common Stock"), Dogloo Series A Preferred Stock, no par value
("Dogloo Series A Preferred Stock") and Dogloo Series B Preferred Stock, no
par value ("Dogloo Series B Preferred Stock") were converted into,
respectively, shares of Doskocil Common Stock, Doskocil Series B Preferred
Stock, no par value ("Doskocil Series B Preferred Stock") and Doskocil Series
C Preferred Stock, no par value ("Doskocil Series C Preferred Stock"). The
outstanding shares of Dogloo Common Stock were converted into, in the
aggregate, 1,400,603 shares of Doskocil Common Stock. No certificates
representing fractional shares of Doskocil Common Stock were issued in the
Merger; rather, in lieu thereof, each stockholder of Dogloo otherwise entitled
to receive such a fractional share of Doskocil Common Stock received a cash
payment or a right thereto. Pursuant to the Merger Agreement, each issued and
outstanding share of Dogloo Series A Preferred Stock was converted into one
share of Doskocil Series B Preferred Stock and each issued and outstanding
share of Dogloo Series B Preferred Stock was converted into one share of
Doskocil Series C Preferred Stock. In connection with the Merger, except as
described below, all of the outstanding options to purchase shares of Dogloo
Common Stock were assumed by Doskocil and thereby become options to purchase
shares of Doskocil Common Stock, with adjustments to such options to reflect
the ratio into which shares of Dogloo Common Stock are converted into shares
of Doskocil Common Stock.
In connection with the Merger, Doskocil offered to purchase up to an
aggregate of 328,851 shares of Dogloo Common Stock for an aggregate price of
approximately $575,500 from shareholders of Dogloo other than the Investor
Group and Mr. Aurelio F. Barreto, III, the co-founder and former Chief
Executive Officer of Dogloo. In addition, Doskocil offered to cash out for
$0.41 per option all vested and unvested options of Dogloo employees who did
not continue with the Company after the Merger. All Dogloo employees who
continued with the Company had their options assumed by the Company and
therefore converted into options to purchase Doskocil Common Stock.
Immediately prior to the Merger Dogloo had 761,000 outstanding options to
purchase shares of
29
<PAGE>
Dogloo Common Stock. Shareholders of Dogloo Common Stock owning 23,148 shares
of Dogloo Common Stock (0.071% of the outstanding shares of Dogloo Common
Stock immediately prior to the Merger) are entitled to dissenter rights in
connection with the Merger and such shareholders who exercise such rights are,
in accordance with California law, entitled to receive in cash the fair market
value of their shares, excluding any appreciation or depreciation as a
consequence of the Merger.
Concurrent with the closing of the Merger, 1,064,816 shares of Doskocil
Series A Preferred Stock owned by EMPC were distributed by EMPC to Westar and
HBI to satisfy certain indebtedness of EMPC to Westar and HBI. Immediately
after such distribution, all such shares of Doskocil Series A Preferred Stock
owned by Westar and HBI were converted into 1,064,816 shares of Doskocil
Common Stock.
Concurrent with the closing of the Merger, the Company used proceeds of the
Offering and the New Credit Facility to redeem for $14.9 million (including
dividends accrued through September 19, 1997) 598,959 shares of Doskocil
Common Stock and 359,376 shares of Doskocil Series A Preferred Stock owned by
EMPC, and to redeem for $3.6 million 64,448 shares of Doskocil Common Stock
and 51,558 shares of Doskocil Series A Preferred Stock from EPIII, 5,604
shares of Doskocil Common Stock and 4,483 shares of Doskocil Series A
Preferred Stock from EPIIIA, 63,050 shares of Doskocil Common Stock and 47,917
shares of Doskocil Series A Preferred Stock from EPIV, and 2,524 shares of
Doskocil Series A Preferred Stock from EPIVA.
Immediately following the Merger, the Company also used proceeds from the
Offering and the New Credit Facility to redeem the following additional shares
of Doskocil Series B Preferred Stock and Doskocil Series C Preferred Stock (i)
6,890,000 shares of Doskocil Series B Preferred Stock held by Mr. Barreto for
$8.4 million (including dividends accrued through September 19, 1997); (ii)
3,334,255 shares of Doskocil Series B Preferred Stock held by Darrell R.
Paxman, co-founder of Dogloo, for $4.0 million (including dividends accrued
through September 19, 1997); (iii) 495,358 shares of Doskocil Series C
Preferred Stock held by EPIII for $594,158 (including dividends accrued
through September 19, 1997); (iv) 43,075 shares of Doskocil Series C Preferred
Stock held by EPIIIA for $727,567 (including dividends accrued through
September 19, 1997); and (v) 2,141,260 shares of Doskocil Series C Preferred
Stock held by Mr. Barreto for $2.6 million (including dividends accrued
through September 19, 1997). Further, immediately following the Merger, the
Company paid approximately $1.5 million of accrued dividends on the shares of
Doskocil Series C Preferred Stock which remain outstanding.
In connection with the conversion and redemption of shares of Doskocil
Series A Preferred Stock, the Company borrowed $469,000 under the New Credit
Facility to pay cumulative dividends on such shares of Doskocil Series A
Preferred Stock as of the date of the Merger.
Currently, the Company has 3,064,379 shares of Doskocil Common Stock
outstanding and 9,161,567 shares of Doskocil Series C Preferred Stock
outstanding. No shares of Doskocil Series A Preferred Stock or Doskocil Series
B Preferred Stock are outstanding.
After giving effect to the Transactions, the Investor Group will have
invested a total of $20.0 million in cash equity and the Investor group and
other shareholders of Dogloo will have contributed Dogloo common and preferred
equity with a value of $30.1 million, based on the same valuation method used
in the Recapitalization. In addition, Benjamin C. Doskocil, Sr., will also
have retained approximately 10.9% of the outstanding shares of Doskocil Common
Stock after giving effect to the Transactions.
30
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds to the Company from the issuance of the Old Notes of approximately
$82.4 million (after deducting the estimated discounts to the Initial
Purchasers), together with proceeds from the New Credit Facility and existing
cash, were used in connection with the Transactions to repay the Bridge Notes
and the Existing Credit Facility to redeem certain shares of Doskocil Common
Stock and Doskocil preferred stock, no par value ("Doskocil Preferred Stock")
(as described in "The Merger") and to pay related fees and expenses. The
following table sets forth the approximate sources and uses of funds in the
Transactions.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
CASH SOURCES OF FUNDS:
New Credit Facility(/1/):
Revolving Credit Facility(/2/)...................... $ 3,000
Senior Term A....................................... 45,000
Senior Term B....................................... 37,500
Senior Subordinated Notes offered hereby.............. 85,000
Existing cash......................................... 1,886
--------
172,386
NON-CASH SOURCES OF FUNDS:
Conversion of Dogloo Common Stock into Doskocil Common
Stock(/3/)........................................... 21,210
Conversion of Dogloo Series B Preferred Stock for
Doskocil Series C Preferred Stock (shares that will
not be redeemed as part of the Transactions)......... 9,162
Retention of Doskocil Common Stock by Doskocil common
stockholders......................................... 25,000
--------
Total sources of funds.............................. $227,758
========
CASH USES OF FUNDS:
Refinance Existing Credit Facility.................... $ 65,316
Refinance Bridge Notes(/4/)........................... 33,355
Refinance Dogloo Debt(/5/)............................ 34,135
Redeem Doskocil Common Stock.......................... 11,000
Redeem Doskocil Series A Preferred Stock(/6/)......... 7,469
Redeem Doskocil Series B Preferred Stock (formerly
Dogloo Series A Preferred Stock)(/7/)................ 12,390
Redeem Doskocil Series C Preferred (formerly Dogloo
Series B Preferred Stock)(/8/)....................... 5,041
Payment of accrued dividends on Doskocil Series C
Preferred Stock not redeemed(/8/).................... 1,576
Fees and Expenses paid at the time of the closing of
the Transactions(/8/)................................ 3,680
--------
172,386
NON-CASH USES OF FUNDS:
Conversion of Dogloo Common Stock into Doskocil Common
Stock(/3/)........................................... 21,210
Conversion of Dogloo Series B Preferred Stock for
Doskocil Series C Preferred Stock (shares that will
not be redeemed as part of the Transactions)......... 9,162
Retention of Doskocil Common Stock by Doskocil Common
Stockholders......................................... 25,000
--------
Total uses of funds................................. $227,758
========
</TABLE>
- ---------------------
(1) See "Description of New Credit Facility."
(2) Does not give effect to an aggregate amount of approximately $729,650 that
may be borrowed under the New Credit Facility to satisfy (i) Doskocil's
offer in connection with the Merger to purchase up to an aggregate of
328,851 shares of Dogloo Common Stock from shareholders of Dogloo other
than the Investor Group and Mr. Aurelio F. Barreto, III, and (ii)
Doskocil's offer in connection with the Merger to cash out up to an
estimated 361,000 options to purchase shares of Dogloo Common Stock held
by certain Dogloo employees who are not expected to continue with the
Company.
(3) Includes up to an aggregate of 328,851 shares of Dogloo Common Stock which
Doskocil offered to purchase from shareholders of Dogloo other than the
Investor Group and Mr. Barreto.
(4) Includes approximately $855,000 of accrued interest.
(5) Of this amount, approximately $786,240 represented outstanding loans from
Westar to Dogloo, including accrued interest thereon.
(6) Includes $469,000 in cumulative dividends on shares of Doskocil Series A
Preferred Stock that were paid on the date of the Merger.
(7) Included accrued dividends through the date of the Merger.
(8) Includes a $450,000 transaction advisory fee agreed by Dogloo to be paid
to Westar as part of the 1995 Dogloo recapitalization.
31
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
on a pro forma basis giving effect to the Transactions as if they had occurred
on June 30, 1997. This table should be read in conjunction with "Doskocil
Selected Historical Financial Data," "Dogloo Selected Historical Financial
Data," and "Unaudited Pro Forma Condensed Financial Data" included elsewhere
in this Prospectus. For a description of the capital stock of the Company, see
"Capital Stock of the Company." The Company is currently indebted under the
New Credit Facility and the Notes. See "Description of New Credit Facility"
and "Description of the Notes."
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, 1997
(IN THOUSANDS)
<S> <C>
Revolving Credit Facility............................... $ 3,000 (/1/)
Senior Debt--Term A..................................... 45,000
Senior Debt--Term B..................................... 37,500
Senior Subordinated Notes............................... 85,000
--------
Total Debt............................................ 170,500
Preferred Stock......................................... 8,890
Common Stock............................................ 34,015
Retained earnings (deficit)............................. (61,123)
--------
Total Capitalization.................................. $152,282
========
</TABLE>
- --------
(1) Does not give effect to an aggregate amount of approximately $729,650 that
may be borrowed under the New Credit Facility to satisfy (i) Doskocil's
offer in connection with the Merger to purchase up to an aggregate of
328,851 shares of Dogloo Common Stock from shareholders of Dogloo other
than the Investor Group and Mr. Aurelio F. Barreto, III, and (ii)
Doskocil's offer in connection with the Merger to cash out up to an
estimated 361,000 options to purchase shares of Dogloo Common Stock held
by certain Dogloo employees who are not expected to continue with the
Company. See "The Merger."
PRO FORMA CONDENSED FINANCIAL DATA
The following unaudited pro forma condensed financial data (the "Pro Forma
Financial Data") have been derived by the application of pro forma adjustments
to the historical financial statements. The pro forma income statement data
for the periods presented give effect to the Transactions as if they had
occurred as of January 1, 1996. The pro forma balance sheet data give effect
to the Transactions as if they had occurred as of June 30, 1997. The
adjustments are described in the accompanying notes. The Pro Forma Financial
Data do not purport to represent what the Company's results of operations or
financial position actually would have been if the Transactions had been
consummated on the date indicated, or what such results will be for any future
date or for any future period. The Pro Forma Financial Data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements and the
notes thereto included elsewhere in this Prospectus.
The pro forma adjustments were applied to the respective historical
financial statements to reflect and account for the Merger as a purchase.
Under purchase accounting, the respective purchase cost will be allocated to
acquired assets and liabilities based on their relative fair values as of the
closing of the Merger based on valuations and other studies which are not yet
complete. Furthermore, the aggregate purchase price is subject to adjustment
as set forth in the Merger Agreement. See "The Merger." Accordingly, the
excess of the purchase cost over the fair value of the net assets acquired
(goodwill) has not been allocated to individual assets and liabilities.
32
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
LATEST TWELVE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
DOSKOCIL DOGLOO ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales.......................... $103,474 $57,209 $160,683
Costs of goods sold................ 74,172 36,661 $(7,593)A 103,240
-------- ------- --------
Gross profit..................... 29,302 20,548 57,443
Selling, general & administrative
expenses.......................... 20,740 14,118 (2,768)B 32,090
Writedown of equipment to be
disposed.......................... 3,846 -- 3,846
-------- ------- --------
Operating income................... 4,716 6,430 21,507
Other (income) expense:
Officer and retention bonuses.... 4,052 -- (4,052)C --
Interest expense, net............ 897 3,452 10,964 D 15,313
Amortization..................... -- -- 2,305 E 2,305
Other, net....................... 630 (11) 619
-------- ------- --------
Total other (income) expense... 5,579 3,441 18,237
-------- ------- --------
Pre tax income (loss).............. (863) 2,989 3,270
Provision (benefit) for income
taxes............................. -- 1,040 889 F 1,929
-------- ------- --------
Net income (loss).................. $ (863) $ 1,949 $ 1,341
======== ======= ========
Pro forma net income per share..... -- -- -- I $ .14
Pro forma ratio of earnings to
fixed charges..................... -- -- -- G 1.2x
EBITDA(H).......................... $ 19,331 $10,173 $ 8,994 $ 38,498
</TABLE>
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
DOSKOCIL DOGLOO ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales.......................... $103,455 $56,519 $159,974
Costs of goods sold................ 73,128 37,886 $(7,939)A 103,075
-------- ------- --------
Gross profit..................... 30,327 18,633 56,899
Selling, general and administrative
expenses.......................... 20,682 12,008 (2,521)B 30,169
-------- ------- --------
Operating income................... 9,645 6,625 26,730
Other (income) expense:
Officer and retention bonuses.... 2,030 -- (2,030)C --
Interest expense, net............ 2,176 3,599 9,538 D 15,313
Amortization..................... -- -- 2,305 E 2,305
Other, net....................... 696 (35) 661
-------- ------- --------
Total other (income) expense... 4,902 3,564 18,279
-------- ------- --------
Pre tax income..................... 4,743 3,061 8,451
Provision (benefit) for income
taxes............................. -- 1,071 2,768 F 3,839
-------- ------- --------
Net income (loss).................. $ 4,743 $ 1,990 $ 4,612
======== ======= ========
Pro forma net income per share..... -- -- -- I $ 1.19
Pro forma ratio of earnings to
fixed charges..................... -- -- -- G 1.5x
EBITDA(H).......................... $ 17,848 $10,031 $ 9,310 $ 37,189
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Statements of
Operations.
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
DOSKOCIL DOGLOO ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales.......................... $51,756 $21,041 $72,797
Costs of goods sold................ 38,389 14,513 $(3,628)A 49,274
------- ------- -------
Gross profit..................... 13,367 6,528 23,523
Selling, general and administrative
expenses.......................... 10,446 6,697 (1,372)B 15,771
Writedown of equipment to be
disposed.......................... 3,846 -- 3,846
------- ------- -------
Operating income (loss)............ (925) (169) 3,906
Other (income) expense:
Officer and retention bonuses.... 2,875 -- (2,875)C --
Interest expense, net............ 471 1,594 5,591 D 7,656
Amortization..................... -- -- 1,152 E 1,152
Other, net....................... 5 (5) --
------- ------- -------
Total other (income) expense... 3,351 1,589 8,808
------- ------- -------
Pre tax income (loss).............. (4,276) (1,758) (4,902)
Provision (benefit) for income
taxes............................. -- (621) (797)F (1,418)
------- ------- -------
Net income (loss).................. $(4,276) $(1,137) $(3,484)
======= ======= =======
Pro forma net (loss) per share..... -- -- -- I $ (1.27)
Pro forma deficiency of earnings to
cover fixed charges............... -- -- -- G $ 4,902
EBITDA(H).......................... $ 9,501 $ 1,699 $ 4,304 $15,504
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
DOSKOCIL DOGLOO ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales.......................... $51,737 $20,351 $72,088
Costs of goods sold................ 37,345 15,738 $(3,974)A 49,109
------- ------- -------
Gross profit..................... 14,392 4,613 22,979
Selling, general and administrative
expenses.......................... 10,388 4,587 (1,125)B 13,850
------- ------- -------
Operating income................... 4,004 26 9,129
Other (income) expense:
Officer and retention bonuses.... 853 -- (853)C --
Interest expense, net............ 1,750 1,741 4,165 D 7,656
Amortization..................... -- -- 1,152 E 1,152
Other, net....................... 71 (29) 42
------- ------- -------
Total other (income) expense... 2,674 1,712 8,850
------- ------- -------
Pre tax income (loss).............. 1,330 (1,686) 279
Provision (benefit) for income
taxes............................. -- (590) 1,082 F 492
------- ------- -------
Net income (loss).................. $ 1,330 $(1,096) $ (213)
======= ======= =======
Pro forma net (loss) per share..... -- -- -- I $ (.22)
Pro forma ratio of earnings to
fixed charges..................... -- -- -- G 1.0x
EBITDA(H).......................... $ 8,018 $ 1,557 $ 4,619 $14,194
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Statements of
Operations.
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(A) The following summarizes the total adjustment to cost of sales:
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR LATEST TWELVE
ENDED JUNE 30, ENDED MONTHS ENDED
---------------- DECEMBER 31, JUNE 30,
1996 1997 1996 1997
------- ------- ------------ -------------
<S> <C> <C> <C> <C>
Reduction of resin costs(1).... $(1,350) $(1,350) $(2,699) $(2,699)
Elimination of manufacturing
expenses(2)................... (2,225) (1,820) (4,441) (4,036)
Operating leases(3)............ (399) (458) (799) (858)
------- ------- ------- -------
Total adjustment to cost of
sales....................... $(3,974) $(3,628) $(7,939) $(7,593)
======= ======= ======= =======
</TABLE>
---------------------
(1) Reduction of resin costs associated with the utilization of Spectrum
instead of external sources to satisfy Dogloo's resin needs.
(2) Elimination of duplicative manufacturing expenses directly associated
with the closure and relocation of Dogloo's Corona, California and
Indianapolis, Indiana operations.
(3) Elimination of amount estimated to represent interest on Doskocil's
equipment operating leases. Doskocil purchased the assets covered by
the leases as part of the Recapitalization and the related operating
leases were terminated.
(B) The following summarizes the total adjustment to SG&A:
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR LATEST TWELVE
ENDED JUNE 30, ENDED MONTHS ENDED
---------------- DECEMBER 31, JUNE 30,
1996 1997 1996 1997
------- ------- ------------ -------------
<S> <C> <C> <C> <C>
Elimination of SG&A
expenses(1)................... $(1,044) $(1,134) $(2,170) $(2,260)
Elimination of Dogloo debt
issuance costs(2)............. (81) (238) (351) (508)
------- ------- ------- -------
Total adjustment to SG&A..... $(1,125) $(1,372) $(2,521) $(2,768)
======= ======= ======= =======
</TABLE>
---------------------
(1) Elimination of duplicative selling, general and administrative costs
directly associated with the closure and relocation of Dogloo's Corona,
California and Indianapolis, Indiana operations.
(2) Elimination of the amortization of Dogloo's debt issuance costs as the
related debt will be refinanced as part of the Transactions.
(C) The following summarizes the elimination of certain bonuses:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEAR LATEST TWELVE
JUNE 30, ENDED MONTHS ENDED
-------------- DECEMBER 31, JUNE 30,
1996 1997 1996 1997
----- ------- ------------ -------------
<S> <C> <C> <C> <C>
Elimination of bonuses(1)......... $(853) $(2,875) $(2,030) $(4,052)
===== ======= ======= =======
</TABLE>
---------------------
(1) Elimination of officer's bonus consisting of amounts paid to Doskocil's
former owner, a portion of which was intended to compensate the owner
for personal tax liability associated with taxable income arising from
Doskocil's Subchapter S earnings. Also includes elimination of
retention bonuses paid by Doskocil upon the completion of the
Recapitalization.
35
<PAGE>
(D) The following summarizes the total interest adjustment:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEAR LATEST TWELVE
JUNE 30, ENDED MONTHS ENDED
-------------- DECEMBER 31, JUNE 30,
1996 1997 1996 1997
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
Interest on New Credit
Facility(1)...................... $7,656 $7,656 $15,313 $15,313
Interest on Existing Credit
Facility(2)...................... (3,491) (2,065) (5,775) (4,349)
------ ------ ------- -------
Total interest adjustment....... $4,165 $5,591 $ 9,538 $10,964
====== ====== ======= =======
</TABLE>
- --------
(1) Interest expense associated with the New Credit Facility and the Notes.
(2) Elimination of the interest expense associated with the Existing Credit
Facility which will be repaid in full in connection with the Transactions.
(E) The following summarizes the amortization of goodwill and other costs
arising from the Transactions:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEAR LATEST TWELVE
JUNE 30, ENDED MONTHS ENDED
------------- DECEMBER 31, JUNE 30,
1996 1997 1996 1997
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
Amortization......................... $1,152 $1,152 $2,305 $2,305
====== ====== ====== ======
</TABLE>
(F) The following summarizes the adjustment of provision (benefit) for income
taxes:
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR LATEST TWELVE
JUNE 30, ENDED MONTHS ENDED
----------------- DECEMBER 31, JUNE 30,
1996 1997 1996 1997
-------- -------- ------------ -------------
<S> <C> <C> <C> <C>
Adjustment of provision
(benefit) for income taxes... $ 1,082 $ (797) $2,768 $889
======== ======= ====== ====
</TABLE>
(G) For the purposes of defining the pro forma ratio of earnings to fixed
charges and the pro forma deficiency of earnings to cover fixed charges,
earnings are defined as pretax income (loss) plus fixed charges. Fixed
charges consist of interest expense on all indebtedness plus one-third of
rental expense, deemed to be representative of that portion of rental
expense estimated to be attributable to interest.
(H) The term EBITDA as used herein means the sum of operating income plus (i)
depreciation and amortization, (ii) operating lease expense related to
capital assets repurchased from operating lessors, (iii) impairment of
molds, tools and dies, (iv) unusual inventory write-offs, (v) unusual
reserves for workers' compensation, (vi) non-recurring write-offs of
intangible assets and the write-offs of certain development costs for
abandoned projects, (vii) non-recurring settlement costs and (viii)
management fees and other expenses. 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 generally accepted accounting principles, 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. EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs and there can be no assurance
that costs similar to certain of the costs added back to operating income
as part of EBITDA will not be incurred again in the future. EBITDA is
included herein because management believes that certain investors find it
to be a useful tool for measuring the ability to service debt.
(I) Pro forma income (loss) per common share is based on the common shares of
Doskocil outstanding after the acquisition of Dogloo, 3,064,379, divided
into net income as reduced by preferred stock dividend requirements of
$916 for the years ended June 30, 1997 and December 31, 1996 and $458 for
the six month periods ended June 30, 1997 and 1996.
36
<PAGE>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
DOSKOCIL
PRO FORMA PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS AFTER HISTORICAL ADJUSTMENTS COMPANY
DOSKOCIL FOR RECAPITALIZATION RECAPITALIZATION DOGLOO FOR MERGER PRO FORMA
---------- -------------------- ---------------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................. $ 2,066 $ 359 $ 2,425 $ 508 $ 3,256 $ 6,189
Accounts receivable... 14,585 -- 14,585 5,211 -- 19,796
Other accounts
receivable........... 131 -- 131 48 -- 179
Inventories........... 16,484 -- 16,484 6,847 -- 23,331
Other current assets.. 92 -- 92 1,008 -- 1,100
Deferred income taxes. -- 2,392 A 2,392 590 -- 2,982
------- -------- -------- -------- -------- --------
Total current assets. 33,358 2,751 36,109 14,212 3,256 53,577
Property, plant and
equipment, net........ 16,904 18,655 B 35,559 25,441 (4,784)AA 56,216
Goodwill............... -- 7,197 A 7,197 -- 43,928 BB 51,125
Other intangibles...... -- 4,403 D 4,403 -- 4,000 GG 8,403
Deferred income taxes.. -- -- -- 875 2,991 BB 3,866
Assets held for sale... -- -- -- -- 3,500 AA 3,500
Prepaid and other
assets................ 417 -- 417 1,889 (741)BB 1,565
------- -------- -------- -------- -------- --------
Total assets......... $50,679 $ 33,006 $ 83,685 $ 42,417 $ 52,150 $178,252
======= ======== ======== ======== ======== ========
LIABILITIES AND EQUITY
(DEFICIT)
Current liabilities:
Accounts payable...... $ 3,235 $ -- $ 3,235 $ 4,575 $ -- $ 7,810
Accrued expenses...... 2,733 2,233 H 4,966 1,960 -- 6,926
Line of credit........ 7,250 (7,250)C -- 7,516 (4,516)CC 3,000
Current portion of
debt................. 1,712 (1,712)C -- 9,610 (9,610)CC --
Other current
liabilities.......... 6 (6)B -- -- 7,172 BB 7,172
------- -------- -------- -------- -------- --------
Total current
liabilities......... 14,936 (6,735) 8,201 23,661 (6,954) 24,908
Long term debt......... 6,590 90,910 C 97,500 12,916 57,084 CC 167,500
Deferred income taxes.. -- 4,062 A 4,062 -- -- 4,062
Other liabilities...... 63 (63)B -- -- -- --
------- -------- -------- -------- -------- --------
Total liabilities.... 21,589 88,174 109,763 36,577 50,130 196,470
Series B Preferred
Stock--Doskocil....... -- -- -- -- -- DD --
Series A Preferred
Stock--Dogloo......... -- -- -- 10,462 (10,462)DD --
EQUITY (DEFICIT)
Partners' equity....... 3,808 (3,808)E -- -- -- --
Series A Preferred
Stock--Doskocil....... -- 23,000 F 23,000 -- (23,000)EE --
Series C Preferred
Stock--Doskocil....... -- -- -- -- 8,890 HH 8,890
Series B Preferred
Stock--Dogloo......... -- -- -- 9,700 (9,700)HH --
Common Stock--Doskocil. 24 7,781 G 7,805 -- 26,210 FF 34,015
Common Stock--Dogloo... -- -- -- 5,250 (5,250)BB --
Paid-in capital........ -- -- -- -- -- --
Retained earnings
(deficit)............. 25,258 (82,141)A (56,883) (19,572) 15,332 BB (61,123)
------- -------- -------- -------- -------- --------
Total equity
(deficit)........... 29,090 (55,168) (26,078) (4,622) 12,482 (18,218)
------- -------- -------- -------- -------- --------
Total liabilities &
equity (deficit).... $50,679 $ 33,006 $ 83,685 $ 42,417 $ 52,150 $178,252
======= ======== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Balance Sheet.
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
(A) Redemption of Doskocil Common Stock in excess of par value..... $(86,113)
Accrual of adjustment to redemption amount for the redemption of
5,666,145 shares of Doskocil Common Stock from Benjamin L.
Doskocil, Sr. and his spouse.................................... (1,264)
Prepayment charges associated with the repayment of Doskocil
debt............................................................ (291)
Excess of purchase price of Spectrum over net assets acquired.... 7,197
Deferred taxes from Doskocil's conversion from a Subchapter S
corporation to a C corporation:
Asset.......................................................... 2,392
Liability...................................................... (4,062)
--------
Adjustment to retained earnings.............................. $(82,141)
========
</TABLE>
(B) Doskocil held certain equipment pursuant to operating leases. Doskocil
terminated theseleases as part of the Recapitalization, thereby
reacquiring the assets covered by the leases,as follows:
<TABLE>
<S> <C>
Lease terminations............................................. $ 18,724
Reversal of current portion of deferred gain................... (6)
Reversal of non-current portion of deferred gain............... (63)
--------
Adjustment to property plant and equipment................... $ 18,655
========
(C) As part of the Recapitalization, all of Doskocil's debt was refinanced, as
follows:
Repayment of Doskocil debt:
Line of credit............................................... $ (7,250)
========
Current portion.............................................. $ (1,712)
========
Long-term portion............................................ $ (6,590)
Existing Credit Facility....................................... 65,000
Bridge Notes................................................... 32,500
--------
Total Adjustment to long-term debt........................... $ 90,910
========
(D) Fees and expenses associated with the Recapitalization were capitalized,
as follows:
Fees and expenses paid at closing.............................. $ 3,403
Fees and expenses paid after closing........................... 1,000
--------
Adjustment to intangible assets.............................. $ 4,403
========
(E) Repayment of Spectrum debt included in Note (C) above.......... $ 995
Contribution of partnership interests in Spectrum to Doskocil.... (4,803)
--------
Adjustment to partners equity................................ $ (3,808)
========
(F) Issuance of 1,530,674 shares of Doskocil Series A Preferred
Stock............................................................. $ 23,000
========
(G) Redemption of 5,666,145 shares of Doskocil Common Stock from
Benjamin L. Doskocil, Sr. and his spouse...................... $(86,135)
Less redemption amount in excess of par value charged to retained
earnings........................................................ 86,113
--------
Par value of Doskocil Common Stock redeemed.................... (22)
Purchase of 199,654 shares of Doskocil Common Stock by
Enterprise.................................................... 3,000
Contribution of Spectrum partnership interests discussed in
Note E above.................................................. 4,803
--------
Adjustment to Doskocil Common Stock.......................... $ 7,781
========
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
(H) Expenses accrued at closing were as follows, net of payments:
Fees and expenses paid after closing........................... $ 1,000
Accrual of adjustment to redemption amount for the redemption
of 5,666,145 shares of Doskocil Common Stock from Benjamin L.
Doskocil, Sr. and his spouse.................................. 1,264
Accrued interest on existing debt paid at closing.............. (31)
--------
Adjustments to accrued expenses.............................. $ 2,233
========
(AA) Reclassification of Dogloo's Indianapolis facility to assets
held for sale, as follows:
Net book value of facility..................................... $ 4,784
Reserve for loss on the disposal of the facility............... (1,284)
--------
Adjustment to assets held for sale........................... $ 3,500
========
(BB) Pursuant to the Merger Agreement and subject to adjustment for the cash
purchase of certain shares of Dogloo Common Stock, 32,542,148
outstanding shares of Dogloo Common Stock were converted into 1,400,603
shares of Doskocil Common Stock. Additionally, all of the 10,600,000
shares of Dogloo Series A Preferred Stock and 11,841,000 shares of
Dogloo Series B Preferred Stock were converted into shares of Doskocil
Series B Preferred Stock and shares of Doskocil Series C Preferred
Stock, respectively, on a one-for-one basis. The carrying value of the
shares of Dogloo Series A Preferred Stock and shares of Dogloo Series B
Preferred Stock converted was $10,462 and $9,700, respectively.
The purchase price and preliminary allocation of the excess of purchase
price over the net
assets acquired is as follows:
Value of Doskocil Common Stock issued in exchange for Dogloo
Common Stock.................................................. $ 21,210
Accrual of costs associated with the closing and relocation of
facilities.................................................... 7,172
Reserve for loss on disposal of Dogloo's Indianapolis facility. 1,284
Less portion allocated to deferred tax assets.................. (2,991)
Write-off of Dogloo debt issuance costs........................ 741
Dogloo accumulated deficit, net of dividends on shares of
Doskocil Series C Preferred Stock, Formerly Dogloo Series B
Preferred..................................................... 15,332
Dogloo Common Stock............................................ (5,250)
Accrual of dividend arrearage and acceleration of accretion on
shares of Doskocil Series B Preferred Stock, formerly shares
of Dogloo Series A Preferred Stock............................ 2,190
Redemption of Doskocil Series C Preferred Stock with no
carrying value................................................ 2,141
Accrual of dividends on Doskocil Series C Preferred Stock...... 2,099
--------
Excess of purchase price over net assets acquired (Goodwill). $ 43,928
========
(CC) As part of the Merger, all of Dogloo's, and part of
Doskocil's, debt was refinanced, as follows:
Repayment of Dogloo long term debt............................. $(12,916)
Repayment of Bridge Notes...................................... (32,500)
Issuance of the Notes.......................................... 85,000
Long term borrowings under the New Credit Facility............. 82,500
Repayment of the Existing Doskocil Credit Facility............. (65,000)
--------
Adjustment to long term debt................................. 57,084
New revolving credit facility.................................. 3,000
Repayment of Dogloo Line of Credit............................. (7,516)
--------
(4,516)
Repayment of current portion of Dogloo term debt............... (9,610)
--------
Net adjustment to debt..................................... $ 42,958
========
</TABLE>
39
<PAGE>
(DD) Redemption of shares of Doskocil Series B Preferred Stock issued in
exchange for shares of Dogloo Series A Preferred Stock, as follows:
<TABLE>
<S> <C>
Book value of shares of Doskocil Series B Preferred Stock....... $ 10,462
Acceleration of the accretion of mandatory redemption of shares
of Doskocil Series B Preferred Stock............................ 2,190
--------
Proceeds to holders of shares of Doskocil Series B Preferred
Stock....................................................... $ 12,652
========
(EE) The Company purchased for cash 465,858 shares of Doskocil
Series A Preferred Stock.......................................... $ (7,000)
The remaining 1,064,816 shares of Doskocil Series A Preferred
Stock were converted into 1,064,816 shares of Doskocil Common
Stock......................................................... (16,000)
--------
Adjustment to Doskocil Series A Preferred Stock.............. $(23,000)
========
(FF) The Company redeemed for cash 732,061 shares of Doskocil
Common Stock...................................................... $(11,000)
Conversion of 1,064,816 shares of Doskocil Series A Preferred
Stock into 1,064,816 shares of Doskocil Common Stock......... 16,000
Implied valuation of Doskocil Common Stock issued in exchange
for Dogloo Common Stock......................................... 21,210
--------
Adjustment to Doskocil Common Stock.......................... $ 26,210
========
(GG) Estimated fees and expenses incurred in connection with the
Transactions...................................................... $ 4,000
========
(HH) Shares of Dogloo Series B Preferred Stock converted into
shares of Doskocil Series C Preferred Stock.................. $ 9,700
Carrying value of shares of Doskocil Series C Preferred Stock
redeemed .................................................... (810)
--------
Remaining shares of Doskocil Series C Preferred Stock........ $ 8,890
========
Redemption of 2,950,947 shares of Doskocil Series C Preferred
Stock, as follows:
Carrying value of shares redeemed............................. 810
Redemption of shares with no carrying value................... 2,141
Accrual and payment of dividend arrearage..................... 2,099
--------
Total........................................................ $ 5,050
========
</TABLE>
40
<PAGE>
DOSKOCIL SELECTED HISTORICAL FINANCIAL DATA
The following selected historical combined financial data were derived in
part from, and should be read in conjunction with, the historical combined
financial statements of Doskocil and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus(/1/). The historical combined financial
statements of Doskocil as of December 31, 1992 through 1996 and for each of
the years ended December 31, 1992 through 1996, and for the six month period
ended June 30, 1997 have been audited. The historical combined financial
statements of Doskocil as of and for the six month period ended June 30, 1996
are unaudited. In order to match the combined Company's fiscal year reporting
with its seasonality, the Company has changed its fiscal year end to June 30.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Seasonality."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ----------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $63,651 $74,325 $92,267 $97,496 $103,455 $51,737 $51,756
Cost of goods sold...... 40,121 47,537 62,485 71,552 73,128 37,345 38,389
------- ------- ------- ------- -------- ------- -------
Gross profit............ 23,530 26,788 29,782 25,944 30,327 14,392 13,367
Selling, general and
administrative
expenses............... 14,278 17,518 20,675 20,733 20,682 10,388 10,446
Write down of equipment
to be disposed......... -- -- -- -- -- -- 3,846
------- ------- ------- ------- -------- ------- -------
Total operating
expenses............... 14,278 17,518 20,675 20,733 20,682 10,388 14,292
------- ------- ------- ------- -------- ------- -------
Operating income
(loss)................. 9,252 9,270 9,107 5,211 9,645 4,004 (925)
Other (income) expenses:
Retention bonuses(2).... -- -- -- -- -- -- 2,875
Officer's bonus(3)...... 7,829 6,303 4,378 -- 2,030 853 --
Interest expense, net... 246 240 822 2,456 2,176 1,750 471
Litigation expense(4)... -- -- -- 2,106 -- -- --
Other, net.............. (859) (215) (44) (541) 696 71 5
------- ------- ------- ------- -------- ------- -------
Total other (income)
expense................ 7,216 6,328 5,156 4,021 4,902 2,674 3,351
------- ------- ------- ------- -------- ------- -------
Net income (loss)....... $ 2,036 $ 2,942 $ 3,951 $ 1,190 $ 4,743 $ 1,330 $(4,276)
======= ======= ======= ======= ======== ======= =======
Pro forma net income
(loss)
per share (Unaudited
1992-1996)............. $ .96 $ 1.39 $ 1.78 $ .56 $ 2.25 $ .63 $ (2.02)
======= ======= ======= ======= ======== ======= =======
OTHER DATA:
EBITDA(5)............... $11,812 $12,313 $13,689 $11,409 $ 17,848 $ 8,018 $ 9,501
EBITDA margin........... 18.6% 16.6% 14.9% 11.8% 17.2% 15.5% 18.3%
Capital expenditures.... $ 4,707 $ 6,796 $11,474 $19,156 $ 4,129 $ 2,740 $ 971
Depreciation and
amortization........... 2,559 2,963 4,283 5,545 5,928 2,877 2,857
BALANCE SHEET DATA:
Fixed assets, net(6).... $14,209 $17,306 $28,350 $28,078 $ 22,566 $28,019 $16,904
Total assets............ 32,586 40,524 58,663 72,876 66,135 70,431 50,679
Net working capital(7).. 12,401 14,963 20,501 31,899 25,743 29,208 25,318
Equity.................. 23,469 26,411 30,462 31,148 35,638 32,225 29,090
</TABLE>
(See Notes on following page)
41
<PAGE>
(Notes to table on previous page)
- --------
(1) Doskocil elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code ("IRC") from January 1, 1988 until the
Recapitalization, effective July 1, 1997. This election allowed for
federal income taxation at the shareholder level rather than at the
corporate level. Prior to the Recapitalization, Spectrum operated as
Spectrum Polymers, Ltd., a Texas limited partnership, which was owned by
Benjamin L. Doskocil, Sr. and his spouse. The financial data set forth
herein combines the historical financial statements of Doskocil and
Spectrum. Further, in 1993, Doskocil acquired the assets of Contico,
Inc.'s pet products division, and, in 1994, Doskocil acquired the assets
of a sporting goods product line from Ekco Canada, Inc. and Ekco Group,
Inc. These acquisitions were accounted for using the purchase method and
accordingly, the operating results of the acquired operations have been
included in Doskocil's combined financial statements since the dates of
the respective acquisitions.
(2) Retention bonuses consist of amounts paid to certain Doskocil employees at
the time of the Recapitalization.
(3) Officer's bonus consists of amounts paid to one of Doskocil's
shareholders, a portion of which was intended to compensate both of the
shareholders for their personal tax liability associated with taxable
income arising from Doskocil's Subchapter S earnings.
(4) During 1995, Doskocil settled a patent infringement lawsuit initiated by
Dogloo involving Dogloo's federal configuration trademark for its igloo-
shaped pet shelters. Doskocil incurred legal costs during 1995 of
$2.1 million in connection with this case.
(5) The term EBITDA as used herein means the sum of operating income plus (i)
depreciation and amortization, (ii) operating lease expense related to
capital assets repurchased from operating lessors, (iii) impairment of
molds, tools and dies, (iv) unusual inventory write-offs, (v) unusual
reserves for workers' compensation, (vi) non-recurring write-offs of
intangible assets and the write-offs of certain development costs for
abandoned projects, (vii) non-recurring settlement costs and (viii)
management fees and other expenses. 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 generally accepted accounting principles, 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. EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs and there can be no assurance
that costs similar to certain of the costs added back to operating income
as part of EBITDA will not be incurred again in the future. EBITDA is
included herein because management believes that certain investors find it
to be a useful tool for measuring the ability to service debt.
(6) Fixed assets excludes assets sold and leased back under operating leases.
Assets with a net book value of $14.1 million and $3.9 million were sold
and leased back in December 1995 and 1996, respectively.
(7) Net working capital is current assets, excluding cash, less current
liabilities, excluding current portion of long-term debt and lines of
credit.
42
<PAGE>
DOGLOO SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data were derived in part from,
and should be read in conjunction with, the historical financial statements of
Dogloo and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus(/1/). The historical financial statements of Dogloo as of and for
the years ended December 31, 1993 through December 31, 1996 have been audited.
The historical financial statements of Dogloo as of and for each of the six
month periods ended June 30, 1996 and June 30, 1997 are unaudited.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- ------------------
1993 1994 1995 1996 1996 1997
------- ------- -------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $30,766 $44,267 $ 51,520 $56,519 $ 20,351 $ 21,041
Cost of goods sold...... 18,979 30,177 40,222 37,886 15,738 14,513
------- ------- -------- ------- -------- --------
Gross profit............ 11,787 14,090 11,298 18,633 4,613 6,528
Selling, general and
administrative
expenses............... 8,358 11,470 13,680 12,008 4,587 6,697
Impairment of molds,
tools and dies......... -- -- 1,891 -- -- --
------- ------- -------- ------- -------- --------
Total operating
expenses............... 8,358 11,470 15,571 12,008 4,587 6,697
------- ------- -------- ------- -------- --------
Operating income (loss). 3,429 2,620 (4,273) 6,625 26 (169)
Other (income) expenses:
Interest expense, net... 231 1,229 7,027 3,599 1,741 1,594
Other, net.............. (25) 35 199 (35) (29) (5)
------- ------- -------- ------- -------- --------
Total other (income)
expense................ 206 1,264 7,226 3,564 1,712 1,589
------- ------- -------- ------- -------- --------
Pretax income (loss).... 3,223 1,356 (11,499) 3,061 (1,686) (1,758)
Income tax provision
(benefit).............. 82 34 (1,896) 1,071 (590) (621)
------- ------- -------- ------- -------- --------
Net income (loss)....... $ 3,141 $ 1,322 $ (9,603) $ 1,990 $ (1,096) $ (1,137)
======= ======= ======== ======= ======== ========
OTHER DATA:
EBITDA(2)............... $ 3,771 $ 3,679 $ 1,597 $10,031 $ 1,557 $ 1,699
EBITDA margin........... 12.3% 8.3% 3.1% 17.7% 7.7% 8.1%
Capital expenditures(3). $ 5,450 $16,621 $ 9,130 $ 1,000 $ 266 $ 911
Depreciation and
amortization........... 342 1,059 2,303 3,067 1,424 1,718
BALANCE SHEET DATA:
Fixed assets, net....... $ 6,926 $22,557 $ 27,547 $25,948 $ 26,355 $ 25,441
Total assets............ 19,995 39,364 47,250 42,438 42,895 42,417
Net working capital(4).. 5,110 9,577 9,644 8,455 6,516 7,169
Shareholders' equity
(deficit).............. 7,186 7,682 (2,517) (2,470) (4,534) (4,622)
</TABLE>
(See Notes on following page)
43
<PAGE>
(Notes to table on previous page)
- --------
(1) Dogloo elected to be taxed under the provisions of Subchapter S of the IRC
from July 1, 1992 through September 21, 1995. This election allowed for
federal income taxation at the shareholder level rather than at the
corporate level.
(2) The term EBITDA as used herein means the sum of operating income plus (i)
depreciation and amortization, (ii) operating lease expense related to
capital assets repurchased from operating lessors, (iii) impairment of
molds, tools and dies, (iv) unusual inventory write-offs, (v) unusual
reserves for workers' compensation, (vi) non-recurring write-offs of
intangible assets and the write-offs of certain development costs for
abandoned projects, (vii) non-recurring settlement costs and (viii)
management fees and other expenses. 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 generally accepted accounting principles, 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. EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs and there can be no assurance
that costs similar to certain of the costs added back to operating income
as part of EBITDA will not be incurred again in the future. EBITDA is
included herein because management believes that certain investors find it
to be a useful tool for measuring the ability to service debt.
(3) Capital expenditures in years 1993, 1994 and 1995 include $1,645, $8,355
and $2,500, respectively for capital leases incurred for the acquisition
of machinery and equipment.
(4) Net working capital is current assets, excluding cash, less current
liabilities, excluding current portion of debt, lines of credit, and
capital lease obligations.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "Unaudited Pro Forma
Condensed Financial Data" and the historical combined financial statements of
Doskocil and historical financial statements of Dogloo and the related notes
thereto included elsewhere in this Prospectus.
OVERVIEW
Doskocil began manufacturing wooden and wire pet carriers in the early
1960s. In 1972, Doskocil purchased its first injection molding machine and
began manufacturing plastic pet carriers, quickly becoming the primary
supplier to the domestic airline market. Subsequently, Doskocil expanded into
the portable firearms case market and became a principal supplier of both pet
carriers and firearms cases to the airline industry. Building on its success
with the airline industry (which is now a small component of the Company's
overall business) and using the flexibility of the injection molding
manufacturing process, Doskocil began to target the consumer market directly
in the mid-70s. From a base of $4.0 million in sales in 1977, Doskocil
experienced growth for a ten-year period with sales increasing at a compound
annual rate of over 23% per annum through 1987. From 1988 to 1994, sales grew
at a compound annual rate of over 14% annually, increasing from $41.9 million
to $92.3 million, driven in part by expansion of Doskocil's product offerings.
In 1993, Doskocil acquired the pet products division (consisting primarily of
pet carriers and pet shelters) of Contico, Inc. through an asset purchase. In
1994, Doskocil purchased the Woodstream product line, consisting primarily of
firearms cases and fishing products, from Ekco Canada, Inc. and Ekco Group,
Inc. During the period from 1994 to 1996, Doskocil's net sales and operating
income increased in total amount by 12.1% and 5.9%, respectively.
During 1993 to 1995, Doskocil invested a portion of its new product
development budget in the rapidly growing pet shelter segment to compete with
Dogloo. In 1995, Dogloo filed a lawsuit against Doskocil to enjoin
infringement of its federal configuration trademark on its igloo-shaped pet
shelters. Dogloo subsequently obtained a preliminary injunction prohibiting
Doskocil from manufacturing and selling a confusingly similar product in the
United States. In settlement of this litigation, Doskocil agreed to entry of a
permanent injunction against Doskocil from selling dome-shaped pet shelters
once its then existing inventory of such pet shelters was sold. Doskocil's
litigation expenses totalled $2.1 million in 1995, while Dogloo incurred
approximately $1.0 million in legal fees. Accordingly, Doskocil's pet shelter
sales declined 15.6% in 1995, and a significant portion of Doskocil's new
product development dollars spent during the 1993 to 1995 period did little to
generate new product sales in 1995 and 1996. Management believes that
Doskocil's inability to offer the dome-shaped pet shelters negatively affected
sales of its other pet shelter models because many retailers prefer buying an
entire product line from a single manufacturer.
Beginning in 1993 and continuing through 1995, Doskocil invested heavily in
future growth by constructing the Spectrum facility, purchasing new molding
machines, and leasing a new distribution facility adjacent to its
manufacturing facilities. During this period, Doskocil's margins were
adversely affected by this buildup in capacity, creating fixed costs which
were not fully absorbed by Doskocil's volume in 1995 and, to a lesser extent,
1996. The total investments in plant and equipment in 1995 and 1996 were $19.2
million and $4.1 million, respectively. As discussed below, increases in resin
prices in 1995 also affected Doskocil's results, though management believes
that the Spectrum operations reduced the impact of these price increases.
Operating results subsequently improved in 1996 as a result of reduced resin
prices and increased absorption of the new capacity added during 1994 and
1995.
Dogloo designed and produced the first igloo-shaped pet shelters in 1987,
initially marketing to local pet retailers in Southern California. Throughout
the next four years, Dogloo increased its product offerings by building
various sizes of the igloo-shaped pet shelter and adding additional designs to
its product line. Distribution was expanded in 1989 when the first sales were
made to Sam's Club and national distribution of Dogloo products began. Dogloo
continued to focus on new product development, using unaffiliated vendors
45
<PAGE>
to manufacture its products. Prior to 1993, Dogloo offered only one line of
pet shelters and outsourced all production. Due to production supply problems
experienced by Dogloo's suppliers in 1992 and 1993, Dogloo management decided
to begin manufacturing structural foam products. Accordingly, Dogloo began to
manufacture and distribute its own products in 1994 in a new facility it
constructed in Indianapolis, Indiana. Dogloo purchased five structural foam
molding machines in order to commence manufacturing operations. The
distribution facility was later expanded with the addition of approximately
108,000 square feet and a sixth structural foam molding machine. The
cumulative total investment in plant and equipment at the Indianapolis
facility at December 31, 1994 and 1995 was $12.0 million and $17.5 million,
respectively. These investments were principally related to the manufacturing
of pet shelters, as Dogloo also introduced a pet carrier line in 1994 whose
production was and continues to be outsourced.
In 1995, Dogloo encountered growth-related financial difficulties caused
primarily by a combination of (i) start-up problems at the new Indianapolis
facility which caused unfavorable product cost variances, (ii) outsourced
manufacturing problems related to Dogloo's new pet carrier line, (iii) a
business which had grown beyond the capabilities of its then-existing
infrastructure and organizational controls, (iv) increased service
requirements on debt, and (v) an increased number of unusual expenditures,
including expansion of the Indianapolis facility, installation of a new
information system, and the incurrence of significant legal fees associated
with Dogloo's lawsuit against Doskocil, which was settled in 1995. In
September 1995, Westar acquired control of Dogloo through a recapitalization.
Westar changed numerous management procedures and practices, replaced or added
two senior managers and actively mentored Dogloo's co-founder and Chief
Executive Officer. As discussed below, Dogloo's operating results improved
from EBITDA (as defined herein) of $1.6 million in 1995 to $10.0 million in
1996. Key elements of the improvement included (i) the reduction and control
of sales returns and allowances, (ii) the elimination of excessive
manufacturer's profit on outsourced pet carriers, (iii) a substantial increase
in manufacturing efficiency, (iv) a reduction in inter-company freight costs,
and (v) a shift in product mix toward higher-margin products.
In addition to the factors described above, both companies were affected by
a five-year high in resin prices in 1995. Market prices of polypropylene
("PP") resin increased from an average price of $0.35 per pound in 1994 to
$0.50 per pound in 1995, while high-density polyethylene ("HDPE") market
prices increased from $0.32 per pound in 1994 to $0.41 cents per pound in
1995. Doskocil sought to mitigate its exposure to the increased resin prices
through utilization of its Spectrum facility, which became fully operational
in mid-1995; Spectrum's average cost for PP resin increased only $0.07 per
pound from 1994 to 1995. During this time period, Dogloo took more limited
steps to reduce its exposure to the fluctuations in HDPE resin prices by
making short-term volume commitments with its principal supplier. Thus, while
both companies attempted to reduce their exposure to the increased resin
prices, gross margins were adversely affected. During 1996, market resin
prices decreased as new industry capacity came on-line, declining from a high
of $0.50 for PP and $0.41 for HDPE in 1995 to $0.44 and $0.37 respectively, at
the end of 1996.
Management expects the consolidation of the two companies' operations to
result in substantial cost-savings over time. The Company will seek to utilize
Doskocil's existing production and distribution capacity and the combined
Company's complementary strengths to substantially reduce the manufacturing
and operating expenses of the combined entity. Following the Merger, the
Company intends to close Dogloo's administrative and manufacturing facilities
and centralize those operations at Doskocil's Arlington, Texas facility,
thereby eliminating redundant expenses and spreading higher production volumes
over a relatively fixed cost base. Upon complete integration of the two
companies, management estimates approximately $17.5 million in annualized cost
savings resulting from the combination of Doskocil and Dogloo. While the pro
forma annual cost savings for the twelve months ended June 30, 1997 are
estimated to be $9.0 million, management believes that additional annual cost
savings estimated to be approximately $8.5 million can be achieved over time.
To achieve these cost savings, the Company intends to focus on:
(i) consolidating production and distribution facilities to Doskocil's campus
in Arlington, Texas; (ii) utilizing Doskocil's vertically integrated resin
operation for the production of Dogloo's pet shelters and carriers;
(iii) transferring production of Dogloo's carrier line to Doskocil's
production facilities (the production is currently outsourced);
(iv) rationalizing the administration, sales and marketing
46
<PAGE>
overheads of the two companies; and (v) benefiting from the Company's
increased purchasing power of new materials and supplies as a larger combined
entity. There can be no assurance that the cost savings discussed here and
elsewhere will be realized or that there will not be significant delays in
achieving such cost savings. See "Risk Factors."
In order to achieve certain of these potential cost savings, management
estimates that it will be necessary in the next year to spend a net amount of
approximately $9.0 million for unusual capital expenditures and costs, net of
approximately $4.0 million of net proceeds from the sale of the Indianapolis
facility. The unusual capital expenditures are necessary for, among other
uses, (i) the construction of a new manufacturing facility in Arlington to
house Dogloo's and other production equipment; (ii) certain enhancements to
Doskocil's existing distribution center; (iii) the costs of moving and rigging
Dogloo's production equipment; (iv) and other items such as systems
integration. Unusual costs relate primarily to employee termination and
relocation costs and other costs such as the temporary carrying costs of
vacated facilities.
DOSKOCIL
GENERAL
The following discussion provides an assessment of the combined results of
operations for Doskocil during the period from 1994 to 1996 and a comparison
of such results of operations for the six months ended June 30, 1997 and the
six months ended June 30, 1996. Doskocil elected to be taxed under the
provisions of Subchapter S of the IRC from January 1, 1988 until the
Recapitalization, effective July 1, 1997. This election allowed for federal
income taxation at the shareholder level rather than at the corporate level.
During this period, an officer's bonus was paid to one of the shareholders, a
portion of which was intended to compensate both of the shareholders for their
personal tax liability associated with taxable income arising from Doskocil's
Subchapter S earnings.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, operating results
in thousands of dollars and expressed as a percentage of sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- ------------- -------------- ------------- --------------
$ % $ % $ % $ % $ %
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pet products sales...... $64,762 70.2% $69,389 71.2% $ 72,692 70.3% $34,732 67.1% $35,838 69.2%
Sporting goods and
other.................. 25,639 27.9 23,772 24.4 23,589 22.8 12,245 23.7 13,346 25.8
Custom molding.......... 1,795 1.9 3,741 3.8 4,761 4.6 4,262 8.2 -- --
Outside resin sales..... 71 -- 594 0.6 2,413 2.3 498 1.0 2,572 5.0
------- ----- ------- ----- -------- ----- ------- ----- ------- -----
Net sales.............. 92,267 100.0 97,496 100.0 103,455 100.0 51,737 100.0 51,756 100.0
Costs of goods sold..... 62,485 67.7 71,552 73.4 73,128 70.7 37,345 72.2 38,389 74.2
------- ----- ------- ----- -------- ----- ------- ----- ------- -----
Gross profit............ 29,782 32.3 25,944 26.6 30,327 29.3 14,392 27.8 13,367 25.8
Selling, general and
administration
expenses............... 20,675 22.4 20,733 21.3 20,682 20.0 10,388 20.1 10,446 20.2
Write down of equipment
to be disposed......... -- -- -- -- -- -- -- -- 3,846 7.4
------- ----- ------- ----- -------- ----- ------- ----- ------- -----
Operating income (loss). 9,107 9.9 5,211 5.3 9,645 9.3 4,004 7.7 (925) (1.8)
Adjustments:
Write off of equipment
to be sold(1).......... -- -- -- -- -- -- -- -- 3,846 7.4
Operating leases:(2)
Income effect.......... 149 0.2 149 0.2 799 0.8 400 0.8 459 0.9
Depreciation effect.... 150 0.2 150 0.2 1,476 1.4 737 1.4 936 1.8
Non-cash write-offs(3).. -- -- -- -- -- -- -- -- 2,328 4.5
Dogloo litigation(4).... -- -- 354 0.4 -- -- -- -- -- --
Depreciation and
amortization(5) 4,283 4.6 5,545 5.7 5,928 5.7 2,877 5.6 2,857 5.5
------- ----- ------- ----- -------- ----- ------- ----- ------- -----
EBITDA(6).............. $13,689 14.9% $11,409 11.8% $ 17,848 17.2% $ 8,018 15.5% $ 9,501 18.3%
======= ===== ======= ===== ======== ===== ======= ===== ======= =====
</TABLE>
(See Notes on following page)
47
<PAGE>
(Notes to table on previous page)
- ---------------------
(1) Management decided to discontinue the production of resin furniture which
had sales of $0.2 million and $1.6 million for 1995 and 1996,
respectively, and $1.6 million and $2.3 million for the six months ended
1996 and six months ended 1997, respectively.
(2) As part of the Recapitalization, equipment was repurchased by Doskocil
from operating lessors for $18.7 million. Adjustments reflect this
transaction as if it had been effected at the beginning of the periods
shown, by adding back operating lease payments made. These payments have
been allocated between income and depreciation, as if the assets had been
owned by Doskocil and depreciated pursuant to its accounting policies.
(3) As discussed below, these adjustments were recorded primarily to increase
reserves for inventory and workers' compensation liabilities.
(4) Write-off of dome-shaped pet shelter inventory following settlement of
Dogloo infringement lawsuit.
(5) Excludes depreciation associated with equipment repurchased from operating
lessors.
(6) The term EBITDA as used herein means the sum of operating income plus (i)
depreciation and amortization, (ii) operating lease expense related to
capital assets repurchased from operating lessors, (iii) impairment of
molds, tools and dies, (iv) unusual inventory write-offs, (v) unusual
reserves for workers' compensation, (vi) non-recurring write-offs of
intangible assets and the write-offs of certain development costs for
abandoned projects, (vii) non-recurring settlement costs and (viii)
management fees and other expenses. 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 generally accepted accounting principles, 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. EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs and there can be no assurance
that costs similar to certain of the costs added back to operating income
as part of EBITDA will not be incurred again in the future. EBITDA is
included herein because management believes that certain investors find it
to be a useful tool for measuring the ability to service debt.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net Sales. Net sales were essentially unchanged for the six months ended
June 30, 1997 as compared to the comparable period in 1996. This was largely
due to the absence of custom molding sales in the first six months of 1997,
compared to $4.3 million of custom molding sales in the comparable period for
1996. Doskocil's custom molding operations were reduced as management decided
to terminate a large custom molding contract with unacceptable margins. Thus,
excluding custom molding, the Company's net sales in its core business
increased approximately 9.0%, or $4.3 million, to $51.8 million for the first
six months of 1997, compared to $47.5 million for its core business in 1996.
Pet products sales increased $1.1 million, or 3.2%, to $35.8 million for the
six months ended June 30, 1997 from $34.7 million for the six months ended
June 30, 1996. Pet products sales increased despite temporary inventory
reduction programs by certain major customers. Sporting goods and other sales
increased by $1.1 million, or 9.0%, to $13.3 million. Resin furniture sales, a
low margin product line now discontinued, represented $0.7 million of this
sales increase.
Gross Profit. Gross profit decreased to $13.4 million for the six months
ended June 30, 1997 from $14.4 million for the comparable period in 1996, a
decrease of $1.0 million or 7.1%. As a percentage of net sales, gross margin
decreased to 25.8% from 27.8%. Gross profit for the first six months of 1997
was adversely affected by a charge of $1.9 million for the write-off of
inventory and workers' compensation reserves. Excluding these charges, the
gross profit would have been $15.3 million, or 29.6% of net sales, due to a
shift in product mix to higher margin products and a reduction in resin costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") remained essentially flat at $10.4 million
for the period ended June 30, 1997. As a percentage of net sales, SG&A
increased to 20.2% from 20.1%.
Depreciation and Amortization. Depreciation and amortization remained
approximately the same for the periods ended June 30, 1997 and 1996.
EBITDA. EBITDA (as defined herein) increased to $9.5 million for the six
months ended June 30, 1997 as compared to $8.0 million for the comparable
period in 1996, an increase of $1.5 million or 18.5%. As a percentage of
sales, EBITDA margin increased from 15.5% to 18.3%.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales increased to $103.5 million in 1996 from $97.5 million
in 1995, an increase of $6.0 million or 6.1%. Pet products sales increased to
$72.7 million in 1996 from $69.4 million in 1995, an
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<PAGE>
increase of $3.3 million or 4.8%. This increase in sales was attributable in
part to the introduction of a new line of pet shelters, significant growth in
sales of cat toys and houses, and the full year's effect of a price increase
taken in late 1995. These factors were partially offset by an inventory
realignment by a large customer, resulting in the cancellation of a
significant number of pet products orders. Sporting goods and other sales
decreased by $0.2 million, or 0.8%, to $23.6 million. This decrease was
primarily caused by lower sales of firearm cases, due to overall market
softness in this category. Custom molding sales increased to $4.8 million in
1996 from $3.7 million in 1995, an increase of $1.1 million or 27.3% as a
result of the growth in sales to a large custom molder. Outside resin sales
totaled $2.4 million in 1996, the first full year for this line of business
compared to $0.6 million in 1995.
Gross Profit. Gross profit increased to $30.3 million in 1996 from $25.9
million in 1995, an increase of $4.4 million or 16.9%. As a percentage of net
sales, gross margin increased to 29.3% in 1996 from 26.6% in 1995. Gross
profit in 1996 was adversely affected by an increase in operating lease
payments as the result of the sales of equipment in December 1995 pursuant to
an operating lease. This increase in gross margin was primarily the result of
increased capacity utilization, lower resin prices and the full year's effect
of a price increase taken in late 1995. These factors were partially offset by
higher overhead costs relating to additional capacity purchased in the prior
year.
Selling, General and Administrative Expenses. SG&A remained essentially flat
at $20.7 million in 1996. As a percentage of net sales, SG&A decreased to
20.0% in 1996 from 21.3% in 1995.
Depreciation and Amortization. Depreciation and amortization increased by
$0.4 million to $5.9 million for the year ended December 31, 1996 from $5.5
million for the year ended December 31, 1995.
EBITDA. EBITDA (as defined herein) increased to $17.8 million for 1996 as
compared to $11.4 million in 1995, an increase of $6.4 million or 56.4% for
the reasons discussed above. As a percentage of sales, EBITDA margin increased
from 11.8% to 17.2%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales increased to $97.5 million in 1995 from $92.3 million
in 1994, an increase of $5.2 million or 5.7%. Sales of pet products increased
to $69.4 million in 1995 from $64.8 million in 1994, an increase of $4.6
million or 7.1%. This increase was primarily due to the introduction of new
products and generally strong demand for Doskocil's products. The increase was
offset by the trademark infringement lawsuit initiated by Dogloo which
resulted in a preliminary injunction prohibiting Doskocil from manufacturing
and selling dome-shaped pet shelters. Management believes that Doskocil's
inability to offer the dome-shaped pet shelters negatively affected sales of
its other pet shelter models because many retailers prefer buying an entire
product line from a single manufacturer. Separate from this, Dogloo introduced
a competing line of pet carriers, which management believes decreased
Doskocil's pet carrier sales. Sporting goods and other sales decreased by $1.9
million, or 7.3%, to $23.8 million. This was primarily attributable to a
decrease in firearm cases, as compared to unusually high sales levels in 1994,
when consumers bought high levels of firearms (and firearm cases) in
anticipation of new federal legislation regulating ownership. Custom molding
sales increased to $3.7 million in 1995 from $1.8 million in 1994, an increase
of $1.9 million or 108.4%.
Gross Profit. Gross profit decreased to $25.9 million in 1995 from $29.8
million in 1994, a decrease of $3.9 million or 12.9%. As a percentage of net
sales, gross margin decreased to 26.6% in 1995 from 32.3% in 1994. Gross
profit in 1995 was adversely affected by an increase in resin prices. In
addition, gross profit was affected by an increase in factory overhead
associated with the cost of facilities expansion at both Doskocil and Spectrum
and the construction of a new 450,000 square foot warehouse and distribution
center. Gross profit in 1995 was also adversely affected by an unusual charge
of $0.4 million for the write-off of dome-shaped pet shelter inventory
following settlement of the Dogloo infringement lawsuit.
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<PAGE>
Selling, General and Administrative Expenses. SG&A remained essentially flat
at $20.7 million in 1995. As a percentage of net sales, SG&A decreased to
21.3% in 1995 from 22.4% in 1994.
Depreciation and Amortization. Depreciation and amortization increased by
$1.3 million, reflecting high levels of capital expenditures in 1994 and 1995
incurred to add manufacturing and distribution capacity, including the
Spectrum facility.
EBITDA. For the reasons discussed above, EBITDA (as defined herein)
decreased to $11.4 million in 1995 as compared to $13.7 million in 1994, a
decrease of $2.3 million or 16.7%. As a percentage of sales, EBITDA margin
decreased from 14.9% to 11.8%.
DOGLOO
GENERAL
The following discussion provides an assessment of the results of operations
of Dogloo during the period from 1994 to 1996 and a comparison of the six
months ended June 30, 1997 to the six months ended June 30, 1996.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, operating results
in thousands of dollars and expressed as a percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- -------------- ------------- ------------- --------------
$ % $ % $ % $ % $ %
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pet product sales....... $44,005 99.4% $50,258 97.6% $53,315 94.3% $18,511 91.0% $18,492 87.9%
Custom molding.......... 262 0.6 1,262 2.4 3,204 5.7 1,840 9.0 2,549 12.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Net sales............... 44,267 100.0% 51,520 100.0% 56,519 100.0% 20,351 100.0% 21,041 100.0%
Costs of goods sold..... 30,177 68.2 40,222 78.1 37,886 67.0 15,738 77.3 14,513 69.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit............ 14,090 31.8 11,298 21.9 18,633 33.0 4,613 22.7 6,528 31.0
SG&A.................... 11,470 25.9 13,680 26.5 12,008 21.3 4,587 22.5 6,697 31.8
Impairment of molds,
tools and dies......... -- -- 1,891 3.7 -- -- -- -- -- --
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating income (loss). 2,620 5.9 (4,273) (8.3) 6,625 11.7 26 0.2 (169) (0.8)
Adjustments:
Writeoff and impairment
of certain assets(1)... -- -- 3,567 6.9 -- -- -- -- -- --
Management fees and
other(2)............... -- -- -- -- 204 0.4 102 0.5 150 0.7
Settlement costs(3)..... -- -- -- -- 135 0.2 5 -- -- --
Depreciation and
amortization........... 1,059 2.4 2,303 4.5 3,067 5.4 1,424 7.0 1,718 8.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
EBITDA(4).............. $ 3,679 8.3% $ 1,597 3.1% $10,031 17.7% $ 1,557 7.7% $ 1,699 8.1%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- --------
(1) Write off and impairment of certain assets includes impairment of molds,
tools and dies no longer used of $1,891, write off of abandoned product
development costs, deposits and disputed items with vendors of $700, write
off of intangible assets of $594 and a provision for obsolete and slow
moving inventory of $382.
(2) Management fees from Westar and other expenses.
(3) Settlement costs related to the cessation of employment of an executive.
(4) The term EBITDA as used herein means the sum of operating income plus (i)
depreciation and amortization, (ii) operating lease expense related to
capital assets repurchased from operating lessors, (iii) impairment of
molds, tools and dies, (iv) unusual inventory write-offs, (v) unusual
reserves for workers' compensation, (vi) non-recurring write-offs of
intangible assets and the write-offs of certain development costs for
abandoned projects, (vii) non-recurring settlement costs and (viii)
management fees and other expenses. 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 generally accepted accounting principles, 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. EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs and there can be no assurance
that costs similar to certain of the costs added back to operating income
as part of EBITDA will not be incurred again in the future. EBITDA is
included herein because management believes that certain investors find it
to be a useful tool for measuring the ability to service debt.
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SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net Sales. Net sales increased to $21.0 million for the six month period
ended June 30, 1997 from $20.4 million for the comparable period in 1996, an
increase of $0.7 million or 3.4%. Net pet products sales remained essentially
flat for the six months ended June 30, 1997 compared to the six months ended
June 30, 1996. There were, however, several changes in the composition of net
pet products sales including a decline of $1.0 million in pet shelter sales, a
decline of $1.1 million in pet bedding sales, and a decline of $0.5 million in
bowl sales. These decreases were offset by an increase in feeding and watering
products sales of $1.2 million, an increase in carrier sales of $0.9 million
and a reduction in sales returns and allowances of $0.5 million. The declines
in pet shelter and bedding sales in the first six months of 1997 were
attributable to two main factors: (i) warehouse clubs changed their inventory
strategy and began stocking these items only in the second half of the year as
seasonal products; and (ii) a major pet specialty superstore chain
significantly increased purchases of these products in December 1996, thereby
reducing its purchases in the first and second quarters of 1997. This retailer
has since resumed a more normalized purchasing pattern. The reduction in bowl
sales was the result of management's decision to de-emphasize this low-margin
product line in 1997. Feeding and watering products were introduced in 1997
and the increase in carrier sales was the result of increased sales to pet
superstores in 1997. Custom molding sales increased $0.7 million in 1997 to
$2.5 million from $1.8 million in 1996. This increase resulted from more
efficient manufacturing processes and the resulting availability of machine
time to manufacture products for others.
Gross Profit. Gross profit increased to $6.5 million for the six months
ended June 30, 1997 from $4.6 million for the six months ended June 30, 1996,
an increase of $1.9 million or 41.5%. As a percentage of sales, gross margin
increased to 31.0% from 22.7%. The improvement in the gross margin percentage
was the result of an improvement in pet carrier margin, the elimination of a
substantial portion of a lower margin segment of bowl sales in 1997, a
reduction in sales returns and allowances and higher utilization of the
manufacturing plant.
Selling, General, and Administrative Expenses. SG&A increased to $6.7
million for the six months ended June 30, 1997 from $4.6 million for the six
months ended June 30, 1996, an increase of $2.1 million or 46.0%. The increase
was the result of several factors, including an increase in freight expense to
customers, increased salaries related to expansion of the sales, marketing and
management staff, an increase in marketing and promotional spending and
additional costs associated with the Indianapolis facility.
Depreciation and Amortization. Depreciation and amortization increased to
$1.7 million for the six months ended June 30, 1997 from $1.4 million for the
six months ended June 30, 1996, an increase of $0.3 million or 20.6%. The
increase was the result of normal depreciation recorded on assets acquired in
the second half of 1996, principally tooling.
EBITDA. EBITDA (as defined herein) increased to $1.7 million for the six
months ended June 30, 1997, up from $1.6 million for the six months ended June
30, 1996, an increase of $0.1 million or 9.1%.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales increased to $56.5 million in 1996 from $51.5 million
in 1995, an increase of $5.0 million or 9.7%. Net pet products sales increased
$3.1 million or 6.1%, to $53.3 million in 1996 from $50.3 million in 1995. The
increase in net pet products sales was the result of several factors including
an increase of $2.5 million in pet shelter sales, an increase of $2.1 million
in pet carrier sales, an increase of $0.5 million in bowl sales and a
reduction in sales returns and allowances of $0.6 million. These increases
were partially offset by a decrease of $2.7 million in bedding sales. The
increase in pet product sales was primarily a result of increased sales in the
pet specialty and the mass merchandise channels. Custom molding sales
increased $1.9 million as a result of more efficient use and scheduling of
machinery and equipment and the demand for press time from other
manufacturers. The reduction in sales returns and allowances resulted
principally from better customer management and the consummation of vendor
supply agreements which stipulate defined allowances for retailer customers.
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<PAGE>
Gross Profit. Gross profit increased to $18.6 million in 1996 from $11.3
million in 1995, an increase of $7.3 million or 64.9%. As a percentage of
sales, gross margin increased to 33.0% in 1996 from 21.9% in 1995. These
increases were the result of several factors, including (i) a decline in the
average cost of resin by $.07 per pound for Dogloo's pet shelters, which
contributed $2.0 million of the increase; (ii) gross margin on higher sales
volume of $1.7 million; (iii) a reduction in the level of sales returns and
allowances of $0.9 million; (iv) a reduction in unusual, non-recurring
inventory charges of $0.7 million; (v) the elimination of outside
manufacturers' profits on pet shelters when manufacturing moved in-house in
1996 of $0.9 million; (vi) a reduction of the average cost of carriers
purchased from outside vendors of $0.9 million; and (vii) manufacturing
efficiencies and other of $0.2 million.
Selling, General, and Administrative Expenses. SG&A decreased to $12.0
million in 1996 from $13.7 million in 1995, a decrease of $1.7 million or
12.2%. The reduction was the result of several factors, including: (i)
elimination of costs associated with the consolidation of distribution
activities in Indianapolis and the reduction in freight expenses realized by
the consolidation of distribution operations in Indianapolis, which
contributed $0.8 million of the reduction; (ii) the elimination of unusual
charges related to the elimination of certain intangible assets having no
continuing value in 1995, which contributed $0.6 million of the reduction; and
(iii) a general reduction in most other spending categories after
reorganization activities ceased in 1996. These reductions were partially
offset by increased freight costs in 1996, resulting from an increased number
of shipments and higher freight rates.
Depreciation and Amortization. Depreciation and amortization increased to
$3.1 million in 1996 from $2.3 million in 1995, an increase of $0.8 million or
33.2%. The increase was the result of a full year of depreciation of assets
added in 1995, principally one additional structural foam molding machine and
related equipment.
EBITDA. EBITDA (as defined herein) increased to $10.0 million in 1996 from
$1.6 million in 1995, an increase of $8.4 million.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales increased to $51.5 million in 1995 from $44.3 million
in 1994, an increase of $7.3 million or 16.4%. Net pet products sales
increased $6.3 million or 14.2% to $50.3 million in 1995 from $44.0 million in
1994. The increase in net pet products sales was the result of several
factors, including an increase in pet shelter sales of $4.8 million, an
increase in carrier sales of $2.0 million, an increase in bedding sales of
$0.1 million, and an increase in bowl sales of $1.2 million, which were
partially offset by an increase in sales returns and allowances and other
charges of $1.8 million. The increase in the pet shelter, pet carrier and
bedding sales were comprised of increases in sales to all major retailer
channels. The increase in net pet products sales resulted from increased
consumer demand for pet shelters and carriers driven by overall industry
growth and increased exposure in retailer channels. The increase in bowl sales
resulted from the introduction of the product line in 1995. Custom molding
sales increased $1.0 million in 1995 due to the opening of the Indianapolis
manufacturing facility, allowing capacity for the custom manufacturing of
other companies' products.
Gross Profit. Gross profit decreased to $11.3 million in 1995 from $14.1
million in 1994, a decrease of $2.8 million or 19.8%. As a percentage of net
sales, gross margin decreased to 21.9% in 1995 from 31.8% in 1994. Gross
profit for 1995 was adversely affected by an unusual charge of $0.7 million
related to the write-off of previously capitalized product development
projects which were abandoned in 1995. Excluding this unusual charge, the
gross margin would have been 23.3%. The decrease in gross profit was also due,
in part, to the increased cost of resin and start-up costs in the Indianapolis
plant, as discussed below, plus a significant increase in sales returns and
allowances experienced in 1995. The increase in allowances was the result of
management's decision to pursue increased distribution of products through the
granting of liberal volume rebate, discount and damage allowances.
Specifically, these factors contributed to the decrease in gross profit as
follows: (i) an increase in the cost of resin contributed $1.5 million of the
decrease; (ii) an overall decline in gross margin on the prior year's sales
level which contributed $1.2 million of the decrease; (iii) the incurrence of
substantial
52
<PAGE>
start-up costs related to the commencement of manufacturing at the
Indianapolis facility contributed $1.0 million of the decrease; and (iv)
several unusual charges related to the previously capitalized cost of product
development projects which were abandoned in 1995 contributed $0.7 million of
the decrease. These decreases in gross profit were partially offset by gross
profit earned on higher sales in 1995 of $1.6 million.
Selling, General and Administrative Expenses. SG&A increased to $13.7
million in 1995 from $11.5 million in 1994, an increase of $2.2 million or
19.3%. This increase was the result of several factors, including: (i) the
cost of consolidating distribution and establishing manufacturing activities
in Indianapolis, Indiana, which contributed $1.3 million of the increase; (ii)
unusual charges related to intangible assets which were determined to have no
continuing value, which contributed $0.6 million of the increase; (iii)
amortization of capitalized costs related to the 1995 recapitalization
transaction; and (iv) other cost increases associated with increased
operations in Indianapolis and support staff in Corona. These increases were
partially offset by a reduction in freight expenses due to the relocation of
manufacturing and distribution facilities to the more centrally located
Indianapolis, Indiana location rather than the Southern California area.
Depreciation and Amortization. Depreciation and amortization increased to
$2.3 million in 1995 from $1.1 million in 1994, an increase of $1.2 million or
117.5%. The increase related to a full year of depreciation taken on assets
placed in service in 1994 and a partial year for assets placed in service in
1995.
EBITDA. EBITDA (as defined herein) declined to $1.6 million in 1995 from
$3.7 million in 1994, a decrease of $2.1 million. The decrease was the result
of several factors, including the decline in gross profit and the increase in
selling, general and administrative expenses discussed above.
SEASONALITY
The business and results of operations of both Doskocil and Dogloo are
seasonal. Dogloo's business and results of operations are seasonal due to the
increased number of pet shelters sold during periods of inclement weather;
because retailers build inventories in anticipation of these periods of bad
weather, sales are typically weighted towards the third and fourth quarters of
the calendar year. As a consequence, custom molding sales typically represent
a higher percentage of net sales for the six month period ended June 30 and
profitability is higher during the six month period ended December 31 as a
result of the increased sales of proprietary products. Doskocil's business and
results of operations are also seasonal. However, Doskocil's broad mix of
products insulates it somewhat from seasonal fluctuations. In the first
quarter, sales of hardware, fishing tackle, and custom molding are typically
strong. In the second quarter, pet carriers and firearms cases are usually the
sales leaders. Sales of fishing tackle, pet shelters, other pet products and
firearms cases are normally higher in the third and fourth quarters. In order
to match the Company's fiscal year reporting with its seasonality, management
has changed the Company's fiscal year end to June 30.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity is cash flow from operations and
borrowings under the New Credit Facility. Financing available under the New
Credit Facility consists of a $27.5 million revolving credit facility, $24.5
of which remained available following the closing of the Offering. In
addition, the New Credit Facility includes two term loans in the aggregate
amount of $82.5 million, which were fully drawn upon closing of the Offering.
The Company intends to use cash flow from operations and borrowings under the
revolving credit facility to meet seasonal fluctuations in working capital
requirements primarily related to inventory and accounts receivable, which
historically reach their peak in the period from May through August, and for
capital expenditure requirements including tooling requirements for new
products as well as replacement tooling for existing products. The Company's
obligations under the New Credit Facility are secured by a security interest
in substantially all of the Company's assets.
Doskocil's aggregate capital expenditures for the years ended December 31,
1995 and 1996 and for the six months ended June 30, 1997 were $19.2 million,
$4.1 million and $1.0 million, respectively. Doskocil's
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<PAGE>
capital spending related principally to the acquisition of molds and molding
machines and capacity expansion at Spectrum. Dogloo's aggregate capital
expenditures for the same periods were $9.1 million, $1.0 million and
$0.9 million, respectively. Dogloo's capital spending related principally to
manufacturing efficiency improvements to existing tooling and new tooling for
1996 and 1997 and one additional structural foam molding machine in 1995.
Management anticipates incurring capital expenditures for the fiscal year
ending June 30, 1998 of approximately $9.0 million relating to upgraded
machinery and tooling. Management plans to fund these capital expenditures
through cash flow from operations and, if necessary, borrowings under the
revolving credit facility.
The Company anticipates that it will incur certain non-recurring
expenditures related to the integration of the operations of Doskocil and
Dogloo. The estimated total cash requirements of these unusual expenditures in
the next year is approximately $9.0 million net of approximately $4.0 million
of net proceeds from the sale of the Indianapolis facility. Such unusual
charges include costs related to consolidation of manufacturing and
distribution facilities, severance obligations, and integration of management
information systems. Such costs are expected to be partially offset by cash
proceeds of the sale of the Indianapolis facility. Management expects these
non-recurring costs to be initially funded through cash flows and borrowings
under the revolving credit facility.
The New Credit Facility and the Notes Indenture contain various covenants
which impose certain restrictions on the Company, including with respect to
the incurrence of additional indebtedness, the payment of dividends, and the
ability to make acquisitions. See "Risk Factors." In addition, the New Credit
Facility requires compliance with the maintenance of certain financial ratios.
Availability under the revolving credit facility will be determined among
other things by receivables and inventory levels.
54
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BUSINESS
GENERAL
The Company, created by the Merger of Dogloo and Doskocil, is the leading
plastic pet products company in the United States, manufacturing a broad range
of plastic and other pet products sold through a distribution network of more
than 2,000 retailers, including PETsMART, Wal-Mart, K-Mart, Petco and Costco.
Doskocil brings to the combined Company its strength in the pet carrier
category, along with a broad range of products and efficient manufacturing
capabilities. Dogloo adds its strength in the pet shelter category, along with
its demonstrated product development and marketing abilities. Accordingly, the
Merger created a company with complementary pet product lines, including both
pet carriers and pet shelters, complementary customer bases and substantial
opportunities for cost reductions. The Company expects to take advantage of
Doskocil's historically under-utilized manufacturing and distribution
facilities to achieve a lower combined cost structure. The Company's cost
structure is also enhanced through Doskocil's vertically integrated
manufacturing operations which include a facility for the recycling, blending
and compounding of plastic resins, the largest raw material component in the
Company's products. The combined sales of Doskocil and Dogloo have increased
from $105.1 million in 1993 to $160.0 million in 1996, representing a compound
annual growth rate of 15.0%. On a pro forma combined basis after giving effect
to the Transactions, the Company's pro forma EBITDA (as defined herein) for
the twelve-month period ended June 30, 1997 would have been $38.5 million.
The Merger combined complementary product lines in several categories in
which both companies have traditionally had a smaller presence and offers
further opportunities to expand product offerings. Doskocil produces a broad
line of plastic products, including pet products such as pet carriers, pet
shelters, cat litter boxes, bowls, feeders, waterers and cat toys, as well as
sporting goods and other products. Doskocil's Vari Kennel(R), Sky Kennel(R),
Pet Mate(R), Pet Porter(R), Pet Taxi(R) and Kennel Cab(R) pet carrier brand
names are widely known and have enjoyed increasing use in the transportation
and indoor training of pets. Doskocil's Gun Guard(R) brand (firearms and
archery cases) and Woodstream(TM) brand (fishing tackle cases) are similarly
well-recognized in the sporting goods market. Dogloo's product line consists
of plastic pet shelters, pet carriers, pet bedding and pet feeding and
watering products. Dogloo's numerous styles and sizes of pet shelters include
the Dogloo(R), Indigo(R), Ruff Hauz(R), Barney(R), Cape Cod(TM) and Brik
Hauz(R). These shelters are made from a structural foam plastic which provides
exceptional durability and insulation relative to other types of plastic or
wooden pet shelters. The Company believes the Dogloo, Dogloo's igloo-shaped
best-seller, is unique in style, wind resistant, easy to clean and popular
among breeders, kennel owners and general consumers. In the Merger, the
Company acquired Dogloo's federal configuration trademark on its igloo-shaped
pet shelters. In 1995, Dogloo successfully relied upon this trademark to
obtain a preliminary injunction against the manufacture and sale by Doskocil
of a confusingly similar product, after which Doskocil agreed to discontinue
sales of its dome-shaped pet shelters.
As a result of the Merger, the Company has a substantially broadened
customer base and reduced customer concentration. Doskocil's principal
products are sold to a wide variety of retailers including specialty pet
superstores such as PETsMART and Petco, mass merchandisers such as Wal-Mart
and K-Mart, food and drug stores, hardware stores and a number of distributors
that sell to independent pet stores. Dogloo's products are sold through a
variety of similar retail channels, including mass merchandisers such as Wal-
Mart, wholesale clubs such as Sam's Club, home centers such as Lowe's and
Menards, pet specialty superstores such as PETsMART, farm and agricultural
stores such as Tractor Supply Company, and distributors that sell to
independent pet stores. Despite similar distribution channels, there is little
overlap among the major customers of Doskocil and Dogloo--only three shared
customers rank in the top ten customers of each individual company. On a pro
forma combined basis after giving effect to the Transactions, no one customer
would have accounted for more than 11.9% of the Company's total net revenues
in 1996.
PET PRODUCTS INDUSTRY OVERVIEW
The U.S. nonfood pet supplies industry was estimated in a study by Packaged
Facts to have generated approximately $4.0 billion in sales in 1995, up from
$3.1 billion in 1991, an increase of approximately
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<PAGE>
$900 million over the four-year period or a 6.6% compound annual growth rate.
The study indicated that since 1991, the dog and cat segments have dominated
consumption in, and have grown faster than, the overall non-food pet supplies
market. The study estimated that of the $4.0 billion in 1995 non-food pet
supplies sales, the dog and cat segments represented approximately 68.8%.
According to this study, sales growth for the dog and cat segment surpassed
$2.7 billion by the end of 1995, up from $1.9 billion in 1991, a 41% increase
which outpaced the growth of the overall pet supplies market during that
period. Packaged Facts attributed this recent growth in non-food pet supply
sales to both an increasing number of pets and an increasing annual
expenditure per pet. Packaged Facts estimated that from 1991 to 1995, the
total number of cats and dogs increased from 116 million to 121 million,
growing at an approximate 1.0% compound annual rate over the period. Based on
these estimates, the average annual expenditure per cat and dog has increased
during this period from $16.81 in 1991 to $22.76 in 1995, a compound annual
growth rate of 7.9% over this period. Packaged Facts attributed the growth in
the pet supplies market to a number of factors, including (i) the baby boomer
generation, who are now purchasing pets for children, (ii) the increasing
senior citizen component of the population who appreciate the companionship of
pets, and (iii) the expansion of pet supply outlets which has stimulated
consumer demand. Packaged Facts estimated that these trends are expected to
push sales of the non-food pet supplies market to approximately $5.2 billion
by the year 2000. Management believes that pet superstores have stimulated
retail sales by increasing product turnover through advertising, promotions
and a larger selection of products. Management further believes the Company is
well-positioned to benefit from these retailers as they continue to expand
their store count, both domestically and internationally.
The Company estimates that the total U.S. plastic pet shelter market for
1996 was approximately 1.4 million units. The Company believes that important
sources of ongoing pet shelter sales are the birth or purchase of new dogs,
family lifestyle changes such as a new home or child, and the replacement of
wooden shelters. The Company estimates that 75% of the pet shelters in use are
wooden. The Company's research also indicates that plastic shelters have
largely replaced wooden pet shelters in retail stores. Accordingly, the
Company believes that demand for its plastic pet shelters will increase over
time as wooden shelters are replaced with plastic shelters.
The Company estimates that the total U.S. plastic pet carrier market for
1996 was approximately 4.1 million units. An American Pet Products
Manufacturers Association ("APPMA") study indicates that, within the pet
carrier market, 25% of dog owners and 56% of cat owners in 1996 owned pet
carriers. In addition, according to APPMA data, of all cages or traveling
crates owned by dog owners, 75% were made of plastic in 1996 as compared to
only 51% in 1992. The Company believes that pet carrier purchases will
continue to increase due to increased market awareness of the use of pet
carriers for the transportation and indoor training of dogs and consumer
transition from wire to plastic carriers.
BUSINESS STRATEGY
The Company's strategic objectives are to further enhance its position as
the leading manufacturer and marketer of plastic pet products in the United
States and to continue its expansion internationally. The Company will seek to
leverage its competitive strengths to accomplish the following objectives:
Capitalize on Industry Leadership Position. By combining the leaders in
plastic pet carriers and plastic pet shelters, the Company has achieved its
leading position in the plastic pet products industry. The Company expects to
strengthen its market position by continuing to develop new products, using
advertising and other promotional programs to implement a consumer driven
"pull strategy," and making strategic acquisitions of related product lines
that will take advantage of the Company's existing markets and broad
distribution channels.
Continue to Introduce New Products in Order to Fuel Growth. The Company is
committed to maintaining Dogloo's and Doskocil's reputation as industry
leaders through continued product development within its current product
categories and the creation of innovative new product categories. Management
believes that both Doskocil and Dogloo have demonstrated the ability to
develop and market new products to both retail consumers and those who
influence the purchasing patterns of consumers, such as breeders and
veterinarians. Doskocil and
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<PAGE>
Dogloo launched a combined total of 27 new products over the past two years.
The Company expects to launch an additional 30 new products in 1997. Net sales
from new products introduced in the calendar years 1995 and 1996 would have
accounted for 16.7% of the Company's total pro forma combined net sales for
1996. The Company intends to focus additional efforts in new product
development and annual expenditures for this area may amount to $2-4 million
per year. These increased expenditures for new product development may
partially affect some of the cost savings discussed below. There can be no
assurance that these additional expenditures will result in the successful
introduction of new products or in increased sales.
Achieve Substantial Cost Savings. The Company intends to close Dogloo's
administrative, distribution and manufacturing facilities and centralize those
operations at Doskocil's Arlington, Texas facility, thereby eliminating
redundant expenses and spreading higher production and distribution volumes
over a relatively fixed cost base. By integrating operations and capitalizing
on the complementary strengths of the two companies, the Company will seek to
achieve the following cost savings:
. Elimination of Duplicative Manufacturing, General & Administration
Expense. By closing Dogloo's Corona and Indianapolis operations and not
replacing duplicative expenses, management expects substantial savings
in manufacturing, distribution and administrative personnel, facilities
expense and other operating expenses. While the pro forma adjustments
herein for the 12 months ended June 30, 1997 include $6.3 million for
this consolidation, management believes that upon full integration of
these operations, additional savings can be achieved.
. Reduction of Resin Costs. As discussed below, the Company expects to
reduce its resin costs through better utilization of Spectrum. While the
pro forma adjustments herein for the 12 months ended June 30, 1997
estimate $2.7 million of cost savings resulting from utilization of
Spectrum instead of external sources, management believes additional
savings can be achieved through the reformulation of resins currently
used in Dogloo products and through other purchasing savings.
. Restructuring Sales & Marketing Operations. Although not reflected in
the pro forma adjustments herein, the Merger is expected to allow the
realization of substantial savings through the consolidation of
distributors and increased use of direct sales representatives.
. Direct Labor Savings. Due to the configuration and material handling
systems included in the new facility discussed below, management expects
to achieve substantial savings in manufacturing direct labor costs.
These savings are not included in the pro forma adjustments herein.
. Shipping Consolidation Savings. The consolidation of distribution is
expected to allow volume discounts on freight rates and reduce the
number of less-than-truckload shipments. While management expects these
savings to be substantial, these amounts are not included in the pro
forma adjustments herein.
. Pet Carrier Savings. The Company anticipates moving the previously
outsourced production of Dogloo's pet carriers into Doskocil's
manufacturing facilities, which is expected to result in substantial
savings in product costs. These savings are not included in the pro
forma adjustments herein.
. Other Savings. While not included in the pro forma adjustments herein,
management believes additional savings can be achieved through improved
manufacturing, further purchasing economics and other improvements.
While the pro forma annual cost savings for the twelve months ended June 30,
1997 are estimated to be approximately $9.0 million, management believes that
additional annual cost savings estimated to be approximately $8.5 million can
be achieved over time. However, there can be no assurance that the $17.5
million of potential annual cost savings discussed above will be realized or
that there will not be significant delays in achieving such cost savings. See
"Risk Factors--Risks Related to the Merger and Integration of Dogloo and
Doskocil."
In order to achieve certain of these potential cost savings, management
estimates that it will be necessary to spend a net amount of approximately
$8.5 million in the next two years for unusual capital expenditures, net of
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<PAGE>
approximately $4.0 million of net proceeds from the sale of the Indianapolis
facility, plus $8.0 million for unusual costs. The unusual capital
expenditures are necessary for (i) the construction of a new manufacturing
facility in Arlington to house Dogloo's and other production equipment; (ii)
certain enhancements to Doskocil's existing distribution center; (iii) the
costs of moving and rigging Dogloo's production equipment; and (iv) other
items such as systems integration. Unusual costs relate primarily to employee
termination and relocation costs, a $3.5 million bonus program tied to the
achievement of potential cost savings, and other costs such as the temporary
carrying costs of vacated facilities.
Capitalize on Plastic Resin Cost Advantage. Spectrum, the Company's
vertically integrated plastic resin compounding facility, together with the
Company's resin compounding experience, enable the Company to produce plastic
resins using a significantly reduced proportion of prime resins, while
achieving raw material specifications which meet or exceed the Company's
product and manufacturing requirements. The Company's principal raw materials
are various plastic resins, which are either "prime" resins, purchased from
petrochemical producers, or blends of prime resins and recycled materials
purchased from third-party suppliers or produced by the Company. Spectrum has
an estimated annual capacity in excess of 100 million pounds, and uses a
mixture of prime resins and recycled materials to produce plastic resins. In
1996, Doskocil used 49 million pounds of plastic resins, approximately 92% of
which were compounded in Spectrum. In 1996, Dogloo used approximately 28
million pounds of prime plastic resins purchased from outside suppliers.
Spectrum is expected to satisfy all of Dogloo's resin needs, which the Company
expects will substantially increase Spectrum's capacity utilization and
further reduce the Company's average resin cost per pound.
Exploit International Growth Opportunities. While international sales
represented approximately 12.4% of the combined Company's net sales in 1996,
management believes that the international markets, especially Europe and
Latin America, represent a significant growth opportunity. The international
expansion of U.S. retailers is also expected to provide a significant
opportunity for the Company to increase international sales. Management
believes the 1996 acquisition by PETsMART of Pet City Holdings PLC, the United
Kingdom's largest pet superstore chain, is indicative of the international
expansion of such retailers and represents one opportunity for growth in
international markets. Management is currently evaluating the establishment of
distribution facilities in continental Europe and Latin America. The
combination of Doskocil and Dogloo is also expected to allow the Company to
redeploy certain overlapping product molds for international contract
manufacturing.
PRODUCTS
The combination of the two businesses created a company with broad product
lines in many key segments of the pet supplies industry. Doskocil is a leading
industry participant in its core business of plastic pet carriers, while
Dogloo is a market leader in the plastic pet shelter segment. Doskocil
produces numerous additional plastic products, including pet shelters, cat
litter boxes, bowls, feeders, waterers and cat toys, as well as products for
the sporting goods, hardware and lawn and garden markets. Dogloo also produces
other complementary products such as pet bedding.
Pet Carriers. (31.4% of 1996 combined sales.) The Company currently produces
a total of 98 SKUs of pet carriers ranging in domestic retail price from
approximately $10 to $200. Management believes the Company's Vari Kennel, Pet
Porter, Pet Taxi, Furrarri(R) and Innovator(R) brand names are widely known
among retail consumers as well as pet product retailers and airlines. These
pet carriers come in a variety of colors and have an assortment of features
such as quick-release latches, dual door locks and snap-on waterer/feeder
dishes. The Company's pet carriers have been developed and refined over a 35-
year period and have achieved strong brand awareness among consumers. The
combined Company sold in excess of 3.1 million units in 1996.
The Company believes that its plastic pet carriers are superior to cardboard
and wire carriers and have made wooden carriers practically obsolete. Plastic
pet carriers are durable, yet lightweight, and provide superior protection for
the animals while maintaining a clean environment outside of the carrier. In
addition to being used for transportation, pet carriers have enjoyed
increasing consumer acceptance for the indoor training of pets.
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Pet Shelters. (25.2% of 1996 combined sales). The Company produces numerous
styles of pet shelters in various sizes, including the Dogloo, Indigo, Ruff
Hauz, Barney, Cape Cod, Pet Barn(R) and Brik Hauz. The Dogloo, the Company's
best seller, is unique because of its trademarked igloo-shape and structural
foam plastic construction, which management believes offers significant
advantages relative to wooden and other plastic pet shelters. The Company
currently manufactures a total of 52 different pet shelter SKUs, providing
retailers with the ability to tailor their product offerings to their customer
base. Domestic retail pricing on the Company's pet shelters ranges from
approximately $30 for a small Ruff Hauz to over $180 for a Dogloo Giant. The
combined Company sold in excess of 1.0 million units in 1996.
Management believes the Company's plastic pet shelters are superior to
wooden models or other plastic pet shelters on the market. Dogloo pioneered
the use of structural foam plastic in the production of pet shelters in the
late 1980s, and owns a configuration trademark which protects certain aspects
of its design from imitation by competitors. See "Patents and Trademarks." The
insulating qualities of structural foam and the igloo-shaped design are strong
selling features. Structural foam plastic is an extremely durable,
lightweight, thermal material which enables the Company's pet shelters to
remain warmer in winter and cooler in summer. Another advantage of these
shelters over wooden shelters is that structural foam is non-porous, making it
easy to clean with soap or disinfectants and dry quickly and easily. The non-
porous surface also prevents fleas and disease from living in the material, as
can occur with wood products.
Other Pet Products. (22.1% of 1996 combined sales.) The combined Company's
other pet product lines include cat litter boxes, feeding and watering
systems, pet bowls, pet toys, and pet furniture and bedding. The Company's
feeding and watering systems are among the fastest growing segments of the
Company's "other" pet products category, and offer multiple day feeding and
watering solutions for pets in the absence of their owners. Management
believes the breadth of the Company's entire pet product line represents the
most complete assortment of durable dog and cat products in the industry.
Sporting Goods and Other Products. (15.1% of 1996 combined sales.) The
Company sells four sporting goods product lines with over 180 different SKUs,
which gives the Company a significant presence in this market. The Company is
one of the leading manufacturers and suppliers of hard-sided firearms cases,
fishing tackle boxes and golf cases in the United States and has substantial
market share in each of its product lines. In 1976, the Company became the
first manufacturer to sell hard-sided firearms cases to the airline industry
and eventually to retail customers. Management believes the Company's plastic
Gun Guard(R) cases are known for their high quality. The Company is the
leading producer of hard-sided firearms cases in the United States.
Through the Woodstream product line, the Company sells a full line of hard
and soft-sided fishing tackle boxes. In July 1996, the Company introduced a
waterproof modular fishing system utilizing MFS technology (patent pending).
MFS offers fishermen improved flexibility and performance in tackle
organization, and MFS waterproof and saltwater utility boxes feature DRI-Loc
seal, an airtight seal.
The Company also manufactures and supplies a line of photo/video camera
cases and utility bins. The photo/video case product line is sold under the
Camera Guard(R) name and includes products such as the Seal Tight(R), a water,
dust and airtight case with foam inside. The utility bin line, sold under the
Tote Bin name, includes several bins used to store, move or mix items. These
bins are made of rugged, lightweight, high-impact plastic, which facilitates
cleaning and are oil and chemical resistant.
In 1994, through the acquisition of the assets of the Woodstream sporting
goods product line from Ekco Canada, Inc. and Ekco Group, Inc., the Company
entered the golf accessories market with the Golf Guard(R) hard-sided travel
case for golf clubs. Because of its rugged outer shell, management believes
the Golf Guard travel case is superior to soft cases which can rip, stain, and
show dirt. In addition, the Golf Guard case has built-in padlock tabs, bail
latches and dual wheels. The Company also produces a variety of plastic
products for the home improvement market, including cord wheels and edging
products.
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Consistent with its desire to be a focused pet products company, management
may consider the sale or other disposition, including a sale or distribution
to existing shareholders, of the Doskocil sporting goods and other products
line. This product line generated sales of approximately $24 million during
1996. Any such sale or other disposition of this product line would be subject
to obtaining the consent of the Company's lenders under the New Credit
Facility and compliance with applicable Indenture covenants.
NEW PRODUCT DEVELOPMENT
New products introduced within the past two calendar years accounted for
approximately 16.7% of the combined Company's 1996 revenue. The Company is
committed to maintaining its reputation as an industry leader through
continued product development within its current product categories and the
creation of innovative new product categories. Management believes that the
Company has demonstrated the ability to develop and market new products to
both retail consumers and those who influence the purchasing patterns of
consumers such as breeders and veterinarians. Doskocil and Dogloo launched a
total of 27 new products over the past two years. The Company expects to
launch an additional 30 new products in 1997.
The Company's philosophy on new product development is to focus on the needs
of the consumer while creating products which will enhance the care, comfort,
lifestyle, and interaction of the pet with its owner. The Company evaluates
ideas from multiple sources, both internally and externally, and tests such
ideas against consumer reaction and market potential. Once a promising product
is identified through consumer and market research, the Company employs a
multifunctional team approach to accelerate the speed and improve the
effectiveness of the new product introduction. The Company has won 9 new
product industry awards during the past five years. The Company will also seek
to employ resources to acquire existing products that can be leveraged through
its broad distribution network.
While the Company intends to increase its new product development efforts,
there can be no assurance that these increased efforts will result in
successful new product introductions.
SALES, MARKETING AND DISTRIBUTION
The Company's marketing strategy is to communicate directly with the
consumer via direct marketing, advertising and promotional programs. The
Company believes that strong brand recognition and programs which influence
consumer purchase intentions provide the framework for establishing effective
merchandising presentations at point of sale. The Company has tailored its
products to nine distinct distribution channels. See "Business--Customers." By
focusing on multiple distribution channels, the Company believes it is well
positioned to meet the various needs and shopping habits of consumers.
Domestically, the Company employs a direct salesforce which is based near
key retail customers. The Company also utilizes manufacturer representatives
to support certain customers and to cover specific territories and channels of
distribution. The Company believes that this approach, along with its
proactive customer service function, will strengthen important customer
partnerships and will serve as a significant competitive advantage.
The Company also markets its products internationally, with primary emphasis
on Europe, Canada, Latin America and Japan. The Company has developed
multilingual packaging, customized case packs and trade advertising
capabilities as it continues to expand international distribution. With a base
of foreign pet distributors in place to service the pet specialty channel, the
Company is focusing on mass merchandisers and home and garden centers such as
Wal-Mart in Latin America and Canada, Sam's Club in Latin America, Home Depot
in Canada, Costco in Canada, Latin America and the United Kingdom, and
PETsMART in Canada and the United Kingdom. The Company primarily utilizes
direct sales personnel, in cooperation with selected distributors, to market
internationally. The Company believes that it is well positioned to assist
United States retailers expanding their operations abroad.
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CUSTOMERS
The Company distributes through nine distinct distribution channels in the
United States and to more than 2,000 retail customers worldwide, with the
largest customer accounting for 11.9% of 1996 revenues. The primary
distribution channels include mass merchants, pet superstores, hardware and
home centers, warehouse clubs, distributors, farm and agriculture, food and
drug, co-ops, and catalogs. The mass merchant channel accounted for 19.8% of
combined 1996 net sales, followed closely by the pet superstore channel
at 16.5%.
In 1996, Doskocil's ten largest customers accounted for approximately 38.1%
of its net sales and Dogloo's ten largest customers accounted for
approximately 53.3% of its net sales. On a combined basis, the Company's top
ten customers accounted for 39.6% of net sales during this period. The
Company's top 10 customers on a pro forma combined basis after giving effect
to the Merger for 1996 were as follows:
<TABLE>
<C> <S> <C> <C>
1. Wal-Mart Stores, Inc. 6. Petco Animal Supplies, Inc.
2. PETsMART 7. Lowe's Companies, Inc.
3. K-Mart Corporation 8. H & H Distributing
4. Sam's Club 9. Target Stores
5. Costco Wholesale 10. Army & Air Force Exchange Service
</TABLE>
As management believes is typical in the pet and sporting goods industries,
the Company does not have long-term or exclusive contracts with any of its
customers. Sales to customers and purchases from suppliers are generally made
pursuant to purchase orders.
FACILITIES, EMPLOYEES AND MANUFACTURING
The Company operates manufacturing facilities in Arlington, Texas,
Mansfield, Texas and Indianapolis, Indiana, a fabric cut and sew facility in
Corona, California and has offices and warehouse facilities in Arlington,
Texas, Indianapolis, Indiana and Corona, California.
The approximate size and location of the Company's significant facilities
and the approximate distribution of its employees are summarized below:
<TABLE>
<CAPTION>
SIZE NO. OF
LOCATION (SQ. FT) OWNED/LEASED EMPLOYEES
-------- -------- ------------ ---------
<S> <C> <C> <C>
MANUFACTURING, WAREHOUSE AND OFFICE:
Arlington, Texas.......................... 992,000 Leased 640
Indianapolis, Indiana..................... 268,000 Owned 249
Corona, California........................ 61,000 Leased [99]
Mansfield, Texas.......................... 52,000 Leased 90
WAREHOUSE:
Indianapolis, Indiana..................... 181,000 Leased 4
</TABLE>
As discussed above, the Company expects to consolidate its Indianapolis and
Corona operations into the Arlington facilities.
The Company's manufacturing operations include 37 injection molding machines
ranging in size from 75 to 3,000 ton and nine structural foam molding
machines, eight of which are 750 ton and one of which is a dual platen 400
ton. With moderate additional capital expenditures after integration,
management believes that the Company's manufacturing facilities can
accommodate a substantial increase in product volume. The Company manufactures
substantially all of its products, with the current exception of Dogloo pet
carriers, fishing tackle boxes and aluminum firearm cases, which are
manufactured by contract suppliers. The Company's employees are not covered by
a collective bargaining agreement. The Company considers its relationship with
its employees to be good.
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RAW MATERIALS
The Company's principal raw materials are various plastic resins, which are
either "prime" resins, purchased from petrochemical producers, or blends of
prime resins and recycled materials, purchased from third-party suppliers or
produced by the Company. The main resins historically utilized by the Company
are HDPE, which Dogloo has used to manufacture its line of pet shelters, and
PP, which Doskocil uses to manufacture its pet carriers and other plastic
products. In manufacturing many products, including pet shelters, formulations
of PP can be substituted for HDPE. To a lesser extent, the Company utilizes
other raw materials such as steel, specialty chemicals (including impact
modifiers, blowing agents, antioxidants and u.v. stabilizers), carbon black,
synthetic fibers, natural rubbers, polyethylene, colorants, components of
polyester/cotton fabrics, polyurethane foam and PVC vinyl.
In 1996, Doskocil used approximately 49 million pounds of PP resins,
approximately 92% of which was compounded in its Spectrum facility. Of this
amount, approximately 3.5 million pounds were used in production of resin
furniture products which have since been discontinued. In 1996, Dogloo used
approximately 28 million pounds of plastic resins, consisting of 25 million
pounds of HDPE and 2.8 million pounds of PP. The Spectrum facility and the
Company's resin compounding expertise enable the Company to produce plastic
resins using a significantly reduced proportion of prime resins while
achieving raw material specifications which meet or exceed the Company's
product and manufacturing specifications.
Resin prices reached peaks in 1988 and 1995 and have declined significantly
in recent years (see chart below). As major petrochemical companies have built
polypropylene plants, hundreds of millions of pounds of resin compounding
capacity have been added to the marketplace, driving down resin prices. With
seven years between the two most recent resin price market highs, and the
recent resin price peak of 1995, industry analysts expect generally that resin
prices will continue to stabilize or decline as industry capacity increases.
Plastic resin prices can vary from year to year and are very difficult to
predict beyond a few months.
[GRAPH APPEARS HERE]
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PATENTS AND TRADEMARKS
The Company maintains two distinct product brand identifications which
derive from the pre-Merger companies, Doskocil and Dogloo. Trademarked brands
marketed under the Doskocil name include Vari Kennel, Sky Kennel, Pet Mate,
Pet Taxi and Kennel Cab in pet products, as well as Gun Guard firearms and
archery cases, Woodstream fishing tackles cases, Camera Guard camera cases and
Golf Guard golf travel cases. Several Doskocil trademarks represent technology
improvements: MFS technology, DRI-Loc airtight utility box seals, and Seal
Tight brand camera cases (sold under the Camera Guard name). Brands marketed
under the Dogloo name include Furrarri and Innovator carriers as well as the
Dog Kabin, Ruff Hauz, Brik Hauz, Dogloo II, Indigo, Barney and Cape Cod pet
shelters. In the Merger, the Company acquired Dogloo's configuration trademark
for its igloo-shaped pet shelters. In 1995, Dogloo successfully relied upon
this trademark in litigation against Doskocil to obtain a preliminary
injunction against the manufacture and sale by Doskocil of a confusingly
similar product. In settlement of this litigation, Doskocil agreed to entry of
a permanent injunction prohibiting Doskocil from selling dome-shaped pet
shelters once their existing inventory of such pet shelters was sold. The
current registrations of the Company's trademarks in the United States and
foreign countries are effective for varying periods of time, and may be
renewed periodically provided that the Company, as the registered owner, and
its licensees, where applicable, comply with all applicable laws. The Company
also has several U.S. utility and design patents and several patent
applications pending. The Company is not aware of any material challenge to
the ownership by the Company of its major trademarks or patents. The Company
believes it benefits from its intellectual property and intends to defend its
exclusive use of such property against infringement by third parties, although
the Company cannot predict success in defending its intellectual property
rights. See "Risk Factors--Trademark, Patent and Proprietary Information."
COMPETITION
The market for the Company's products is highly competitive. The Company
competes with a number of smaller, privately held companies and certain public
companies, some of which have greater name/brand recognition, larger customer
bases and/or significantly greater financial resources than the Company, such
as Rubbermaid Inc. There are no substantial regulatory or other barriers to
entry of new competitors into the Company's market. There can be no assurance
that the Company will be able to compete successfully against current and
future sources of competition or that the current and future competitive
pressures faced by the Company will not adversely affect its profitability or
financial performance.
LEGAL PROCEEDINGS
From time to time, the Company has been involved in legal proceedings
arising in the ordinary course of business. None of the matters in which the
Company is currently involved is expected to have a material adverse effect on
the Company's business or financial condition.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the name, age and position of each of the
individuals who serve as directors, executive officers and key employees of
the Company. Each director will hold office until the next annual meeting of
stockholders or until his successor has been duly elected and qualified.
Officers of the Company are elected by, and serve at the discretion of, the
board of directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<C> <C> <S>
President and Chief Executive Officer,
Gary E. Kleinjan........... 48 Director
Interim President and Chief Executive
Larry E. Rembold........... 56 Officer, Director
Donald J. Fritschen........ 57 Vice President and Chief Financial Officer
Michael J. Farmer.......... 36 Senior Vice President of Sales and Marketing
Garland W. Strong.......... 44 Vice President and President of the Sporting
Goods and Hardware Division
William C. Bowie, Jr. ..... 39 Vice President and President of Spectrum
Bruce W. Schafer........... 49 Senior Vice President of Operations
C. Raymond Thomas.......... 51 Vice President of Information Systems
George L. Argyros.......... 60 Director
John W. Clark.............. 52 Director
Charles D. Martin.......... 60 Director
Benjamin L. Doskocil, Sr. . 59 Director
Michael P. Hoopis.......... 46 Director
</TABLE>
Gary E. Kleinjan will join the Company as its President and Chief Executive
Officer and as a director effective October 6, 1997. Mr. Kleinjan has 20 years
of experience in the consumer products industry. From August 1997 to September
1997, Mr. Kleinjan served as President of Sales and Corporate Accounts of
Rubbermaid, Inc.'s Home Products division. From 1994 to August 1997, Mr.
Kleinjan served as President and General Manager of Rubbermaid, Inc.'s Little
Tikes division. During 1994, Mr. Kleinjan served as President and General
Manager of Rubbermaid, Inc.'s Office Products division. From 1992 to 1994, Mr.
Kleinjan served as Vice President and General Manager of Micro Computer
Accessories, a Rubbermaid, Inc. company.
Larry E. Rembold has served as the Company's Interim President and Chief
Executive Officer since July 1997, and will serve as such until October 6,
1997, at which time Mr. Kleinjan will replace Mr. Rembold as President and
Chief Executive Officer. Mr. Rembold, who has served on the Company's board
since July 1997, will continue as a director of the Company. From March 1996
to June 1997, Mr. Rembold worked on several consulting engagements for
companies with an emphasis on lender relations and acquisition evaluations.
Mr. Rembold was a consultant to Enterprise in its due diligence effort of
Doskocil prior to the Recapitalization. From April 1989 to March 1996, Mr.
Rembold served as President and Chief Executive Officer of Dolco Packaging
Corporation ("Dolco"), a plastics company whose shares were traded publicly
until March 1996, at which time Dolco was sold and taken private.
Donald J. Fritschen has served as the Company's Vice President and Chief
Financial Officer since consummation of the Merger, prior to which he had
served as Doskocil's Vice President and Chief Financial Officer since 1990.
Mr. Fritschen has 14 years of experience in the injection molded plastic
products industry. From 1985 to 1990, Mr. Fritschen served as Chief Financial
Officer of the Max Fletcher companies, a diversified holding company. From
1978 to 1985, Mr. Fritschen served as Controller of Rubbermaid Inc.'s
Specialty Products Inc. division.
Michael J. Farmer has served as the Company's Senior Vice President of Sales
and Marketing since consummation of the Merger, prior to which he had served
as Executive Vice President and General Manager of Dogloo since May 1997. From
April 1994 to May 1997, Mr. Farmer served as Vice President, Sales and
Marketing of Dogloo. Mr. Farmer has 14 years of experience in the durable
consumer products business. From 1989 to 1994, Mr. Farmer served as Director
of Marketing and New Product Development of the Coleman Company. From 1983 to
1989, Mr. Farmer served in several positions including Director of Engineering
and Materials Management, Factory Operations Manager and Industrial
Engineering Manager of the Coleman Company.
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Garland W. Strong has served as the Company's Vice President and President
of the Sporting Goods and Hardware Division since consummation of the Merger,
prior to which he had served as Doskocil's Executive Vice President of Sales
and Marketing since 1995. From 1989 to 1995, Mr. Strong served as Doskocil's
Executive Vice President and General Manager. Mr. Strong has 22 years of
experience in the injection molded plastic products industry.
William C. Bowie, Jr. has served as the Company's Vice President and
President of Spectrum since consummation of the Merger, prior to which he had
served as General Manager of Spectrum since January 1993. From January 1991 to
January 1994, Mr. Bowie served as Doskocil's Resin Manager. Mr. Bowie has nine
years of experience in the resin industry.
Bruce M. Schafer has served as the Company's Senior Vice President of
Operations since consummation of the Merger, prior to which he had served as
Dogloo's Vice President of Operations and Research and Development since
September 1996. From 1995 to September 1996, Mr. Schafer served as Chief
Operating Officer for McKecknie Plastics USA, a British custom injection
molding company. From 1992 to 1995, he served as General Manager of an
injection molding plant of Automotive Industries, a privately held company.
From 1981 to 1992, Mr. Schafer served in various positions with General Motors
Corporation, including Engineering Manager of a design implementation team for
automobile plastic components.
C. Raymond Thomas has served as the Company's Vice President of Information
Systems since consummation of the Merger, prior to which he had managed
Doskocil's information systems since July 1996. From 1990 to 1996, Mr. Thomas
worked as an independent systems consultant. Mr. Thomas has 27 years
experience in information systems management.
George L. Argyros has served as a director of the Company since consummation
of the Merger, prior to which he served as a director of Dogloo since
September 1995. Mr. Argyros has been a General Partner of Westar since its
formation in 1987. Mr. Argyros has also served as Chairman and Chief Executive
Officer of Arnel & Affiliates, a West Coast diversified investment company,
since 1968. Mr. Argyros is a member of the board of directors for Rockwell
International Corporation, First American Financial Corporation, the Newhall
Land and Farming Company and selected companies within the Westar portfolio.
Mr. Argyros was the 1993 recipient of the Horatio Alger Award of Distinguished
Americans and currently serves as President and Chief Executive Officer of the
Washington D.C. based Horatio Alger Association. Mr. Argyros formerly was a
co-owner of AirCal and owner of the Seattle Mariners Baseball Club of the
American League.
John W. Clark has served as a director of the Company since consummation of
the Merger, prior to which he served as a director of Dogloo since September
1995. Mr. Clark has been a General Partner of Westar since 1995. From 1990 to
May 1995, Mr. Clark was a private investor. Prior to 1990, Mr. Clark was
President of Valentec International Corporation, a producer of metal and
electronic components for military and commercial products. Mr. Clark is a
director of Amerigon, Inc., and serves on the boards of selected companies
within the Westar portfolio. Earlier in his career, Mr. Clark was founder and
Managing Partner of a CPA practice which grew substantially before merging
into Ernst & Young's predecessor firm, where he served as the office's
Managing Partner.
Charles D. Martin has served as a director of the Company since consummation
of the Merger, prior to which he served as a director of Doskocil since the
Recapitalization in July 1997. Mr. Martin served as a director of Dogloo from
September 1995 to April 1997. Mr. Martin has been a General Partner of
Enterprise since its formation in 1985 and has also been a General Partner of
Westar since its formation in 1987. Mr. Martin is a member of the board of
directors of USCS International, Inc. Mr. Martin has served on the board of
directors of 38 private and public companies.
Benjamin L. Doskocil, Sr. has served as a director of the Company since
consummation of the Merger. Mr. Doskocil founded Doskocil in the early 1960s
and served as Doskocil's President and Chief Executive Officer from its
formation until the Recapitalization in July 1997. Mr. Doskocil has 36 years
of experience with
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Doskocil. Pursuant to the Stockholders' Agreement (as defined below), Benjamin
L. Doskocil, Sr. or his son, Edward J. Doskocil, have the right to a board
seat so long as Benjamin L. Doskocil, Sr. and his spouse own at least fifty
percent (50%) of the Doskocil Common Stock owned by them immediately following
consummation of the Recapitalization.
Michael P. Hoopis has served as a director of the Company since consummation
of the Merger, prior to which he served as a director of Dogloo since December
1994. Since July 1996, Mr. Hoopis has served as President of Worldwide
Household Products, Black & Decker Corporation. From May 1992 to July 1996,
Mr. Hoopis served as President of Price Pfister, Inc., a division of Black &
Decker Corporation.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid by Doskocil for 1994, 1995
and 1996 to its Chief Executive Officer and the only other executive officer
whose total annual salary and bonus equaled at least $100,000 as of the end of
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS YEAR SALARY ($) BONUS ($)
---------------------------- ---- ---------- ----------
<S> <C> <C> <C>
Benjamin L. Doskocil, Sr. ....................... 1994 $520,000 $4,691,534
Chief Executive Officer 1995 520,000 340,752
and President 1996 520,000 507,250
Garland W. Strong................................ 1994 151,799 20,000
Executive Vice President 1995 151,799 --
of Sales and Marketing 1996 151,745 --
</TABLE>
EMPLOYMENT AND OTHER ARRANGEMENTS
Consulting Services. Mr. Benjamin L. Doskocil, Sr. retired from his position
as Doskocil's President and Chief Executive Officer in July 1997. Thereafter
Mr. Doskocil entered into a letter agreement with Doskocil whereby he agreed
to render certain consulting services to Doskocil. Pursuant to this agreement,
Mr. Doskocil receives $2,000 per day for consulting services, plus
reimbursement of expenses, and $2,000 per meeting of the board of directors.
Employment Agreement. Mr. Michael J. Farmer is party to an employment
agreement, pursuant to which Mr. Farmer serves as Senior Vice President of
Sales and Marketing of the Company. Pursuant to this agreement, Mr. Farmer
receives an annual base salary of approximately $166,000, plus an annual bonus
if Mr. Farmer meets certain performance targets agreed to by Mr. Farmer at the
start of each year. In the event Mr. Farmer's employment is terminated other
than for cause, Mr. Farmer will receive severance pay equal to his annual base
salary plus the greater of (a) his last annual bonus, or (b) the performance
bonus payable during the fiscal year of termination.
In connection with the Merger, the Company delivered letters to certain
members of Dogloo's management, including Messrs. Farmer and Schafer. The
letters provide, among other things, that if following the Merger the employee
is terminated without cause or resigns for good reason (as defined) on or
before August 31, 1999, the Company will continue to pay the employee's salary
and benefits for a twelve-month period following the termination or
resignation date.
Option Plan. In connection with the Merger, the Company adopted a stock
option plan (the "Option Plan") which provides for the grant to employees from
time to time of non-qualified stock options and incentive stock options
pursuant to Section 422 of the IRC to purchase up to an aggregate of 625,000
shares of Doskocil Common Stock. The Company granted "base" options to certain
employees immediately following the Merger at an exercise price of $15.03 per
share, based on management's estimate of the fair market value of the
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Company's Common Stock. Additionally, all Dogloo employees who held options to
purchase shares of Dogloo Common Stock ("Dogloo Options") and who continued
with the Company after the Merger had their Dogloo Options assumed by the
Company and converted into options to purchase shares of Doskocil Common
Stock. All options to purchase shares of Doskocil Common Stock, including
those Dogloo Options assumed by the Company in the Merger, will become
exercisable at the rate of twenty percent (20%) per year on the first through
the fifth anniversaries of their respective award dates. The Option Plan also
provides for the acceleration of the exercisability of 50 percent of the
previously unvested portion of the options, unless the Company's Board of
Directors determines that such option should not be accelerated, upon the
occurrence of certain corporate events involving the dissolution or
liquidation of the Corporation, merger or consolidation where less than 50% of
the outstanding voting securities of the surviving entity are owned by former
shareholders of the Corporation, or the sale of substantially all of the
Corporation's business or assets. All optionholders who exercise such options
will be required to execute and thereby become a party to the Second
Securityholders Agreement (see "Shareholder Agreements") and become subject to
the rights and restrictions of that agreement.
In addition to the "base" options described above, the Company granted
"performance" stock options to certain employees of the Company immediately
following the Merger. These options have an exercise price of $15.03 per
share, based on management's estimate of the fair market value of the
Company's Common Stock, and vest on June 30, 1999 if certain specified
financial goals set by the board of directors are met. If such financial goals
are not met, the performance options will be forfeited.
Stockholders Agreements. The following agreements regulate the relationship
among the Company's shareholders: (1) a Stockholders' Agreement dated as of
July 1, 1997, by and among Benjamin L. Doskocil, Sr., Mary Frances Doskocil
(collectively, the "Doskocils"), Enterprise and the Company (the
"Stockholders' Agreement); (2) a First Amendment to Stockholders' Agreement,
dated as of September 19, 1997 by and among Enterprise, Westar, HBI, the
Doskocils and the Company (the "First Amendment"); and (3) an Amended and
Restated Securityholders Agreement, dated as of September 19, 1997 by and
among Enterprise, Westar, HBI, the Company and certain other securityholders
other than the Doskocils (the "Second Securityholders Agreement").
Prior to the Merger, Dogloo Securityholders were and are bound by a
Securityholders Agreement dated as of September 22, 1995 (the "First
Securityholders Agreement"). The Second Securityholders Agreement amends and
restates the First Securityholders Agreement to apply on a going-forward basis
to all Company shareholders who sign the Second Securityholders Agreement
(other than the Doskocils), including those Dogloo shareholders whose shares
of Dogloo capital stock were converted into shares of Doskocil capital stock
in the Merger and any shareholders who purchase shares or exercise options in
the future. (Company shareholders who do not sign the Second Securityholders
Agreement will continue to be bound by the First Securityholders Agreement,
which contains, with certain exceptions, provisions similar to those contained
in the Second Securityholders Agreement.) The Second Securityholders Agreement
contains (i) certain preemptive rights for all holders of more than ten
percent (10%) of the fully diluted Doskocil Common Stock ("Eligible
Securityholders"); (ii) rights of first offer in favor of Eligible
Securityholders in the event any securityholder proposes to sell the Company's
securities; (iii) tag-along rights entitling securityholders other than
Westar, Enterprise and HBI ("Other Securityholders") to join in certain
proposed sales of Company securities by Eligible Securityholders; (iv) drag-
along rights entitling a majority in interest of the Eligible Securityholders
to compel participation in, or a vote in favor of, stock sales and certain
other transactions; and (v) certain registrations rights for all holders of
Doskocil Common Stock. The Second Securityholders Agreement also contains
certain other restrictions on transfer of equity securities. In the event any
Other Securityholder ceases to be an employee of the Company, the Second
Securityholders Agreement gives the Company the option to repurchase the
shares of such Other Securityholder. All Other Securityholders who owned
Company securities at the time of the Merger will have the option to require
the Company to repurchase their shares between January 1, 2000 and June 30,
2000 for a price per share based on five times the Company's EBITDA, minus its
debt and the redemption value of its preferred stock, divided by the number of
shares of fully diluted Doskocil Common Stock then currently outstanding (the
"Repurchase Price"); Other Securityholders who purchase Company
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securities after the time of the Merger may have, if so agreed to by the
Company, the same option, but the date the Company would be required to
purchase shares will be at a time agreed upon by such Securityholders and the
Company.
The Second Securityholders Agreement also gives holders of Doskocil Series B
and Series C Preferred Stock the right to convert such shares into
subordinated debt of the Company under certain conditions. Subject to the
consent of the Company's lenders and compliance with Texas law (and in the
case of conversion of Series C Preferred Stock if all holders of Series C
Preferred Stock also consent), the holders of Doskocil Series B and Series C
Preferred Stock may convert some or all of their shares into subordinated debt
which would accrue simple interest at the rate of ten percent per year. Such
debt would be subordinated and junior to any other debt under any working
capital or other credit agreement or facility with a commercial bank,
insurance company, other recognized financial institution, or any debt,
including the Notes, issued to the public pursuant to a private placement or
effective registration statement, any debt incurred in connection with any
past or future acquisitions by the Company, and any sale/leaseback financing
of equipment or real property by the Company. As part of the Transactions, the
Company redeemed all of the Doskocil Series B Preferred Stock and a portion of
the Doskocil Series C Preferred Stock. See "The Merger" and "Use of Proceeds."
The Stockholders' Agreement was executed in connection with the
Recapitalization and governs the relationship among Enterprise and the
Doskocils after the Recapitalization. It contains (i) limitations on transfer
of Company stock, including certain rights of first offer in favor of the
Company and Enterprise if the Doskocils propose to transfer their stock; (ii)
tag-along rights entitling the Doskocils to join in certain sales by
Enterprise; (iii) drag-along rights obligating the Doskocils to sell their
stock in certain transactions initiated by Enterprise; (iv) certain preemptive
rights in the event new securities are issued by the Company; and (v) certain
registration rights. Additionally, the parties to the Stockholders' Agreement
agreed to vote for the election of Mr. Doskocil (or his designee) as a
director of the Company for so long as the Doskocils (and/or their family
members) own at least fifty percent (50%) of the Company stock owned by the
Doskocils upon consummation of the Recapitalization.
The First Amendment added Westar, certain Westar affiliates and HBI as
signatories to the Stockholders' Agreement. The First Amendment also
reconciles certain provisions of the Stockholders' Agreement with the Second
Securityholders Agreement to provide for the Doskocils, Enterprise, Westar and
HBI to share in certain rights and restrictions of their stock ownership with
all other securityholders on a pro rata basis. Accordingly, pursuant to the
First Amendment, the Doskocils agree that the pro rata sharing provisions of
their tag-along rights and registration rights will be governed by the Second
Securityholders Agreement, rather than the Stockholders' Agreement, in order
to provide for the Doskocils to share in all rights and restrictions of such
provisions with all other Company securityholders. Similarly, pursuant to the
First Amendment, Westar, HBI, and certain Westar affiliates became parties to
the Stockholders' Agreement and agree that their preemptive rights and rights
of first offer will be governed by the Second Securityholders Agreement,
rather than the Stockholders' Agreement.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Doskocil Common Stock as of September 25, 1997 by (i) each person
who is known by the Company to own beneficially 5% or more of the outstanding
shares of Doskocil Common Stock, (ii) each of the Company's directors, (iii)
each of the Company's executive officers, and (iv) all directors and executive
officers as a group. Except as indicated in the footnotes to the table, the
persons named in the table have sole voting and investment power with respect
to all shares of Doskocil Common Stock shown as beneficially owned by them,
subject to community property laws where applicable, and are located at the
Company's principal offices at 4209 Barnett, Arlington, Texas 76017.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AFTER THE TRANSACTIONS
-------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(1)
<S> <C> <C>
Westar Capital II, LLC,(2).................. 434,333 14.2%
a Delaware limited liability company
Attn: John W. Clark
949 South Coast Drive, Suite 650
Costa Mesa, California 92626
Westar Capital, L.P.,(3)(4)................. 161,209 5.3%
a California limited partnership
Attn: John W. Clark
949 South Coast Drive, Suite 650
Costa Mesa, California 92626
HBI Financial Inc.,(4)(5)................... 1,578,443 51.5%
a Washington corporation
Attn: Irwin Treiger
Bogle & Gates
Two Union Square
601 Union Street, Suite 4700
Seattle, Washington 98101
Enterprise Partners III, L.P.,(6)........... 322,348 10.5%
a Delaware limited partnership
Attn: Charles D. Martin
5000 Birch Street, Suite 6200
Newport Beach, California 92660
Enterprise Partners IV, L.P.,(4)(7)......... 177,666 5.8%
a Delaware limited Partnership
Attn: Charles D. Martin
5000 Birch Street, Suite 6200
Newport Beach, California 92660
George L. Argyros(8)........................ 2,173,985 70.9%
Benjamin L. Doskocil, Sr.(9)................ 332,755 10.9%
John W. Clark(10)........................... 595,542 19.4%
Charles D. Martin(11)....................... 1,139,039 37.2%
Larry E. Rembold............................ -- --
Michael P. Hoopis........................... -- --
Gary E. Kleinjan............................ -- --
Donald J. Fritschen......................... -- --
Michael J. Farmer(12)....................... 11,663 *
Garland W. Strong........................... -- --
William C. Bowie, Jr........................ -- --
Bruce M. Schafer(13)........................ 1,004 *
C. Raymond Thomas........................... -- --
All directors and executive officers
as a group (10
persons)(8)(9)(10)(11)(12)(13)(14)......... 3,062,904 99.5%
</TABLE>
- -----------------
*Less than 1%.
(1) Percentage of ownership is based on 3,064,379 shares of Doskocil Common
Stock outstanding as of September 25, 1997. The number of shares of
Doskocil Common Stock beneficially owned and calculation of percentage
ownership, in each case, takes into account those shares underlying stock
options that are exercisable within 60 days after September 22, 1997.
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(2) Shares held of record by Westar Capital II, LLC, a Delaware limited
liability company ("Westar LLC"). The members of Westar LLC are George L.
Argyros, Sr. and Westar Capital Associates II, LLC, a Delaware limited
liability company ("WCALLC"). The members of WCALLC are, among others,
Mr. Argyros, John W. Clark and Charles D. Martin. Messrs. Argyros, Clark
and Martin may be deemed to have shared voting or dispositive power with
respect to the shares held by Westar LLC. Messrs. Argyros, Clark and
Martin disclaim beneficial ownership of shares held by Westar LLC except
to the extent of their interests described above.
(3) Shares held of record by Westar Capital, L.P., a California limited
partnership ("Westar LP"). The sole general partner of Westar LP is
Westar Capital Associates, a California limited partnership ("WCALP"), of
which, among others, GLA Financial Corporation, a California corporation
("GLA"), Messrs. Clark and Martin are general partners. Mr. Argyros is
the sole shareholder of GLA Financial and a limited partner of Westar LP
and WCALP. GLA and Messrs. Argyros, Clark and Martin may be deemed to
have shared voting or dispositive power with respect to the shares held
by Westar LP. GLA and Messrs. Argyros, Clark and Martin disclaim
beneficial ownership of shares held by Westar LP except to the extent of
their interests described above.
(4) Prior to consummation of the Transactions, Aurelio F. Barreto, III (co-
founder and former Chief Executive Officer of Dogloo) Dogloo and
Doskocil, granted to Westar, or its designees, the right to purchase any
or all of the shares of Doskocil Common Stock that Mr. Barreto would own
upon completion of the Merger. Westar exercised this right on September
24, 1997, designating HBI, EPIV and EPIVA (each as defined above) as its
designees. On that same date, all of Mr Barreto's shares of Doskocil
Common Stock were purchased by HBI, EPIV and EPIVA (303,116, 61,028 and
5,986 shares of Doskocil Common Stock, respectively).
(5) Shares held of record by HBI, of which Mr. Argyros is the sole
shareholder.
(6) Shares held of record by EPIII (as defined above). The sole general
partner of EPIII is Enterprise Management Partners III, L.P., a Delaware
limited partnership ("EMPIII"), of which, among others, Charles D.
Martin, is a general partner. Shares exclude: (i) 28,034 shares of
Doskocil Common Stock held by EPIIIA (approximately 0.9%) of which EMPIII
is the sole general partner; (ii) 177,666 shares of Doskocil Common Stock
held by EPIV (approximately 5.8%) of which Enterprise Management Partners
IV, L.P., a Delaware limited partnership ("EMPIV"), is the sole general
partner; Mr. Martin, among others, is the general partner of EMPIV; and
(iii) 15,449 shares of Doskocil Common Stock held by EPIVA (approximately
0.5%) of which EMPIV is the sole general partner. Mr. Martin may be
deemed to have shared voting or dispositive power with respect to the
shares described above. Mr. Martin disclaims beneficial ownership of such
shares except to the extent of his interests described above.
(7) Shares held of record by EPIV (as defined above). The sole general
partner of EPIV is Enterprise Management Partners IV, L.P., a Delaware
limited partnership ("EMPIV"), of which, among others, Charles D. Martin,
is a general partner. Shares exclude: (i) 322,348 shares of Doskocil
Common Stock held by EPIII (approximately 10.5%) of which EMPIII is the
sole general partner; (ii) 28,034 shares of Doskocil Common Stock held by
EPIIIA (approximately 0.9%) of which EMPIII is the sole general partner;
and (iii) 15,499 shares of Doskocil Common Stock held by EPIVA
(approximately 0.5%) of which EMPIV is the sole general partner. Mr.
Martin may be deemed to have shared voting or dispositive power with
respect to the shares described above. Mr. Martin disclaims beneficial
ownership of such shares except to the extent of his interests described
above.
(8) Consists of 434,333 shares of Doskocil Common Stock held by Westar LLC,
161,209 shares held by Westar LP and 1,578,443 shares held by HBI. Mr.
Argyros disclaims beneficial ownership of the shares held by Westar LLC,
Westar LP and HBI, except to the extent of his ownership interests in
Westar LLC, Westar LP and HBI described above.
(9) Consists of 331,363 shares of Doskocil Common Stock held in the name of
Benjamin L. Doskocil, Sr. and 1,392 shares of Common Stock held in the
name of Mary Frances Doskocil, Mr. Doskocil's spouse.
(10) Consists of 434,333 shares of Doskocil Common Stock held by Westar LLC of
which WCALLC is a member, and 161,209 shares held by Westar LP of which
WCALP is the sole general partner. Mr. Clark disclaims beneficial
ownership of the shares held by Westar LLC and Westar LP, except to the
extent of his ownership interests therein as described above.
(11) Consists of 434,333 shares of Doskocil Common Stock held by Westar LLC of
which WCALLC is a member, 161,209 shares held by Westar LP of which WCALP
is the sole general partner, 322,348 shares held by EPIII, 28,034 shares
held by EPIIIA, 177,666 shares held by EPIV and 15,449 shares held by
EPIVA. Mr. Martin disclaims beneficial ownership of the shares held by
Westar Capital, EPIII, EPIIIA, EPIV and EPIVA except to the extent of his
interests described above.
(12) Includes approximately 9,253 shares of Doskocil Common Stock issuable
pursuant to options held by Mr. Farmer exercisable within 60 days of
September 22, 1997.
(13) Includes approximately 1,004 shares of Doskocil Common Stock issuable
pursuant to options held by Mr. Schafer exercisable within 60 days of
September 22, 1997.
(14) Includes approximately 10,257 shares of Doskocil Common Stock issuable
pursuant to options held by Mr. Farmer and Mr. Schafer exercisable within
60 days of September 22, 1997.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 15,000,000 shares of
Doskocil Common Stock and 25,000,000 shares of Doskocil Preferred Stock. The
Company has 3,064,379 outstanding shares of Doskocil Common Stock and
9,161,567 outstanding shares of Doskocil Series C Preferred Stock.
COMMON STOCK
Holders of shares of Doskocil Common Stock are entitled to one vote per
share on all matters to be voted on by shareholders. The holders of shares of
Doskocil Common Stock are entitled to receive such dividends, if any, as may
be declared from time to time by the board of directors in its discretion from
funds legally available therefor, and upon liquidation or dissolution are
entitled to receive all assets available for distribution to the shareholders.
Holders of Doskocil Common Stock have no preemptive or other subscription
rights, except those provided for in the Second Securityholders Agreement (see
"Management--Employment and Other Arrangements") and there are no conversion
rights or redemption or sinking fund provisions with respect to such shares.
All of the outstanding shares of Doskocil Common Stock are fully paid and
nonassessable.
PREFERRED STOCK
The Company's board of directors will have the authority, without further
action by the stockholders, to issue up to a total of 25,000,000 shares of
Doskocil Preferred Stock in one or more additional series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any
series or the designations of such series.
Doskocil's Series C Preferred Stock accumulates dividends at the rate of
$0.10 per share per annum, payable on March 1 of each year, subject to the
availability of funds and the terms of the Company's loan agreements.
Dividends are cumulative and accrue on each outstanding share of Doskocil
Series C Preferred Stock whether or not earned or declared. Doskocil Series C
Preferred Stock has a redemption price of $1.00 per share, plus all accrued
but unpaid dividends, and must be redeemed if the Company effects a business
combination with another entity (by way of merger, consolidation or
reorganization) or an initial underwritten public offering. Shares of Doskocil
Series C Preferred Stock may also be redeemed by voluntary repurchase. Holders
of Doskocil Series C Preferred Stock have a liquidation preference equal to
the redemption price. Doskocil Series C Preferred Stock has no voting rights,
except for such rights as are provided under applicable law and class voting
rights with respect to transactions adversely affecting the rights,
preferences, privileges or restrictions of Doskocil Series C Preferred Stock
or the issuance of any equity security having a preference over, or being on
parity with, Doskocil Series C Preferred Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 1, 1997, as part of the Recapitalization, Doskocil purchased
5,666,145 shares of Doskocil Common Stock from Mr. Benjamin L. Doskocil, Sr.
and his spouse, Doskocil's sole shareholders at the time, for approximately
$87.4 million.
In connection with the Recapitalization, Doskocil entered into twelve long-
term real property lease agreements with Mr. Doskocil and/or entities owned by
him (the "Lessors") pursuant to which Doskocil leases, and following
consummation of the Transactions, the Company will lease, substantially all of
its Arlington, Texas facilities. The Lessors leased these facilities to
Doskocil prior to the Recapitalization pursuant to agreements which provided
for aggregate lease payments in 1996 of approximately $285,000 per month. The
total payments to the Lessors by the Company under the current lease
agreements is approximately $284,000 per month. In July 2002, the base rent
for each of these leases is scheduled to increase by ten percent (10%). Each
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of the leases has an initial ten-year term, which may be renewed by the
Company (subject to certain conditions) for up to an additional 15 years. The
base rent for the renewal terms is the greater of (i) the fair market value,
or (ii) one hundred and ten percent (110%) of the existing base rent, but in
no event greater than one hundred and twenty-five percent (125%) of the then
existing base rent. Certain of the leases grant to the Company the option to
elect to purchase all of Lessors' interest in the Arlington facilities,
including without limitation, the buildings, parking lots, fixtures and
improvements constructed on the land, and all of Lessors' equipment,
machinery, furniture, used in connection with the operation of such property.
In connection with such leases, the Company may also elect to purchase any or
all vacant or undeveloped land that is contiguous to such property.
As part of the Recapitalization, Doskocil paid $380,000 plus expenses to
EMPC as a financing fee.
Prior to the Recapitalization, Doskocil made advances to fund the annual
premiums on a life insurance policy on Mr. Doskocil. The policy is owned by a
trust. As collateral for these advances, the trust assigned the premium
receivable rights in the cash value and death proceeds of the policy to
Doskocil. The advances for premiums receivable were approximately $764,000 and
$825,000 at December 30, 1995 and December 28, 1996, respectively. In
connection with the Recapitalization, Doskocil distributed in the form of a
dividend assets of approximately $1.2 million, which included this insurance
trust receivable, the cash surrender value of the life insurance policies on
Mr. Doskocil, and property and equipment. See "The Doskocil Recapitalization"
and "Management."
During the six-month period ended June 30, 1997, Doskocil made cash
distributions of approximately $1.0 million, to Mr. Doskocil and his spouse.
Pursuant to an agreement dated May 27, 1997, by and among Aurelio F.
Barreto, III, Dogloo, Westar, EPIII, EPIIIA and HBI, the parties agreed, among
other things, to the following: (i) Dogloo's payment of a $4,615 weekly salary
to Mr. Barreto from May 27, 1997 until September 30, 1998; (ii) Dogloo's
payment of a $1,195 monthly amount to Mr. Barreto from May 27, 1997 until
September 30, 1998; and (iii) Dogloo's redemption of the 6,890,000 shares of
Dogloo Series A Preferred Stock owned by Mr. Barreto upon certain specified
triggering events. Pursuant to a Stock Redemption Agreement, dated September
11, 1997, among Mr. Barreto, Doskocil and Westar, Mr. Barreto agreed that his
rights to payments under the above agreement terminate in the event that
Westar, or its designees, purchase all of the shares of Doskocil Common Stock
that Mr. Barreto acquired upon completion of the Merger provided that such
purchase occurs on the earlier of (i) 15 business days after the Merger is
effective or (ii) October 31, 1997. Westar exercised this right on September
24, 1997, designating HBI, EPIV and EPIVA as its designees. On that same date,
all of Mr. Barreto's shares of Doskocil Common Stock were purchased by HBI,
EPIV and EPIVA (303,116, 61,028 and 5,986 shares of Doskocil Common Stock,
respectively).
In September 1995, Mr. Barreto exchanged 13,291,889 shares of Dogloo Common
Stock for cash of approximately $4.5 million, 8,268,000 shares of Dogloo
Series A Preferred Stock and 2,141,280 shares of Dogloo Series B Preferred
Stock as part of a recapitalization of Dogloo. In connection with the
recapitalization of Dogloo, Westar made loans to Dogloo for an aggregate of
$5.0 million, bearing interest at 10.25%. These loans were repaid, in part, at
time of the closing of the Dogloo recapitalization. As of June 30, 1997,
$732,000 of such loans remained outstanding. The outstanding amount will be
repaid as part of the Transactions.
From July 1991 to February 1996, Dogloo leased a facility from Mr. Barreto
and the other then principal stockholder of Dogloo. The monthly lease payments
for this facility were approximately $10,000.
Dogloo agreed to pay a $450,000 transaction advisory fee to Westar as part
of the 1995 Dogloo recapitalization transaction. In addition, at that time
Dogloo agreed to pay fees for financial management and strategic advisory
services provided to Dogloo. Pursuant to the agreement, Dogloo paid fees to
Westar of approximately $200,000 and $50,000 in 1996 and 1995, respectively.
Fees paid during the six-month period ended June 30, 1997 pursuant to this
agreement were approximately $150,000. The agreement may be terminated at any
time by either party, with or without cause.
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Pursuant to the terms of the Second Securityholders Agreement, Westar is
permitted to charge the Company a monthly advisory fee of $50,000. This fee
may be modified from time to time by the Company's board of directors.
During 1995, Doskocil advanced approximately $4.4 million to Marybe, Ltd.,
an entity owned directly and indirectly by Mr. Doskocil and his spouse. The
unpaid balance of such advances at December 28, 1996 was approximately
$427,000, which was paid in full during the six-month period ended June 30,
1997.
During 1994 and 1996, Doskocil expensed approximately $4.4 million and $2.0
million, respectively, in officer's bonus to Mr. Doskocil. A portion of these
officer's bonuses were intended to compensate Mr. Doskocil and his spouse for
their personal tax liability associated with taxable income arising from
Doskocil's Subchapter S earnings. The $1.5 million payable at December 28,
1996 was paid in full during 1997. No such bonuses were declared or paid for
the six-month period ended June 30, 1997. See "Doskocil Selected Historical
Financial Data."
Concurrent with the Merger, the Company used proceeds from the Offering and
the New Credit Facility to pay accrued dividends on shares of Doskocil
Preferred Stock and to redeem certain shares of Doskocil Common Stock and
Doskocil Preferred Stock. See "The Merger."
DESCRIPTION OF NEW CREDIT FACILITY
General. Concurrent with the consummation of the Merger, the Company entered
into the New Credit Facility with NationsBank of Texas, as administrative
agent (the "Agent"), NationsBanc Capital Markets, Inc. ("NationsBanc") and
Donaldson Lufkin & Jenrette Securities Corporation ("DLJ"), as arrangers and
syndication agents, and other lending institutions party thereto (the
"Lenders"), which agreement provides for an aggregate principal amount of
loans of up to $110 million. Loans under the New Credit Facility consist of
$82.5 million in aggregate principal amount of term loans (the "Term Loan
Facility"), which facility includes a $45 million tranche A term loan
subfacility and a $37.5 million tranche B term loan subfacility, and a
$27.5 million revolving credit facility (the "Revolving Credit Facility"),
which facility includes a subfacility for swingline borrowings and a sublimit
for letters of credit. The Company used the Term Loan Facility and a portion
of the Revolving Credit Facility to provide a portion of the funds necessary
to consummate the Transactions. See "Use of Proceeds." This summary of the New
Credit Facility is qualified in its entirety by reference to the complete text
of the documents entered into in connection therewith. The following is a
description of the general terms of the New Credit Facility.
Security. Indebtedness of the Company under the New Credit Facility is
guaranteed by each of Doskocil's domestic subsidiaries (direct or indirect),
hereafter acquired, and is secured by: (i) a first priority security interest
in substantially all of the assets and properties (including, without
limitation, accounts receivable, inventory, real property, machinery,
equipment, contracts and contract rights, trademarks, copyrights, patents,
license agreements and general intangibles) of the Company and each of its
domestic subsidiaries (direct or indirect) hereafter acquired; (ii) a first
priority perfected pledge of all capital stock of each of Doskocil's domestic
subsidiaries (direct or indirect) hereafter acquired; and (iii) a first
priority perfected pledge of 65% of the capital stock of foreign subsidiaries
of Doskocil or any of its domestic subsidiaries.
Interest. Indebtedness under the New Credit Facility bears interest at a
floating rate. Indebtedness under the Term Loan Facility and the Revolving
Credit Facility initially bears interest at a rate based (at the Company's
option) upon (i) LIBOR for one, two, three or six months, plus 2.25% with
respect to the Tranche A Term Loan Facility and the Revolving Credit Facility
or plus 2.75% with respect to the Tranche B Term Loan Facility, or (ii) the
Alternate Base Rate (as defined in the New Credit Facility) plus .75% with
respect to the Tranche A Term Loan Facility and the Revolving Credit Facility
or plus 1.25% with respect to the Tranche B Term Loan Facility; provided,
however, the interest rates are subject to several quarter point reductions in
the event the Company meets certain performance targets.
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Maturity. The Tranche B Term Loan Facility matures on the seventh
anniversary of the closing under the New Credit Facility. The Tranche A Term
Loan Facility and the Revolving Credit Facility mature on the sixth
anniversary of the closing under the New Credit Facility. The Term Loan shall
be subject to repayment according to quarterly amortization of principal based
upon the Scheduled Amortization (as defined in the New Credit Facility).
Prepayments. The New Credit Facility provides for mandatory prepayments of
the Term Loan Facility and the Revolving Credit Facility until certain
financial ratios are attained by the Company. Prepayments on the Term Loan
Facility are applied to reduce scheduled amortization payments as provided in
the New Credit Facility. The mandatory prepayments defined in the New Credit
Facility include: (a) 100% of the net cash proceeds received by the Company,
or any subsidiary from asset sales, subject to de minimus baskets, certain
exceptions, and reinvestment provisions and net of selling expenses and taxes
to the extent such taxes are paid; (b) 50% of Excess Cash Flow pursuant to an
annual cash sweep arrangement; (c) 100% of the net cash proceeds from the
issuance of debt (excluding certain debt proceeds) by the Company, or any
subsidiary; and (d) 50% of the net cash proceeds from the issuance of equity
by the Company or any subsidiary subject to de minimus baskets and certain
exceptions. In addition, the Company may prepay the New Credit Facility in
whole or in part at any time without penalty, subject to reimbursement of
certain costs or the Lenders.
Fees. The Company is required to pay to the Lenders in the aggregate a
commitment fee equal to 1/2% per annum on the committed undrawn amount of the
Revolving Credit Facility during the preceding quarter; provided that this fee
may be subject to reduction in the event the Company meets certain performance
targets. The Company also is required to pay to the Lenders participating in
the Revolving Credit Facility letter of credit fees, due quarterly in arrears,
equal to the applicable margin over LIBOR for loans under the Revolving Credit
Facility, plus a facing fee of 1/4% per annum to be paid to the issuing bank
for its own account. Fees will be calculated on the aggregate stated amount
for each letter of credit for the stated duration thereof.
Covenants. The New Credit Facility requires the Company to meet certain
financial tests, including a minimum fixed charge coverage ratio, minimum
interest coverage ratio and maximum leverage ratio. The New Credit Facility
also contains covenants which include, without limitation (i) delivery of
financial statements and other reports; (ii) delivery of compliance and
borrowing base certificates; (iii) notices of default, material litigation and
material governmental and environmental proceedings; (iv) compliance with
laws; (v) payment of taxes; (vi) maintenance of insurance; (vii) limitation on
liens; (viii) limitations on mergers, consolidations and sales of assets; (ix)
limitations on incurrence of debt; (x) limitations on dividends and stock
redemptions and the redemption and/or prepayment of other debt; (xi)
limitations on investments; (xii) ERISA (as defined) matters;
(xiii) limitation on transactions with affiliates; and (xiv) limitation on
capital expenditures.
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DESCRIPTION OF THE NOTES
GENERAL
Set forth below is a summary of certain provisions of the Notes. The Old
Notes are, and the New Notes will be, issued pursuant to an indenture (the
"Indenture") dated as of September 19, 1997, by and between the Company and
First Trust National Association, as trustee (the "Trustee"), a copy of which
is filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. The following summaries of certain provisions of the Indenture
and the Registration Rights Agreement are summaries only, do not purport to be
complete and are qualified in their entirety by reference to all of the
provisions of the Indenture and the Registration Rights Agreement. Capitalized
terms used herein and not otherwise defined shall have the meanings assigned
to them in the Indenture and the Registration Rights Agreement, as
appropriate. Wherever particular provisions of the Indenture or the
Registration Rights Agreement are referred to in this summary, such provisions
are incorporated by reference as a part of the statements made and such
statements are qualified in their entirety by such reference. The form and
terms of the New Notes will be the same as those of the Old Notes except that
the New Notes will have been registered under the Securities Act, and
consequently will not be subject to certain transfer restrictions,
registration rights and related Liquidated Damages provisions applicable to
the Old Notes. See "--Registration Rights; Liquidated Damages" below.
The Old Notes are, and the New Notes will be, senior subordinated,
unsecured, general obligations of the Company, limited in aggregate principal
amount to $85.0 million. The Notes are subordinate in right of payment to
certain other debt obligations of the Company. The Notes will be jointly and
severally irrevocably and unconditionally guaranteed on a senior subordinated
basis by each of the Company's future Subsidiaries other than any Receivables
Subsidiaries or any Foreign Subsidiaries (the "Guarantors"). The obligations
of each Guarantor under its guarantee, however, will be limited in a manner
intended to avoid it being deemed a fraudulent conveyance under applicable
law. See "Certain Bankruptcy Limitations" below. The term "Subsidiaries" as
used herein, however, does not include Unrestricted Subsidiaries. As of the
date of this Prospectus, the Company has no Subsidiaries. The Notes will be
issued only in fully registered form, without coupons, in denominations of
$l,000 and integral multiples thereof.
PRINCIPAL, MATURITY AND INTEREST
The Notes mature on September 15, 2007. The Notes bear interest at the rate
per annum stated on the cover page hereof from the date of issuance or from
the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on March 15 and September 15 of each year,
commencing on March 15, 1998, to the persons in whose names such Notes are
registered at the close of business on the March 1 or September 1 immediately
preceding such Interest Payment Date. Interest is calculated on the basis of a
360-day year consisting of twelve 30-day months.
Principal of, premium, if any, and interest and Liquidated Damages, if any,
on the Notes will be payable, and the Notes may be presented for registration
of transfer or exchange, at the office or agency of the Company maintained for
such purpose, which office or agency shall be maintained in the Borough of
Manhattan, The City of New York, except as set forth below. At the option of
the Company, but subject (as applicable) to the procedures of the DTC as
described in "Book-Entry, Delivery and Form," payment of interest may be made
by check mailed to the Holders of the Notes at the addresses set forth upon
the registry books of the Company. No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. Until otherwise designated by the Company,
the Company's office or agency is the corporate trust office of the Trustee
presently located at the office of the Trustee in the Borough of Manhattan,
The City of New York.
SUBORDINATION
The Notes and the Guarantees are general, unsecured obligations of the
Company and the Guarantors, respectively, subordinated in right of payment to
all Senior Debt of the Company and the Guarantors, as applicable. As of June
30, 1997, on a pro forma basis after giving effect to the Transactions, the
Company would
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have had approximately $80.0 million of outstanding Senior Debt, all of which
would have been secured debt outstanding under the New Credit Facility.
The Indenture provides that no payment (by set-off or otherwise) may be made
by or on behalf of the Company or a Guarantor, as applicable, on account of
the principal of, premium, if any, or interest or Liquidated Damages on the
Notes (including any repurchases of Notes), or on account of any other
obligation for the payment of money due in respect of the Notes, or on account
of the redemption provisions of the Notes, for cash or property (other than
Junior Securities issued in connection with a reorganization pursuant to the
bankruptcy laws of any jurisdiction), (i) upon the maturity of any Senior Debt
of the Company or such Guarantor by lapse of time, acceleration (unless
waived) or otherwise, unless and until all principal of, premium, if any, and
the interest (and with respect to the New Credit Facility, any other
obligations) on such Senior Debt are first paid in full in cash or Cash
Equivalents (or, with respect to Senior Debt other than the New Credit
Facility, such payment is duly provided for) or otherwise to the extent
holders accept satisfaction of amounts due by settlement in other than cash or
Cash Equivalents, or (ii) in the event of default in the payment of any
principal of, premium, if any, or interest on Senior Debt of the Company or
such Guarantor when it becomes due and payable, whether at maturity, a
scheduled payment date, or at a date fixed for prepayment or by declaration or
otherwise (a "Payment Default"), unless and until such Payment Default has
been cured or waived or otherwise has ceased to exist.
Upon (i) the happening of an event of default (other than a Payment Default)
that permits the holders of Senior Debt (or a trustee or agent on behalf of
such holders) to declare such Senior Debt to be due and payable and (ii)
written notice of such event of default given to the Trustee by the holders
(or a trustee, agent or other representative of such holders) of Designated
Senior Debt (a "Payment Notice"), then, unless and until such event of default
has been cured or waived or otherwise has ceased to exist, no payment (by set-
off or otherwise) may be made by or on behalf of the Company or any Guarantor
which is an obligor under such Senior Debt on account of the principal of,
premium, if any, or interest or Liquidated Damages on the Notes (including any
repurchases of any of the Notes), or on account of any other obligation for
the payment of money due in respect of the Notes, or on account of the
redemption provisions of the Notes, in any such case, other than payments made
with Junior Securities issued in connection with a reorganization pursuant to
the bankruptcy laws of any jurisdiction. Notwithstanding the foregoing, unless
the Senior Debt in respect of which such event of default exists has been
declared due and payable in its entirety within 179 days after the Payment
Notice is delivered as set forth above (the "Payment Blockage Period") (and
such declaration has not been rescinded or waived), at the end of the Payment
Blockage Period, the Company and the Guarantors shall be required, unless the
provisions described in the immediately preceding paragraph are then
applicable, to pay all sums not paid to the Holders of the Notes during the
Payment Blockage Period due to the foregoing prohibitions and to resume all
other payments as and when due on the Notes. Any number of Payment Notices may
be given; provided, however, that (i) not more than one Payment Notice shall
be given within a period of any 360 consecutive days, and (ii) no default that
existed upon the date of such Payment Notice or the commencement of such
Payment Blockage Period (whether or not such event of default relates to the
same issue of Senior Debt) shall be made the basis for the commencement of any
other Payment Blockage Period (it being acknowledged that any subsequent
action, or any breach of any financial covenant for a period commencing after
the expiration of such Payment Blockage Period that, in either case, would
give rise to a new event of default, even though it is a breach pursuant to
any provision under which a prior event of default previously existed, shall
constitute a new event of default for this purpose).
Upon any distribution of assets of the Company or any Guarantor upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company or a Guarantor, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or a similar proceeding or upon assignment for the
benefit of creditors or any marshalling of assets or liabilities, (i) the
holders of all Senior Debt of the Company or such Guarantor, as applicable,
will first be entitled to receive payment in full in cash or Cash Equivalents
(or, with respect to Senior Debt other than the New Credit Facility, to have
such payment duly provided for) or, with respect to any holder, otherwise to
the extent such holder expressly acknowledges satisfaction of amounts due by
settlement in other than cash or Cash Equivalents (it being acknowledged that
approval of a plan of reorganization in a bankruptcy
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proceeding shall not constitute satisfaction of amounts due in settlement),
before the Holders are entitled to receive any payment on account of principal
of, premium, if any, and interest and Liquidated Damages on the Notes, or on
account of any other obligation for the payment of money due in respect of the
Notes (other than Junior Securities issued in connection with a reorganization
pursuant to the bankruptcy laws of any jurisdiction) and (ii) any payment or
distribution of assets of the Company or such Guarantor of any kind or
character from any source, whether in cash, property or securities (other than
Junior Securities issued in connection with a reorganization pursuant to the
bankruptcy laws of any jurisdiction) to which the Holders or the Trustee on
behalf of the Holders would be entitled (by set-off or otherwise), except for
the subordination provisions contained in the Indenture, will be paid by the
liquidating trustee or agent or other person making such a payment or
distribution directly to the holders of such Senior Debt or their
representative to the extent necessary to make payment in full on all such
Senior Debt remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company or any Guarantor (other than Junior
Securities issued in connection with a reorganization pursuant to the
bankruptcy laws of any jurisdiction) shall be received by the Trustee or the
Holders at a time when such payment or distribution is prohibited by the
foregoing provisions, such payment or distribution shall be held in trust for
the benefit of the holders of such Senior Debt, and shall be paid or delivered
by the Trustee or such Holders, as the case may be, to the holders of such
Senior Debt remaining unpaid (or, with respect to Senior Debt other than the
New Credit Facility, unprovided for) or to their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Debt may have been issued,
ratably according to the aggregate principal amounts remaining unpaid on
account of such Senior Debt held or represented by each, for application to
the payment of all such Senior Debt remaining unpaid, to the extent necessary
to pay (or, with respect to Senior Debt other than the New Credit Facility, to
provide for the payment of) all such Senior Debt in full, or otherwise to the
extent holders expressly acknowledge satisfaction of amounts due after giving
effect to any concurrent payment or distribution to the holders of such Senior
Debt.
No provision contained in the Indenture or the Notes affects the obligation
of the Company and the Guarantors, which is absolute and unconditional, to
pay, when due, principal of, premium, if any, and interest and Liquidated
Damages, if any, on the Notes. The subordination provisions of the Indenture
and the Notes do not prevent the occurrence of any Default or Event of Default
under the Indenture or limit the rights of the Trustee or any Holder to pursue
any other rights or remedies with respect to the Notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any Guarantor or a marshalling of assets or liabilities of the Company or any
Guarantor, holders of the Notes may receive ratably less than other creditors.
In the event of any liquidation or reorganization of the Company or any
Guarantor in bankruptcy, insolvency, receivership or similar proceeding, if
the Holders of the Notes (or the Trustee on their behalf) have not filed any
claim, proof of claim, or other instrument of similar character necessary to
enforce the obligations of the Company or any Guarantor in respect of the
Notes at least thirty (30) days before the expiration of the time to file the
same, then in such event, but only in such event, the holders of the
Designated Senior Debt or a representative on their behalf may, as an
attorney-in-fact for such Holders, file any claim, proof of claim, or other
instrument of similar character on behalf of such Holders.
The subordination provisions of the Indenture shall continue to be effective
or be reinstated, as the case may be, if at any time any payment of any of the
Senior Debt is rescinded or must otherwise be returned by any holder of the
Senior Debt upon the insolvency, bankruptcy, or reorganization of the Company,
any Guarantor, or otherwise, all as though such payment has not been made.
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CERTAIN BANKRUPTCY LIMITATIONS
The Company's future Subsidiaries (other than any Receivables Subsidiaries
or any Foreign Subsidiaries) will guarantee the Company's obligations with
respect to the Notes, as provided under "Future Subsidiary Guarantors" below.
Holders of the Notes will be direct creditors of each Guarantor by virtue of
its guarantee. Nonetheless, in the event of the bankruptcy or financial
difficulty of a Guarantor, such Guarantor's obligations under its guarantee
may be subject to review and avoidance under state and federal fraudulent
transfer laws. Among other things, such obligations may be avoided if a court
concludes that such obligations were incurred for less than reasonably
equivalent value or fair consideration at a time when the Guarantor was
insolvent, was rendered insolvent, or was left with inadequate capital to
conduct its business. A court would likely conclude that a Guarantor did not
receive reasonably equivalent value or fair consideration to the extent that
the aggregate amount of its liability on its guarantee exceeds the economic
benefits it receives in the Offering. The obligations of each Guarantor under
its guarantee will be limited in a manner intended to cause it not to be a
fraudulent conveyance under applicable law, although no assurance can be given
that a court would give the holder the benefit of such provision. See "Risk
Factors--Fraudulent Transfer Considerations."
If the obligations of a Guarantor under its guarantee were avoided, Holders
of Notes would have to look to the assets of any remaining Guarantors for
payment. There can be no assurance in that event that such assets would
suffice to pay the outstanding principal and interest on the Notes.
OPTIONAL REDEMPTION
The Company does not have the right to redeem any Notes prior to September
15, 2002 (other than out of the Net Cash Proceeds of an Initial Public Equity
Offering or upon a Change of Control Redemption Event, as described in the
next two following paragraphs). The Notes will be redeemable for cash at the
option of the Company, in whole or in part, at any time on or after September
15, 2002, upon not less than 30 days nor more than 60 days notice to each
holder of Notes, at the following redemption prices (expressed as percentages
of the principal amount) if redeemed during the 12-month period commencing
September 15 of the years indicated below, in each case (subject to the right
of Holders of record on a Record Date to receive interest due on an Interest
Payment Date that is on or prior to such Redemption Date) together with
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................. 105.063%
2003.............................. 103.375%
2004.............................. 101.688%
2005 and thereafter............... 100.000%
</TABLE>
Until September 15, 2000, upon an Initial Public Equity Offering of common
stock for cash of the Company, up to 35% of the aggregate principal amount of
the Notes originally outstanding may be redeemed at the option of the Company
within 90 days of such Initial Public Equity Offering, on not less than 30
days, but not more than 60 days, notice to each holder of the Notes to be
redeemed, with cash from the Net Cash Proceeds of such Initial Public Equity
Offering, at a redemption price equal to 110 1/8% of principal, (subject to
the right of Holders of record on a Record Date to receive interest due on an
Interest Payment Date that is on or prior to such Redemption Date) together
with accrued and unpaid interest and Liquidated Damages, if any, to the date
of redemption; provided, however, that at least 65% of the aggregate principal
amount of the Notes originally outstanding remain outstanding immediately
following such redemption.
At any time on or prior to September 15, 2002, the Notes may also be
redeemed in whole (but not in part) at the option of the Company upon the
occurrence of a Change of Control Redemption Event on not less than 15 days,
but not more than 30 days, notice (but in no event shall any such redemption
occur more than 45 Business Days after the occurrence of such Change of
Control Redemption Event) to each Holder of Notes, at a redemption price equal
to 100% of the principal amount thereof, plus the Applicable Premium as of,
and accrued and unpaid interest and Liquidated Damages, if any, to the
Redemption Date (subject to the right of Holders of
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record on a Record Date to receive interest due on an Interest Payment Date
that is on or prior to such Redemption Date).
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption (except for a
redemption of all outstanding Notes in connection with a Change of Control
Redemption Event, in which case notice will be sent within the applicable time
periods referenced above) to the Holder of each Note to be redeemed to such
Holder's last address as then shown upon the registry books of the Registrar.
Any notice which relates to a Note to be redeemed in part only must state the
portion of the principal amount equal to the unredeemed portion thereof and
must state that on and after the date of redemption, upon surrender of such
Note, a new Note or Notes in a principal amount equal to the unredeemed
portion thereof will be issued. On and after the date of redemption, interest
will cease to accrue on the Notes or portions thereof called for redemption,
unless the Company defaults in the payment thereof.
CERTAIN COVENANTS
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred, if the Company has not first redeemed all of such holder's Notes in
connection with a Change of Control Redemption Event as provided above, each
holder of Notes has the right, at such holder's option, pursuant to an
irrevocable and unconditional offer by the Company (the "Change of Control
Offer"), to require the Company to repurchase all or any part of such holder's
Notes (provided, that the principal amount of such Notes must be $1,000 or an
integral multiple thereof) on a date (the "Change of Control Purchase Date")
that is no later than 45 Business Days after the occurrence of such Change of
Control, at a cash price equal to 101% of the principal amount thereof (the
"Change of Control Purchase Price"), together with accrued and unpaid interest
and Liquidated Damages, if any, to the Change of Control Purchase Date. Except
as provided in the next following paragraph, the Change of Control Offer shall
be made within 20 Business Days following a Change of Control and shall remain
open for 20 Business Days following its commencement (the "Change of Control
Offer Period"). Upon expiration of the Change of Control Offer Period, the
Company promptly shall purchase all Notes properly tendered in response to the
Change of Control Offer.
The Indenture provides that, prior to the commencement of a Change of
Control Offer, but in any event within 30 days following any Change of
Control, the Company will (i)(a) repay in full and terminate all commitments
under Indebtedness under the New Credit Facility and all other Senior Debt the
terms of which require repayment upon a Change of Control or (b) offer to
repay in full and terminate all commitments under all Indebtedness under the
New Credit Facility and all such other Senior Debt and repay the Indebtedness
owed to each lender which has accepted such offer in full or (ii) obtain the
requisite consents under the New Credit Facility and all such other Senior
Debt to permit the repurchase of the Notes as provided herein. The Company's
failure to comply with the preceding sentence shall constitute an Event of
Default described in clause (iv) and not in clause (ii) under "Events of
Default" below.
As used herein, a "Change of Control" means (i) any merger or consolidation
of the Company with or into any person or any sale, transfer or other
conveyance, whether direct or indirect, of all or substantially all of the
assets of the Company, on a consolidated basis, in one transaction or a series
of related transactions, if, immediately after giving effect to such
transaction(s), any "person" or "group" (as such terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
(other than an Excluded Person) is or becomes the "beneficial owner," directly
or indirectly, of more than 50% of the total voting power
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in the aggregate normally entitled to vote in the election of directors,
managers, or trustees, as applicable, of the transferee(s) or surviving entity
or entities, (ii) any "person" or "group" (as such terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
(other than an Excluded Person) is or becomes the "beneficial owner," directly
or indirectly, of more than 50% of the total voting power in the aggregate of
all classes of Capital Stock of the Company then outstanding normally entitled
to vote in elections of directors, or (iii) during any period of 24
consecutive months after the Issue Date, individuals who at the beginning of
any such 24-month period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved
by a vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest and Liquidated Damages, if any) of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted together with an Officers'
Certificate listing the Notes or portions thereof being purchased by the
Company. The Paying Agent promptly will pay the Holders of Notes so accepted
an amount equal to the Change of Control Purchase Price (together with accrued
and unpaid interest and Liquidated Damages, if any), and the Trustee promptly
will authenticate and deliver to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted will be delivered promptly by the Company to the Holder thereof. The
Company publicly will announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Purchase Date.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of the Company has occurred. In addition, the
Company's ability to pay such purchase price is, and may in the future be,
limited by the terms of the New Credit Facility or other agreements relating
to indebtedness that constitute Senior Debt. The occurrence of certain of the
events that would constitute a Change of Control would constitute a default
under the New Credit Facility. Moreover, the exercise by the Holders of their
right to require the Company to repurchase the Notes could cause a default
under indebtedness constituting Senior Debt, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the
Company. Also, the Company's ability to pay cash to Holders of Notes upon a
Change of Control may be limited by the Company's then existing financial
resources. No assurances can be given that the Company will be able to acquire
Notes tendered upon the occurrence of a Change of Control.
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 Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" 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 "Change of Control" provisions of the
Indenture by virtue thereof.
Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock
The Indenture provides that, except as set forth in this covenant, the
Company and the Guarantors will not, and will not permit any of their
Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur,
become directly or indirectly liable with respect to (including as a result of
an Acquisition), or otherwise become responsible for, contingently or
otherwise (individually and collectively, to "incur" or, as appropriate, an
"incurrence"), any Indebtedness or any Disqualified Capital Stock (including
Acquired Indebtedness) other than Permitted Indebtedness. Notwithstanding the
foregoing, (A) the Company and the Guarantors may incur Indebtedness, (B)
Subsidiaries of the Company that are not Guarantors may incur Indebtedness
that is not subordinated in right of payment to any other Indebtedness, and
(C) the Company may issue Disqualified Capital
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Stock if (i) 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 of Indebtedness or Disqualified Capital Stock and
(ii) on the date of such incurrence (the "Incurrence Date"), the Consolidated
Coverage Ratio of the Company for the Reference Period immediately preceding
the Incurrence Date, after giving effect on a pro forma basis to such
incurrence of Indebtedness or Disqualified Capital Stock and, to the extent
set forth in the definition of Consolidated Coverage Ratio, the use of
proceeds thereof, would be at least 2.0 to l (the "Debt Incurrence Ratio").
In addition, the foregoing limitations will not apply to:
(a) the incurrence by the Company or any Guarantor of Purchase Money
Indebtedness on or after the Issue Date, provided, that (i) the aggregate
principal amount of such Indebtedness incurred on or after the Issue Date
and outstanding at any time pursuant to this paragraph (a) (including any
Indebtedness issued to refinance, replace or refund such Indebtedness)
shall not exceed $10 million, and (ii) in each case, such Indebtedness
shall not constitute more than 100% of the cost (determined in accordance
with GAAP) to the Company or such Guarantor, as applicable, of the property
so purchased or leased;
(b) if no Event of Default shall have occurred and be continuing, the
incurrence by the Company or any Guarantor of Indebtedness in an aggregate
principal amount outstanding at any time (including Indebtedness incurred
to refinance, replace or refund such Indebtedness) of up to $10 million;
and
(c) the incurrence by the Company or any Guarantor of Indebtedness
pursuant to the New Credit Facility up to an aggregate principal amount
outstanding at any time (including any Indebtedness incurred to refinance,
replace or refund such Indebtedness) of $100 million, minus the amount of
any such Indebtedness (i) retired with the Net Cash Proceeds from any Asset
Sale applied to permanently reduce the outstanding amounts or the
commitments with respect to such Indebtedness pursuant to clause (1)(b)(ii)
of the first paragraph of the covenant "Limitation on Sale of Assets and
Subsidiary Stock" or (ii) assumed by a transferee in an Asset Sale.
Indebtedness or Disqualified Capital Stock of any Person which is
outstanding at the time such Person becomes a Subsidiary of the Company
(including upon designation of any subsidiary or other person as a Subsidiary)
or is merged with or into or consolidated with the Company or a Subsidiary of
the Company shall be deemed to have been incurred at the time such Person
becomes such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company, as applicable.
Limitation on Restricted Payments
The Indenture provides that the Company and the Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, make any
Restricted Payment if, after giving effect to such Restricted Payment on a pro
forma basis, (1) a Default or an Event of Default shall have occurred and be
continuing, (2) the Company is not permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt Incurrence Ratio in the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock," or (3) the aggregate amount of all Restricted Payments made by the
Company and its Subsidiaries, including after giving effect to such proposed
Restricted Payment, from and after the Issue Date, would exceed the sum of (a)
50% of the aggregate Consolidated Net Income of the Company for the period
(taken as one accounting period), commencing on the day next following the
Issue Date, to and including the last day of the fiscal quarter ended
immediately prior to the date of each such calculation (or, in the event
Consolidated Net Income for such period is a deficit, then minus 100% of such
deficit), plus (b) the aggregate Net Cash Proceeds received by the Company
from the sale (other than (i) to a Subsidiary of the Company, (ii) to the
extent applied in connection with a Qualified Exchange and (iii) to the extent
added to any amount available for repurchases, loans and advances under clause
(v) of the next following paragraph) after the Issue Date of Qualified Capital
Stock of the Company or debt securities of the Company or any of its
Subsidiaries that have been converted into or exchanged for Qualified Capital
Stock of the Company, plus (c) the amount of any Restricted Investments made
after the Issue Date (other than pursuant to clause (t) of the next following
paragraph) that are returned to the Company or the Subsidiary Guarantor that
made such prior Investment, without restriction, in cash on or prior to the
date of any such calculation.
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The foregoing clauses (2) and (3) of the immediately preceding paragraph,
however, do not prohibit (t) Restricted Payments, provided, that, after giving
pro forma effect to any such Restricted Payment, the aggregate amount of all
such Restricted Payments made on or after the Issue Date that are outstanding
at any time does not exceed $4 million, plus the amount of any Restricted
Investments made pursuant to this clause (t) that are returned to the Company
or the Subsidiary Guarantor that made such prior Investment, without
restriction, in cash on or prior to the date of any such calculation, (u) the
defeasance, redemption or repurchase of Subordinated Indebtedness issued after
the Issue Date with the Net Cash Proceeds from an incurrence of Refinancing
Indebtedness permitted under the Indenture, (v)(i) repurchases of Capital
Stock from departing or deceased directors, officers, employees or consultants
(provided that any such consultants are retained pursuant to written
agreements) (or their estates or authorized representatives) of the Company or
any of the Guarantors and (ii) loans and advances to employees and officers of
the Company or any Guarantors in the ordinary course of business for bona fide
business purposes, such (i) and (ii) in the aggregate not to exceed in any
fiscal year $1,000,000 (net of any repayments of principal during any such
year in respect of such loans and advances described in clause (ii)), plus (A)
the cumulative amount by which (1) the product of $1,000,000 times the number
of preceding fiscal years subsequent to the Issue Date exceeds (2) the amount
of all such payments, repurchases, loans or advances (in the case of such
loans and advances, net of principal repayments) made during such fiscal
years, plus (B) the aggregate Net Cash Proceeds received by the Company, after
the Issue Date and on or prior to the date of such repurchase, from the sale
or issuance of Qualified Capital Stock of the Company to directors, officers,
employees and consultants (provided that any such consultants are retained
pursuant to written agreements) of the Company and the Guarantors (including,
to the extent not otherwise included in the amount of such cash consideration,
cash repayments of principal received by the Company on loans made to such
persons to enable them to purchase such stock) to the extent such Net Cash
Proceeds were contributed, or are concurrently with such dividend contributed
to the capital surplus of the Company (provided that the net amount of all
such payments, repurchases, loans and advances (in the case of such loans and
advances, net of principal repayments and, in the case of such repurchases,
net of the Net Cash Proceeds received in respect of the sale of Qualified
Capital Stock of the Company) made under this clause (v) shall not exceed $7.5
million), and (w) payments for the purpose of and in an amount equal to the
amount required to redeem or repurchase Capital Stock of the Company from
certain stockholders of the Company as required pursuant to the Second
Securityholders Agreement in an aggregate amount not to exceed $250,000, and
the provisions of the foregoing paragraph will not prohibit (x) the
acquisition by a Receivables Subsidiary in connection with a Qualified
Receivables Transaction of Equity Interests of a trust or other person
established by such Receivables Subsidiary to effect such Qualified
Receivables Transaction, (y) a Qualified Exchange, or (z) the payment of any
dividend on Qualified Capital Stock within 60 days after the date of its
declaration if such dividend could have been made on the date of such
declaration in compliance with the foregoing provisions. The full amount of
any Restricted Payment made pursuant to the foregoing clauses (v), (w) and (z)
(but not pursuant to clause (t), clause (u), clause (x) or clause (y)) of the
immediately preceding sentence, however, will be deducted in the calculation
of the aggregate amount of Restricted Payments available to be made referred
to in clause (3) of the immediately preceding paragraph.
For purposes of this covenant, the amount of any Restricted Payment, if
other than in cash, shall be the fair market value thereof, as determined in
the good faith reasonable judgment of the Board of Directors of the Company.
Additionally, within 30 days of each Restricted Payment, the Company shall
deliver an Officers' Certificate to the Trustee describing in reasonable
detail the nature of such Restricted Payment, stating the amount of such
Restricted Payment, stating in reasonable detail the provisions of the
Indenture pursuant to which such Restricted Payment was made and certifying
that such Restricted Payment was made in compliance with the Indenture.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company and the Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, create,
assume or suffer to exist any consensual restriction on the ability of any
Subsidiary of the Company to pay dividends or make other distributions to or
on behalf of, or to pay any
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obligation to or on behalf of, or otherwise to transfer assets or property to
or on behalf of, or make or pay loans or advances to or on behalf of, the
Company or any Subsidiary of the Company, except (a) restrictions imposed by
the Notes or the Indenture, or by indentures governing other Indebtedness of
the Company (and if such Indebtedness is guaranteed, by the guarantors
thereof) ranking on a parity with the Notes (or the Guarantees, if
applicable), provided that the restrictions imposed by such indentures are no
more restrictive than the restrictions imposed by the Indenture, (b)
restrictions imposed by applicable law, (c) existing restrictions under
Indebtedness outstanding on the Issue Date after giving effect to the
Transactions, including, without limitation, the New Credit Facility, to the
extent and in the manner such restrictions are in effect on the Issue Date,
(d) restrictions under any Acquired Indebtedness not incurred in violation of
the Indenture or any agreement relating to any property, asset, or business
acquired by the Company or any of its Subsidiaries, which restrictions in each
case existed at the time of acquisition, were not put in place in connection
with or in anticipation of such acquisition and are not applicable to any
person, other than the person acquired, or to any property, asset or business,
other than the property, assets and business so acquired, (e) any such
restriction or requirement imposed by Indebtedness incurred under clause (c)
of the second paragraph of the covenant "Limitation on Incurrence of
Indebtedness and Disqualified Capital Stock," provided that such restriction
or requirement is no more restrictive than that imposed by the New Credit
Facility as of the Issue Date, (f) restrictions with respect solely to the
Company or a Subsidiary of the Company imposed pursuant to a binding agreement
which has been entered into for the sale or disposition of the Equity
Interests or assets of such person permitted pursuant to the Indenture,
provided that such restrictions apply solely to the Equity Interests or assets
of such person which are being sold, (g) restrictions on transfer contained in
Purchase Money Indebtedness incurred pursuant to clause (a) of the second
paragraph of the covenant "Limitation on Incurrence of Indebtedness and
Disqualified Capital Stock," provided that such restrictions relate only to
the transfer of the property acquired with the proceeds of such Purchase Money
Indebtedness, (h) restrictions on transfer relating to the financing or
acquisition of real property and related personal property that relate only to
such property, and arise pursuant to a transaction otherwise permitted under
the Indenture, (i) any restriction or requirement imposed by Indebtedness
incurred under clause (B) of the first paragraph of the covenant "Limitation
on Incurrence of Additional Indebtedness and Disqualified Capital Stock,"
provided that such restrictions and requirements apply only to Subsidiaries of
the Company that are not Guarantors, (j) in connection with and pursuant to
permitted Refinancings of Indebtedness referred to in clauses (a), (c), (d),
(e), (g), (h) or (i) of this paragraph, replacements of restrictions imposed
pursuant to clauses (a), (c), (d), (e), (g), (h) or (i) of this paragraph that
are not more restrictive in any material respect than those being replaced and
do not apply to any other person or assets than those that would have been
covered by the restrictions in the Indebtedness so refinanced, and (k)
Indebtedness or other contractual requirements of a Receivables Subsidiary in
connection with a Qualified Receivables Transaction, provided that such
restrictions apply only to such Receivables Subsidiary. Notwithstanding the
foregoing, neither (a) customary provisions restricting subletting or
assignment of any lease or other contract entered into in the ordinary course
of business, consistent with industry practice, nor (b) Liens permitted under
the terms of the Indenture on assets securing Purchase Money Indebtedness
incurred in accordance with clause (b) of the second paragraph of the covenant
"Limitation on Incurrence of Indebtedness and Disqualified Capital Stock,"
shall in and of themselves be considered a restriction on the ability of the
applicable Subsidiary to transfer such agreement or assets, as the case may
be.
Limitations on Layering Indebtedness
The Indenture provides that the Company and the Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, incur,
or suffer to exist any Indebtedness (other than the Notes) that is subordinate
in right of payment to any other Indebtedness of the Company or a Guarantor
unless, by its terms, such Indebtedness is subordinate in right of payment to,
or ranks pari passu with, the Notes or the Guarantee, as applicable.
Limitation on Liens Securing Indebtedness
The Company and the Guarantors will not, and will not permit any of their
Subsidiaries to, create, incur, assume or suffer to exist any Lien of any
kind, other than Permitted Liens, upon any of their respective assets now
owned or acquired on or after the date of the Indenture or upon any income or
profits therefrom securing
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any Indebtedness of the Company or any Subsidiary other than Senior Debt,
unless the Company and each of the Guarantors provides, and causes their
Subsidiaries to provide, concurrently therewith, that the Notes are equally
and ratably so secured, provided that, if such Indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Notes with the same relative
priority as such Subordinated Indebtedness shall have with respect to the
Notes.
Limitation on Sale of Assets and Subsidiary Stock
The Indenture provides that the Company and the Guarantors will not, and
will not permit any of their Subsidiaries to, in one or a series of related
transactions, convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of its property, business or assets, including by merger or
consolidation (in the case of a Subsidiary of the Company), and including any
sale or other transfer or issuance of any Equity Interests of any Subsidiary
of the Company, whether by the Company or a Subsidiary of the Company, and
including any sale and leaseback transaction (any of the foregoing, an "Asset
Sale"), unless (l)(a) within 365 days after the date of such Asset Sale, the
Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to the
optional redemption of the Notes in accordance with the terms of the Indenture
and other Indebtedness of the Company ranking on a parity with the Notes from
time to time outstanding with similar provisions requiring the Company to make
an offer to purchase or to redeem such Indebtedness with the proceeds for
asset sales, pro rata in proportion to the respective principal amounts (or
accreted values in the case of Indebtedness issued with an original issue
discount) of the Notes and such other Indebtedness then outstanding or to the
repurchase of the Notes and such other Indebtedness pursuant to an
irrevocable, unconditional cash offer (pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Notes and such other
Indebtedness then outstanding) (the "Asset Sale Offer") to repurchase such
Indebtedness at a purchase price of 100% of principal amount (or accreted
amount in the case of Indebtedness issued with an original issue discount)
(the "Asset Sale Offer Price"), together with accrued and unpaid interest and
Liquidated Damages, if any, to the date of payment, made within 335 days of
such Asset Sale, or (b) within 365 days following such Asset Sale, the Asset
Sale Offer Amount is (i) used (x) to make one or more Acquisitions, (y) to
make capital expenditures or (z) to acquire other tangible assets, in each
case which in the good faith reasonable judgment of the Board of Directors of
the Company will immediately constitute or be a part of a Related Business of
the Company or a Subsidiary Guarantor (or, if such Asset Sale is by a Foreign
Subsidiary, such Foreign Subsidiary) immediately following such transaction or
(ii) used to retire permanently Senior Debt (including that in the case of a
revolver or similar arrangement that makes credit available, such commitment
is so permanently reduced by such amount), or, if such Asset Sale is by a
Foreign Subsidiary, Indebtedness of Foreign Subsidiaries or (c) any
combination permitted by the foregoing clauses (a) and (b), (2) at least 75%
of the total consideration for such Asset Sale or series of related Asset
Sales consists of cash or Cash Equivalents, provided that (A) the amount of
any liabilities (as shown on the Company's or such Subsidiary's most recent
balance sheet) of the Company or any such Subsidiary (other than Subordinated
Indebtedness) that are assumed by the transferee of any such assets (provided
that the Company and its Subsidiaries are released from all obligations in
respect thereof) shall be deemed to be cash for purposes of this provision,
(B) any notes or other obligations received by the Company or a Subsidiary
from such transferee in exchange for any such assets that are promptly
converted into cash (to the extent of cash received) shall be deemed to be
cash for purposes of this provision, and (C) in connection with any Asset Sale
or series of related Asset Sales involving exclusively assets and property
(including Equity Interests of any Subsidiary of the Company) comprising the
Company's business described under "Business--Products--Sporting Goods and
Other Products" in this Prospectus, the total consideration for any such Asset
Sale that does not consist of cash or Cash Equivalents may be up to the lesser
of (x) 50% of the total consideration of such Asset Sale or (y) $5,000,000,
(3) no 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 Asset Sale,
unless such Asset Sale is in consideration solely of cash or Cash Equivalents
and such consideration is applied immediately to the permanent reduction of
the principal amount of Indebtedness outstanding pursuant to the New Credit
Facility, and (4) the Board of Directors of the Company determines in good
faith that the Company or such Subsidiary, as applicable, receives fair market
value for such Asset Sale.
The Indenture provides that an acquisition of Notes pursuant to an Asset
Sale Offer may be deferred until the accumulated Net Cash Proceeds from Asset
Sales not applied to the uses set forth in (1)(b) above (the "Excess
Proceeds") exceeds $5 million and that each Asset Sale Offer shall remain open
for 20 Business Days following its
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commencement (the "Asset Sale Offer Period"). Upon expiration of the Asset
Sale Offer Period, the Company promptly shall apply the Asset Sale Offer
Amount plus an amount equal to accrued and unpaid interest and Liquidated
Damages, if any, to the purchase of all Indebtedness properly tendered (on a
pro rata basis as described above if the Asset Sale Offer Amount is
insufficient to purchase all Indebtedness so tendered) at the Asset Sale Offer
Price (together with accrued interest and Liquidated Damages, if any). To the
extent that the aggregate amount of Indebtedness tendered pursuant to an Asset
Sale Offer is less than the Asset Sale Offer Amount, the Company may use any
remaining Net Cash Proceeds for general corporate purposes as otherwise
permitted by the Indenture and following each Asset Sale Offer the Excess
Proceeds amount shall be reset to zero. For purposes of (2) above, total
consideration received means the total consideration received for such Asset
Sales minus the amount of Purchase Money Indebtedness secured solely by the
assets sold and assumed by a transferee.
Notwithstanding the foregoing provisions of the two immediately prior
paragraphs, the following transactions shall not constitute Asset Sales:
(i) the Company and each of its Subsidiaries may, in the ordinary course
of business, convey, sell, transfer, assign or otherwise dispose of
property in the ordinary course of business;
(ii) the Company and each of its Subsidiaries may convey, sell, transfer,
assign or otherwise dispose of assets pursuant to and in accordance with
(A) the mergers, sales and consolidation provisions in the Indenture and
(B) the provisions in the covenant "Limitation on Restricted Payments"
(including transactions constituting Permitted Investments);
(iii) the Company and each of its Subsidiaries may sell or dispose of
damaged, worn out or other obsolete personal property in the ordinary
course of business so long as such property is no longer necessary for the
proper conduct of the business of the Company or such Subsidiary, as
applicable;
(iv) the Company and each of the Guarantors may convey, sell, transfer,
assign or otherwise dispose of assets to the Company or any of the
Guarantors, any Subsidiary of the Company may issue or sell Equity
Interests to the Company or any Guarantor, and any Foreign Subsidiary that
is not a Guarantor may issue or sell Equity Interests to any Foreign
Subsidiary;
(v) The Company and each of its Subsidiaries may grant in the ordinary
course of business non-exclusive licenses of patents, trademarks,
registrations therefore and other similar intellectual property;
(vi) the Company and each of its Subsidiaries may enter into contracts to
provide manufacturing consideration for Asset Sales and other services in
the ordinary course of business, including in connection with Asset Sales;
(vii) the Company and each of its Subsidiaries may surrender or waive
contract rights or the settlement, release or surrender of contract, tort
or other claims of any kind;
(viii) the Company and each of its Subsidiaries may grant Liens not
prohibited by the Indenture;
(ix) (1) sales of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables Transaction" to a
Receivables Subsidiary for the fair market value thereof, including cash in
an amount at least equal to 75% of the book value thereof as determined in
accordance with GAAP, and (2) transfers of accounts receivable and related
assets of the type specified in the definition of "Qualified Receivables
Transaction" (or a fractional undivided interest therein) by a Receivables
Subsidiary in a Qualified Receivables Transaction; and
(x) the Company and its Subsidiaries may convey, sell, transfer, assign
or otherwise dispose of assets (in addition to assets transferred or
disposed of as described in clauses (i), (ii), (iii), (iv), (v), (vi),
(vii), (viii) and (ix) above) with an aggregate fair market value not to
exceed $1 million during any fiscal year.
All Net Cash Proceeds from an Event of Loss relating to any Material
Facility (other than the proceeds of any business interruption insurance)
shall be invested, used for prepayment of Senior Debt or used to repurchase
Notes and other Indebtedness of the Company ranking on a parity with the Notes
from time to time outstanding of the type described in clause 1(a) of the
first paragraph of this covenant, all within 18 months from the occurrence of
such Event of Loss and as otherwise provided above in clause (1) of the first
paragraph of this covenant.
In addition, the Company will not, and will not permit any Subsidiary to,
directly or indirectly make any Asset Sale of any of the Equity Interests of
any Subsidiary except (i) pursuant to an Asset Sale of all the Equity
Interests of such Subsidiary or (ii) pursuant to an Asset Sale of common stock
of such Subsidiary with no preferences or special rights or privileges and
with no redemption or prepayment provisions.
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The Company's ability to pay the Asset Sale Offer Price is, and may in the
future be, limited by the terms of the New Credit Facility or other agreements
relating to indebtedness that constitute Senior Debt, and the Company's
ability to pay cash to Holders of Notes upon an Asset Sale may be limited by
the Company's then existing financial resources.
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 Notes pursuant to an Asset Sale Offer. 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.
Limitation on Transactions with Affiliates
The Indenture provides that neither the Company nor any of its Subsidiaries
will be permitted on or after the Issue Date to enter into or suffer to exist
any contract, agreement, arrangement or transaction with any Affiliate (an
"Affiliate Transaction"), or any series of related Affiliate Transactions,
other than Exempted Affiliate Transactions, unless (i) it is determined that
the terms of each Affiliate Transaction are fair and reasonable to the
Company, and no less favorable to the Company, than could have been obtained
in an arm's length transaction with a non-Affiliate, and (ii) (a) if involving
consideration to either party in excess of $1 million, unless such Affiliate
Transaction(s) is evidenced by an Officers' Certificate addressed and
delivered to the Trustee certifying that such Affiliate Transaction (or
Transactions) has been approved by a majority of the members of the Board of
Directors of the Company that are disinterested in such transaction and (b) if
involving consideration to either party in excess of $5 million, unless in
addition the Company, prior to the consummation thereof, obtains a written
favorable opinion as to the fairness of such transaction to the Company from a
financial point of view from an independent investment banking firm of
national reputation.
Limitation on Merger, Sale or Consolidation
The Indenture provides that the Company will not consolidate with or merge
with or into another person or, directly or indirectly, sell, lease, convey or
transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions,
to another Person or group of affiliated Persons or adopt a plan of
liquidation, unless (i) either (a) the Company is the continuing entity or (b)
the resulting, surviving or transferee entity or, in the case of a plan of
liquidation, the entity which receives the greatest value from such plan of
liquidation is a corporation organized under the laws of the United States,
any state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations of the Company in connection
with the Notes and the Indenture; (ii) no Default or Event of Default shall
exist or shall occur immediately after giving effect on a pro forma basis to
such transaction; (iii) immediately after giving effect to such transaction on
a pro forma basis, the Consolidated Net Worth of the consolidated surviving or
transferee entity or, in the case of a plan of liquidation, the entity which
receives the greatest value from such plan of liquidation is at least equal to
the Consolidated Net Worth of the Company immediately prior to such
transaction; and (iv) immediately after giving effect to such transaction on a
pro forma basis, the consolidated resulting, surviving or transferee entity
or, in the case of a plan of liquidation, the entity which receives the
greatest value from such plan of liquidation would immediately thereafter be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Debt Incurrence Ratio set forth in the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company or consummation of a plan of liquidation in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such transfer is
made or, in the case of a plan of liquidation, the entity which receives the
greatest value from such plan of liquidation shall succeed to, and (except in
the case of a lease) be substituted for, and may exercise every right and
power of, the Company under the Indenture with the same effect as if such
successor corporation had been named therein as the Company, and (except in
the case of a lease) the Company shall be released from the obligations under
the Notes and the Indenture except with respect to any obligations that arise
from, or are related to, such transaction.
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For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Company's interest in which constitutes 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.
Limitation on Lines of Business
The Indenture provides that neither the Company nor any of its Subsidiaries
(except for any Receivables Subsidiaries) shall directly or indirectly engage
to any substantial extent in any line or lines of business activity other than
that which, in the reasonable good faith judgment of the Board of Directors of
the Company, is a Related Business.
Future Subsidiary Guarantors
The Indenture provides that all Subsidiaries of the Company jointly and
severally will guaranty irrevocably and unconditionally all principal,
premium, if any, and interest of the Notes on a senior subordinated basis,
except for (i) any Receivables Subsidiaries and (ii) any Foreign Subsidiaries.
Limitation on Merger of Subsidiaries and Release of Guarantors
The Indenture provides that no Guarantor shall consolidate or merge with or
into (whether or not such Guarantor is the surviving person) another person
unless (i) subject to the provisions of the following paragraph and certain
other provisions of the Indenture, the person formed by or surviving any such
consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form
reasonably satisfactory to the Trustee, pursuant to which such person shall
unconditionally guarantee, on a senior subordinated basis, all of such
Guarantor's obligations under such Guarantor's guarantee and the Indenture on
the terms set forth in the Indenture; and (ii) immediately before and
immediately after giving effect to such transaction on a pro forma basis, no
Default or Event of Default shall have occurred or be continuing.
Upon the sale or disposition (whether by merger, stock purchase, asset sale
or otherwise) of a Subsidiary Guarantor (or all of its assets) to an entity
which is not a Subsidiary Guarantor (including the designation of a Subsidiary
to become an Unrestricted Subsidiary), which transaction is otherwise in
compliance with the Indenture (including, without limitation, the provisions
of the covenant "Limitations on Sale of Assets and Subsidiary Stock"), such
Subsidiary Guarantor will be deemed released from its obligations under its
Guarantee of the Notes; provided, however, that any such termination shall
occur only to the extent that all obligations of such Subsidiary Guarantor
under all of its guarantees of, and under all of its pledges of assets or
other security interests which secure, any Indebtedness of the Company or any
other Subsidiary shall also terminate upon such release, sale or transfer.
Limitation on Status as Investment Company
The Indenture prohibits the Company and its Subsidiaries from being required
to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming
subject to regulation under the Investment Company Act.
Transactions not Subject to Covenants
Notwithstanding anything to the contrary in the Indenture, the consummation
of the Transactions shall not be prohibited by the Indenture. In addition, the
Merger shall not constitute a Change of Control, and none of the Transactions
shall be deemed to be a Restricted Payment or an Asset Sale, or taken into
account in any calculation under "Limitation on Restricted Payments."
REPORTS
The Indenture provides that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustee and, to each Holder and to prospective purchasers
of Notes identified to the Company by an Initial Purchaser, within 15 days
after it is or would have been (if it were subject to such reporting
obligations) required to file such with the Commission, annual and
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quarterly financial statements substantially equivalent to financial
statements that would have been included in reports filed with the Commission,
if the Company were subject to the requirements of Section 13 or 15(d) of the
Exchange Act, including, with respect to annual information only, a report
thereon by the Company's certified independent public accountants as such
would be required in such reports to the Commission, and, in each case,
together with a management's discussion and analysis of financial condition
and results of operations which would be so required and, unless the
Commission will not accept such reports, file with the Commission the annual,
quarterly and other reports which it is or (if it were subject to such
reporting obligations), would have been required to file with the Commission.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by the Company
to pay any installment of interest on the Notes as and when the same becomes
due and payable and the continuance of any such failure for 30 days, (ii) the
failure by the Company to pay all or any part of the principal, or premium, if
any, on the Notes when and as the same becomes due and payable at maturity,
redemption, by acceleration or otherwise, including, without limitation,
payment of the Change of Control Purchase Price or the Asset Sale Offer Price,
or otherwise, (iii) the failure by the Company or any Subsidiary otherwise to
comply with the covenants described under "Limitation on Merger, Sale or
Consolidation," (iv) the failure by the Company or any Subsidiary to observe
or perform any other covenant or agreement described under "Certain Covenants"
(except as provided in clauses (i), (ii) and (iii) above) and, subject to
certain exceptions, the continuance of such failure for a period of 30 days
after written notice is 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 Notes outstanding, (v) the failure by the Company or any Subsidiary to
observe or perform any other covenant or agreement contained in the Notes or
the Indenture (except as provided in clauses (i), (ii), (iii) and (iv) above)
and, subject to certain exceptions, the continuance of such failure for a
period of 60 days after written notice is 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 Notes outstanding, (vi) certain events of bankruptcy,
insolvency or reorganization in respect of the Company or any of its
Significant Subsidiaries, (vii) the failure to pay at final stated maturity
(giving effect to any applicable grace periods) the principal amount of any
Indebtedness of the Company or any Subsidiary of the Company (other than a
Receivables Subsidiary) or the acceleration of the final stated maturity of
any Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any such Indebtedness in default for
failure to pay principal at final maturity or which has been accelerated,
aggregates $5 million or more at any time, and (viii) final unsatisfied
judgments not covered by insurance aggregating in excess of $5 million, at any
one time rendered against the Company or any of its Subsidiaries and not
stayed, bonded or discharged within 60 days. The Indenture provides that if a
Default occurs and is continuing, the Trustee must, within 90 days after the
occurrence of such default, give to the Holders notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (vi), above, relating to the Company or any
Significant Subsidiary,) then in every such case, unless the principal of
all of the Notes shall have already become due and payable, either the Trustee
or the Holders of 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to the Company (and to the Trustee if given
by Holders) (an "Acceleration Notice"), may declare all principal, determined
as set forth below, and accrued interest thereon to be due and payable and the
same (i) shall become immediately due and payable or (ii) if there are any
amounts outstanding under the New Credit Facility, shall become immediately
due and payable upon the first to occur of an acceleration under the New
Credit Facility or five business days after receipt by the Company and the
representative of the holders of the Indebtedness under the New Credit
Facility of the notice of such an acceleration, but only if such Event of
Default is then continuing. In the event a declaration of acceleration
resulting from an Event of Default described in clause (vii) above has
occurred and is continuing, such declaration of acceleration shall be
automatically annulled if such default is cured or waived or the holders of
the Indebtedness which is the subject of such default have rescinded their
declaration of acceleration in respect of such Indebtedness within 30 days
thereof and the Trustee has received written notice of such cure, waiver or
rescission and no other Event of Default described in clause (vii) above has
occurred that has not been cured or waived within 30 days of the declaration
of such acceleration in respect of such Indebtedness. If an Event of
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Default specified in clause (vi), above, relating to the Company or any
Significant Subsidiary occurs, all principal and accrued interest thereon will
be immediately due and payable on all outstanding Notes without any
declaration or other act on the part of Trustee or the Holders. The Holders of
a majority in aggregate principal amount of Notes generally are authorized to
rescind such acceleration if all existing Events of Default, other than the
non-payment of the principal of, premium, if any, and interest on the Notes
which have become due solely by such acceleration and except on default with
respect to any provision requiring a supermajority approval to amend, which
default may only be waived by such a supermajority, have been cured or waived.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any default, except a
default with respect to any provision requiring a supermajority approval to
amend, which default may only be waived by such a supermajority, and except a
default in the payment of principal of or interest on any Note not yet cured
or a 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. Subject to the provisions of the Indenture relating to the duties of
the Trustee, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request, order or direction of any
of the Holders, unless such Holders have offered to the Trustee reasonable
security or indemnity. Subject to all provisions of the Indenture and
applicable law, the Holders of a majority in aggregate principal amount of the
Notes at the time outstanding will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time
within one year of the Stated Maturity of the Notes, elect to have its
obligations and the obligations of the Guarantors discharged with respect to
the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire
indebtedness represented, and the Indenture shall cease to be of further
effect as to all outstanding Notes and Guarantees, except as to (i) rights of
Holders to receive payments in respect of the principal of, premium, if any,
and interest on such Notes when such payments are due from the trust funds;
(ii) the Company's obligations with respect to such Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen
Notes, and the maintenance of an office or agency for payment and money for
security payments held in trust; (iii) the rights, powers, trust, duties, and
immunities of the Trustee, and the Company's obligations in connection
therewith; and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and the Guarantors released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, guarantees,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, U.S. legal tender, U.S. Government Obligations or
a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Notes on the stated date
for payment thereof or on the redemption date of such principal or installment
of principal of, premium, if any, or interest on such Notes, and the holders
of Notes must have a valid, perfected, exclusive security interest in such
trust; (ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by the Internal Revenue Service, a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the holders of such Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and
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will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to such Trustee confirming that the holders of such Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of such Notes over any other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others; and (vii) the Company shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that the conditions precedent provided for in, in the case of the
officers' certificate, (i) through (vi) and, in the case of the opinion of
counsel, clauses (i) (with respect to the validity and perfection of the
security interest), (ii), (iii) and (v) of this paragraph have been complied
with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest on the Notes when due, then the obligations of the Company and
the Guarantors under the Indenture will be revived and no such defeasance will
be deemed to have occurred.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company, the Guarantors and
the Trustee to enter into a supplemental indenture for certain limited
purposes without the consent of the Holders. With the consent of the Holders
of not less than a majority in aggregate principal amount of the Notes at the
time outstanding, the Company, the Guarantors and the Trustee are permitted to
amend or supplement the Indenture or any supplemental indenture or modify the
rights of the Holders; provided that no such modification may, without the
consent of holders of at least 66 2/3% in aggregate principal amount of Notes
at the time outstanding, modify the provisions (including the defined terms
used therein) of the covenant "Repurchase of Notes at the Option of the Holder
upon a Change of Control" in a manner adverse to the holders; and provided,
that no such modification may, without the consent of each Holder affected
thereby: (i) change the Stated Maturity on any Note, or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest
thereon or any premium payable upon the redemption thereof, or change the
place of payment where, or the coin or currency in which, any Note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date), or
reduce the Change of Control Purchase Price or the Asset Sale Offer Price or
alter the provisions (including the defined terms used therein) regarding the
right of the Company to redeem the Notes in a manner adverse to the Holders,
or (ii) reduce the percentage in principal amount of the outstanding Notes,
the consent of whose Holders is required for any such amendment, supplemental
indenture or waiver provided for in the Indenture, or (iii) modify any of the
waiver provisions, except to increase any required percentage or to provide
that certain other provisions of the Indenture cannot be modified or waived
without the consent of the Holder of each outstanding Note affected thereby.
The subordination provisions contained in the Indenture are for the benefit
of the holders from time to time of Senior Debt and may not be rescinded,
cancelled, amended or modified in any way other than any amendment or
modification that would not adversely affect the rights of any holder of
Senior Debt or any amendment or modification that is consented to by each
holder of Senior Debt that would be adversely affected thereby.
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NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company, the
Guarantors or any successor entity shall have any personal liability in
respect of the obligations of the Company or the Guarantors under the
Indenture or the Notes by reason of his or its status as such stockholder,
employee, officer or director, except to the extent such person is the Company
or a Guarantor.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a Subsidiary of the
Company, including by designation, or is merged or consolidated into or with
the Company or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person or operating unit by any other
person, whether by purchase, merger, consolidation, or other transfer, and
whether or not for consideration.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract, or otherwise, provided that, with respect to ownership interest in
the Company and its Subsidiaries, a Beneficial Owner of 10% or more of the
total voting power normally entitled to vote in the election of directors,
managers or trustees, as applicable (except that Benjamin L. Doskocil, Sr.
shall not be deemed to be an Affiliate solely by reason of such voting power
so long as he is the Beneficial Owner of no more than 15% of such voting
power), shall for such purposes be deemed to constitute control; provided,
further, that no person (other than the Company or any Subsidiary of the
Company) in whom a Receivables Subsidiary makes an Investment in connection
with a Qualified Receivables Transaction shall be deemed to be an Affiliate
solely by reason of such Investment.
"Applicable Premium" means, with respect to a Note at any applicable
Redemption Date, the greater of (i) 1.0% of the principal amount of such Note
and (ii) the excess of (A) the present value at such time of (1) the
redemption price of such Note at September 15, 2002 (such redemption price
being described above under "Optional Redemption") plus (2) all required
interest payments due on such Note through September 15, 2002, computed using
a discount rate equal to the Treasury Rate plus 0.5% per annum, over (B) the
principal amount of such Note.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of
such security or instrument and (b) the amount of each such respective
principal (or redemption) payment by (ii) the sum of all such principal (or
redemption) payments.
"Beneficial Owner" or "beneficial owner" for purposes of the definition of
Change of Control has the meaning attributed to it in Rules 13d-3 and 13d-5
under the Exchange Act (as in effect on the Issue Date), whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time.
"Board of Directors" means, with respect to any person, the board of
directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the
power of the board of directors of such person.
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"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capitalized Lease Obligation" means, as to any person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation, and with respect to any Person that is not a
corporation, any and all partnership or other equity interests 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) obligations issued or
directly and fully guaranteed by any state of the United States of America or
political subdivision or instrumentality thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"), or (iii) 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 million and
commercial paper issued by others rated at least A-2 or the equivalent thereof
by S&P or at least P-2 or the equivalent thereof by Moody's, (iv) the
repurchase obligations with a term of not more than thirty days for underlying
securities of the types described in clause (i) above entered into with any
bank meeting the qualifications specified in clause (iii) above; and (v)
investments in money market funds having assets of at least $100 million and
which invest substantially all their assets in securities of the types
described in clauses (i) through (iv) above, and in the case of each of (i),
(ii), (iii), (iv) and (v), maturing within one year after the date of
acquisition.
"Change of Control Redemption Event" means a Change of Control pursuant to
clause (i) or clause (ii) of the definition of "Change of Control" in the
covenant "Repurchase of Notes at the Option of the Holder Upon a Change in
Control" that is approved by the Board of Directors of the Company, a majority
of the members of which are Continuing Directors.
"Consolidated Coverage Ratio" of any person on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of (a) the
aggregate amount of Consolidated EBITDA of such person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses discontinued or disposed of) for the Reference
Period to (b) the aggregate Consolidated Fixed Charges of such person
(exclusive of amounts attributable to operations and businesses discontinued
or disposed of, but only to the extent that the obligations giving rise to
such Consolidated Fixed Charges would no longer be obligations contributing to
such person's Consolidated Fixed Charges subsequent to the Transaction Date)
during the Reference Period; provided, that for purposes of such calculation,
(i) Acquisitions which occurred during the Reference Period or subsequent to
the Reference Period and on or prior to the Transaction Date shall be assumed
to have occurred on the first day of the Reference Period, (ii) transactions
giving rise to the need to calculate the Consolidated Coverage Ratio shall be
assumed to have occurred on the first day of the Reference Period, (iii) the
incurrence of any Indebtedness or issuance of any Disqualified Capital Stock
during the Reference Period or subsequent to the Reference Period and on or
prior to the Transaction Date (and the application of the proceeds therefrom
to the extent used to refinance or retire other Indebtedness) shall be assumed
to have occurred on the first day of such Reference Period, and (iv) the
Consolidated Fixed Charges of such person attributable to interest on any
Indebtedness or dividends on any Disqualified Capital Stock bearing a floating
interest (or dividend) rate shall be computed on a pro forma basis as if the
average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless
such Person or any of its
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Subsidiaries is a party to an Interest Swap or Hedging Obligation (which by
its terms will remain in effect for the 12-month period immediately following
the Transaction Date) that has the effect of fixing the interest rate on the
date of computation, in which case such rate (whether higher or lower) shall
be used. For purposes of this definition whenever pro forma effect is to be
given to a transaction, the pro forma calculations of Consolidated EBITDA and
Consolidated Fixed Charges shall be made in accordance with Article 11 of
Regulation S-X of the Commission and subject to agreed-upon procedures to be
performed by the Company's independent accountants to determine whether the
pro forma calculations are made in accordance with Article 11 of Regulation S-
X.
"Consolidated EBITDA" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period adjusted to add thereto
(to the extent deducted in determining Consolidated Net Income), without
duplication, the sum of (i) Consolidated income tax expense, (ii) Consolidated
depreciation and amortization expense, and other non-cash charges required to
be reflected as expenses for such period on the books and records of such
person, provided that consolidated depreciation and amortization and such
other non-cash charges of a Subsidiary that is a less than a wholly owned
Subsidiary shall only be added to the extent of the equity interest of the
Company in such Subsidiary, (iii) Consolidated Fixed Charges, less the amount
of all cash payments made by such person or any of its Subsidiaries during
such period to the extent such payments relate to non-cash charges that were
added back in determining Consolidated EBITDA for such period or any prior
period, (iv) amounts historically added back in order to calculate the
Company's EBITDA as described in the Prospectus, and (v) costs relating to the
integration of Doskocil and Dogloo as described in the Prospectus, not to
exceed $1 million.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid or accrued
(including, in accordance with the following sentence, interest attributable
to Capitalized Lease Obligations) of such person and its Consolidated
Subsidiaries during such period, including (i) original issue discount and
non-cash interest payments or accruals on any Indebtedness, (ii) the interest
portion of all deferred payment obligations, and (iii) all commissions,
discounts and other fees and charges owed with respect to bankers' acceptances
and letters of credit financings and currency and Interest Swap and Hedging
Obligations, in each case to the extent attributable to such period, and (b)
the amount of dividends accrued or payable (or guaranteed) by such person or
any of its Consolidated Subsidiaries in respect of Preferred Stock (other than
by Subsidiaries of such person to such person or such person's wholly owned
Subsidiaries, and other than dividends paid in shares of such Preferred
Stock). For purposes of this definition, (x) interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
in good faith by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP and (y) interest expense
attributable to any Indebtedness represented by the guaranty by such person or
a Subsidiary of such person of an obligation of another person shall be deemed
to be the interest expense attributable to the Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all items which are either
extraordinary (as determined in accordance with GAAP) or are either unusual or
nonrecurring (including any gain from the sale or other disposition of assets
outside the ordinary course of business or from the issuance or sale of any
capital stock other than Disqualified Capital Stock), (b) the net income, if
positive, of any person, other than a Consolidated Subsidiary, in which such
person or any of its Consolidated Subsidiaries has an interest, except to the
extent of the amount of any dividends or distributions actually paid in cash
to such person or a Consolidated Subsidiary of such person during such period,
but in any case not in excess of such person's pro rata share of such person's
net income for such period, (c) the net income or loss of any person acquired
in a pooling of interests transaction for any period prior to the date of such
acquisition, (d) the net income, if positive, of any of such person's
Consolidated Subsidiaries to the extent that the declaration or payment of
dividends or similar distributions is not at the time permitted by operation
of the terms of its charter or bylaws or any other agreement, instrument,
judgment, decree, order, statute, rule or
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governmental regulation applicable to such Consolidated Subsidiary and (e)
without duplication, costs, fees and expenses (including retention bonuses)
actually incurred (or accrued on the Company's unaudited pro forma condensed
balance sheet as of June 30, 1997 contained in the Prospectus) in connection
with the Transactions.
"Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would
be shown on the consolidated balance sheet of such person prepared in
accordance with GAAP, adjusted to exclude (to the extent included in
calculating such equity), (a) the amount of any such stockholders' equity
attributable to Disqualified Capital Stock or treasury stock of such person
and its Consolidated Subsidiaries, (b) all write-ups in the book value of any
asset of such person or a Consolidated Subsidiary of such person subsequent to
the Issue Date (other than writeups resulting from foreign currency
translations or of tangible assets of a going concern business made within 12
months after the acquisition of such business) and (c) all investments in
Subsidiaries that are not Consolidated Subsidiaries and in persons that are
not Subsidiaries.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting
purposes with the financial statements of such person in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the Issue Date or (ii) was nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board of Directors at the time of such
nomination or election.
"Default" means any event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Debt" means, (a) so long as it is in effect and there is
at least $1 million of outstanding indebtedness thereunder, the New Credit
Facility and (b) any other Senior Debt designated by the Company to be
"Designated Senior Debt" that has an outstanding principal amount of at least
$25 million at the time of such designation.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any person, Equity Interests of such person that, by its terms or
by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time
would be, required to be redeemed or repurchased (including at the option of
the holder thereof) by such person or any of its Subsidiaries, in whole or in
part, on or prior to the Stated Maturity of the Notes and (b) with respect to
any Subsidiary of such person (including with respect to any Subsidiary of the
Company), any Equity Interests other than any common equity with no
preference, privileges, or redemption or repayment provisions.
"Equity Interest" of any Person means any shares, interests, participation
or other equivalents (however designated) in such Person's equity, and shall
in any event include any Capital Stock issued by, or partnership or membership
interests in, such Person.
"Event of Loss" means, with respect to any property or asset, any (i) loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Excluded Person" means Westar, Enterprise, HBI and any of their respective
affiliates (as such term is defined in Rule 501(b) of Regulation D under the
Securities Act) and, in the event that any Excluded Person distributes any
Equity Interests of the Company to the limited partners or other equity
investors of such Excluded Person, such investors, and, including, in the case
of an individual, any spouse or immediate family member of such individual,
the estate or any heir of such individual or any trust established by such
individual for estate planning purposes.
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"Exempted Affiliate Transaction" means, without duplication, (a) reasonable
fees and compensation paid to (including issuances and grants of securities
and stock options), employment agreements and stock option and ownership plans
for the benefit of, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Subsidiary of the Company
approved by the Board of Directors or the senior management of the Company,
(b) any Restricted Payment permitted by the Indenture, (c) transactions solely
between the Company and any of its Subsidiary Guarantors or solely among
Subsidiary Guarantors of the Company, (d) fees and expenses paid in connection
with the Transactions, including any such amounts paid to Westar or
Enterprise, (e) payments for the purpose of and in an amount equal to the
amount required to permit the Company to redeem or repurchase Capital Stock of
the Company from certain shareholders of the Company as required pursuant to
the Second Securityholders Agreement in an aggregate amount not to exceed
$250,000, (f) any obligations of the Company for management fees to Westar or
other Excluded Persons in an amount not to exceed $600,000 in any fiscal year
and the reimbursement of Westar's reasonable out-of-pocket expenses, provided
that all such amounts shall be subordinate to the obligations of the Company
and the Guarantors with respect to the Notes, and (g) Qualified Receivables
Transactions.
"Foreign Subsidiary" means any Subsidiary of the Company which (i) is not
organized under the laws of the United States, any state thereof or the
District of Columbia and (ii) conducts substantially all of its business
operations outside the United States of America.
"GAAP" means United States 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 in the United States as in effect on the Issue Date.
"Indebtedness" of any person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of such person, to the extent that
such liabilities and obligations would appear as a liability upon a balance
sheet of such person prepared in accordance with GAAP, (i) 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), (ii) evidenced by
bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except (other than accounts payable or other obligations to trade creditors
which have remained unpaid for greater than 90 days past their original due
date, which obligations are not being contested in good faith and for which
appropriate reserves have been established in accordance with GAAP) those
incurred in the ordinary course of its business that would constitute
ordinarily a trade payable to trade creditors; (b) all liabilities and
obligations, contingent or otherwise, of such person (i) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks, (ii) relating
to any Capitalized Lease Obligation, or (iii) evidenced by a letter of credit
or a reimbursement obligation of such person with respect to any letter of
credit; (c) all net obligations of such person under Interest Swap and Hedging
Obligations; (d) all liabilities and obligations of others of the kind
described in the preceding clause (a), (b) or (c) that such person has
guaranteed or that is otherwise its legal liability or which are secured by
any assets or property of such person; and (e) all Disqualified Capital Stock
of such Person (measured at the greater of its voluntary or involuntary
maximum fixed repurchase price plus accrued and unpaid dividends). For
purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the Fair Market Value of such
Disqualified Capital Stock, such Fair Market Value to be determined in good
faith by the board of directors of the issuer (or managing general partner of
the issuer) of such Disqualified Capital Stock.
"Initial Public Equity Offering" means an initial underwritten offering of
common stock of the Company for cash pursuant to an effective registration
statement under the Securities Act as a consequence of which the common stock
of the Company is listed on a national securities exchange or quoted on the
national market system of NASDAQ.
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"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise)
by such person (whether for cash, property, services, securities or otherwise)
of capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such
other person; (b) the making by such person of any deposit with, or advance,
loan or other extension of credit to, such other person (including the
purchase of property from another person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
person) (but excluding accounts receivable, endorsements for collection or
deposits arising in the ordinary course of business); (c) other than
guarantees of Indebtedness of the Company or any Guarantor to the extent
permitted by the covenant "Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock," the entering into by such person of any
guarantee of, or other credit support or contingent obligation with respect
to, Indebtedness or other liability of such other person; (d) the making of
any capital contribution by such person to such other person; and (e) the
designation by the Board of Directors of the Company of any person to be an
Unrestricted Subsidiary. The Company shall be deemed to make an Investment in
an amount equal to the fair market value of the net assets of any subsidiary
(or, if neither the Company nor any of its Subsidiaries has theretofore made
an Investment in such subsidiary, in an amount equal to the Investments being
made), at the time that such subsidiary is designated an Unrestricted
Subsidiary, and any property transferred to an Unrestricted Subsidiary from
the Company or a Subsidiary shall be deemed an Investment valued at its fair
market value at the time of such transfer; provided that if the Company
designates a Foreign Subsidiary that is not a Guarantor as a Unrestricted
Subsidiary, any prior Investments in such Foreign Subsidiary made as Permitted
Investments or Restricted Investments in accordance with the Indenture shall
not be deemed to be additional Investments at the time of such designation.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.
"Junior Securities" of any person means securities (including Capital Stock
but excluding Disqualified Capital Stock) issued by such person to a Holder on
account of the Notes that (a) has an Average Life and maturity or mandatory
redemption obligation, if any, longer than, or occurring after the final
maturity date of, all Designated Senior Debt of such person, (b) by their
terms or by law are subordinated to Senior Debt of such person outstanding on
the date of issuance of such Junior Securities at least to the same extent as
the Notes and (c) are not secured by any assets or property of the Company or
any of its Subsidiaries. As used herein, "Designated Senior Debt of such
person outstanding on the date of issuance of such Junior Securities" shall
include securities issued in connection with a reorganization pursuant to the
bankruptcy laws of any jurisdiction to persons which held "Designated Senior
Debt" in such reorganization proceeding.
"Material Facility" means each of the Company's facilities located in
Arlington or Mansfield, Texas and any other fixed asset of the Company or its
Subsidiaries; provided that the fair market value of such facility or fixed
asset exceeds $3 million.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale or equity contribution in
respect of Qualified Capital Stock and by the Company and its Subsidiaries in
respect of an Asset Sale plus, in the case of an issuance of Qualified Capital
Stock upon any exercise, exchange or conversion of securities (including
options, warrants, rights and convertible or exchangeable debt) of the Company
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that were issued for cash on or after the Issue Date, the amount of cash
originally received by the Company upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt)
less, in each case, the sum of all payments, fees, commissions, and customary
and reasonable expenses (including, without limitation, the fees and expenses
of legal counsel and investment banking fees and expenses) incurred in
connection with such Asset Sale or sale or equity contribution in respect of
Qualified Capital Stock, and, in the case of an Asset Sale only, less the
amount (estimated reasonably and in good faith by the Company) of income,
franchise, sales and other applicable taxes required to be paid by the Company
or any of its respective Subsidiaries in connection with such Asset Sale and
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
such Asset Sale and retained by the Company or any such Subsidiary after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification agreements associated with such Asset
Sale.
"New Credit Facility" means the credit agreement to be entered into on or
prior to the Issue Date by and among the Company, NationsBanc Capital Markets,
Inc. and Donaldson, Lufkin & Jenrette Securities Corporation, as arrangers and
syndication agents, certain lending parties thereto and NationsBank of Texas,
N.A., as agent, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, as such credit
agreement and/or related documents may be amended, restated, supplemented,
renewed, replaced or otherwise modified from time to time whether or not with
the same agent, trustee, representative lenders or holders, and, subject to
the proviso to the next succeeding sentence, irrespective of any changes in
the terms and conditions thereof. Without limiting the generality of the
foregoing, the term "New Credit Facility" shall include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to any New Credit Facility and all refundings, refinancings and
replacements of any New Credit Facility, including any agreement (i) extending
the maturity of any Indebtedness incurred thereunder or contemplated thereby,
(ii) adding or deleting borrowers or guarantors thereunder, so long as
borrowers and issuers include one or more of the Company and its Subsidiaries
and their respective successors and assigns, or (iii) increasing the amount of
Indebtedness incurred thereunder or available to be borrowed thereunder,
provided that if on the date any such Indebtedness is incurred it would not be
permitted by the covenant "Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock," such Indebtedness will not constitute Senior
Debt.
"Permitted Indebtedness" means any of the following:
(a) the Company and the Guarantors may incur Indebtedness evidenced by
the Notes and represented by the Indenture up to the amounts specified
therein as of the date thereof;
(b) the Company and its Subsidiaries, as applicable, may incur
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund, Indebtedness
or Disqualified Capital Stock that was permitted by the Indenture to be
incurred;
(c) The Company and its Subsidiaries may incur Indebtedness solely in
respect of performance bonds, workers' compensation claims, payment
obligations in connection with self-insurance and other similar
requirements (to the extent that such incurrence does not result in the
incurrence of any obligation to repay any obligation relating to borrowed
money of others) in the ordinary course of business in accordance with
customary industry practices, in amounts and for the purposes customary in
the Company's industry;
(d) The Company may incur Indebtedness to any Subsidiary Guarantor, and
any Subsidiary Guarantor may incur Indebtedness to any other Subsidiary
Guarantor or to the Company; provided, that, in the case of Indebtedness of
the Company, such obligations shall be unsecured and subordinated in all
respects to the Company's obligations pursuant to the Notes and the date of
any event that causes such Subsidiary Guarantor to no longer be a
Subsidiary Guarantor shall be an Incurrence Date;
(e) The Company and its Subsidiaries may incur Indebtedness with respect
to Interest Swap and Hedging Obligations; provided, however, that such
Interest Swap and Hedging Obligations are entered into to protect the
Company and its Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with the Indenture to the extent the
notional principal amount of such Interest Swap and
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Hedging Obligations does not exceed the principal amount of the
Indebtedness to which such Interest Swap and Hedging Obligations relate or
does not increase the Indebtedness of the Company and its Subsidiaries
outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of customary fees, indemnities and compensation
payable thereunder;
(f) The Company and its Subsidiaries may incur 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, however, that such Indebtedness is
extinguished within five business days of incurrence, or from endorsements
of instruments for deposit in the ordinary course of business;
(g) Other Indebtedness of the Company outstanding on the Issue Date;
(h) The Company and its Subsidiaries may incur Indebtedness arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from guarantees or letters of credit, surety bonds
or performance bonds securing any obligations of the Company or any such
Subsidiary pursuant to such agreements, in any case incurred in connection
with the disposition of any business, assets or Subsidiary of the Company
to the extent none of the foregoing results in Indebtedness required to be
reflected as indebtedness on the balance sheet of the Company or any such
Subsidiary in accordance with GAAP and are limited in aggregate amount to
no greater than 25% of the fair market value of such business, assets or
Subsidiary so disposed of; and
(i) A Receivables Subsidiary may incur Indebtedness in a Qualified
Receivables Transaction that is without recourse to the Company or to any
Subsidiary of the Company or their assets (other than such Receivables
Subsidiary and its assets), and is not guaranteed by any such person and is
not otherwise such person's legal liability.
"Permitted Investment" means (a) Investments by the Company or any Guarantor
in any person that is or immediately after such Investment becomes a
Guarantor, or immediately after such Investment merges or consolidates into
the Company or any Guarantor in compliance with the terms of the Indenture,
provided that such Person is engaged in all material respects in Related
Business; (b) Investments in the Company by any Guarantor; provided that in
the case of Indebtedness constituting any such Investment, such Indebtedness
shall be unsecured and subordinated in all respects to the Company's
obligations under the Notes; (c) Interest Swap and Hedging Obligations entered
into in the ordinary course of the Company's or its Subsidiaries' businesses
and otherwise in compliance with the Indenture; (d) Investments in securities
of trade creditors or customers received in settlement of obligations that
arose in the ordinary course of business or pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of
such trade creditors or customers; (e) Investments made by the Company or any
of its Subsidiaries as a result of consideration received in connection with
an Asset Sale in compliance with clause (2) of the first paragraph of the
covenant "Limitation on Sale of Assets and Subsidiary Stock," or not
constituting an Asset Sale pursuant to clause (x) of the third paragraph of
such covenant; (f) Investments in the form of promissory notes of members of
the Company's management not to exceed $2 million in principal amount at any
time outstanding solely in consideration of the purchase by such persons of
Qualified Capital Stock of the Company; (g) any Investment by the Company or
any Guarantor in a Receivables Subsidiary or any Investment by a Receivables
Subsidiary in any other person in connection with a Qualified Receivables
Transaction; provided, that the foregoing Investment is in the form of a note
that the Receivables Subsidiary or other person is required to repay as soon
as practicable from available cash collections less amounts required to be
established as reserves pursuant to contractual arrangements with entities
that are not Affiliates entered into as part of a Qualified Receivables
Transaction; (h) Investments by the Company outstanding on the Issue Date; (i)
agreements permitted pursuant to clause (h) of the definition of "Permitted
Indebtedness; (j) guarantees of the Company or any of its Subsidiaries entered
into in the ordinary course of business and otherwise in compliance with the
Indenture, guarantying obligations in an aggregate amount not in excess of $1
million at any time outstanding; (k) acquisitions by the Company of assets,
Equity Interests or other securities for consideration consisting solely of
Qualified Capital Stock of the Company; and (l) additional Investments not to
exceed $4 million at any one time outstanding.
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"Permitted Lien" means (a) Liens existing on the Issue Date after giving
effect to the Transactions; (b) Liens securing the Notes; (c) Liens securing
Indebtedness of a Person existing at the time such Person becomes a Subsidiary
or is merged with or into the Company or a Subsidiary or Liens securing
Indebtedness incurred in connection with an Acquisition, provided that such
Liens were in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof, and do not extend to
any other assets; (d) Liens arising from Purchase Money Indebtedness permitted
to be incurred under clause (a) of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock," provided such Liens
relate solely to the property which is subject to such Purchase Money
Indebtedness; (e) Liens securing Refinancing Indebtedness incurred to
refinance any Indebtedness permitted under the Indenture; (f) Liens imposed by
governmental authorities for taxes, assessments or other charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or any of its Subsidiaries shall have
set aside on its books such reserves as may be required pursuant to GAAP; (g)
statutory Liens of landlords, carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other like Liens arising by operation of law in the
ordinary course of business for sums not yet delinquent for a period of more
than 90 days or being contested in good faith, if such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made in respect thereof; (h) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security or similar obligations, including
any Lien securing letters of credit issued in the ordinary course of business
in connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money) incurred in the ordinary
course of business; (i) judgment Liens not giving rise to an Event of Default
so long as such Lien is adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of such judgment
shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired; (j) easements, rights-of-
way, zoning restrictions, minor defects or irregularities with title and other
similar charges or encumbrances in respect of real property not materially
detracting from the value of the property subject thereto and not interfering
in any material respect with the ordinary conduct of the business of the
Company or any of its Subsidiaries; (k) any interest or title of a lessor
under any lease, whether or not characterized as capital or operating;
provided that such Liens do not extend to any property or assets which is not
leased property subject to such lease; (l) Liens upon specific items of
inventory or other goods and proceeds of any person securing such persons
obligations in respect of banker's acceptances issued or created for the
account of such person to facilitate the purchase, shipment or storage of such
inventory or other goods in the ordinary course of business; (m) Liens in
favor of the Company; (n) Liens encumbering deposits made to secure
obligations arising in the ordinary course of business from statutory,
regulatory, contractual, or warranty requirements of the Company or any of its
Subsidiaries, including rights of offset and set-off; (o) leases or subleases
granted to others not interfering in any material respect with the business of
the Company or its Subsidiaries; (p) Liens arising out of consignment or
similar arrangements for the sale of goods entered into by the Company or any
of its Subsidiaries in the ordinary course of business; (q) Liens on assets of
a Receivables Subsidiary incurred in connection with a Qualified Receivables
Transaction; and (r) Liens solely on property of Subsidiaries that are not
Guarantors arising from Indebtedness permitted to be incurred pursuant to
clause (B) of the first paragraph of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock."
"Purchase Money Indebtedness" of any person means any Indebtedness of such
person to any seller or other person incurred to finance the acquisition
(including in the case of a Capitalized Lease Obligation, the lease) of any
real or personal tangible property acquired after the Issue Date which, in the
reasonable good faith judgment of the Board of Directors of the Company, is
directly related to a Related Business of the Company and which is incurred
within 180 days of such acquisition and is secured only by the assets so
financed.
"Qualified Capital Stock" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the
Company with the Net Cash Proceeds received by the Company from
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the substantially concurrent sale of Qualified Capital Stock (other than to a
Subsidiary) or any exchange of Qualified Capital Stock for any Capital Stock
or Indebtedness of the Company.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company, any Guarantor or any
Receivables Subsidiary pursuant to which the Company, any Guarantor or any
Receivables Subsidiary may sell, convey or otherwise transfer to, or grant a
security interest in for the benefit of, (a) a Receivables Subsidiary (in the
case of a transfer or encumbrancing by the Company or any Guarantor) and (b)
any other person (solely in the case of a transfer or encumbrancing by a
Receivables Subsidiary), solely accounts receivable (whether now existing or
arising in the future) of the Company or any Guarantor which arose in the
ordinary course of business of the Company or any Guarantor, and any assets
related thereto, including, without limitation, all collateral securing such
accounts receivable, all contracts and all guarantees or other obligations in
respect of such accounts receivable, proceeds of such accounts receivable and
other assets which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Subsidiary of the Company
which engages in no activities other than in connection with the financing of
accounts receivable and which is designated by the Board of Directors of the
Company (as provided below) as a Receivables Subsidiary (a) no portion of any
Indebtedness or any other obligations (contingent or otherwise) of which (i)
is guaranteed by the Company or any other Subsidiary of the Company (excluding
guarantees of obligations (other than the principal of, and interest on,
Indebtedness) pursuant to representations, warranties, covenants and
indemnities entered into in the ordinary course of business in connection with
a Qualified Receivables Transaction), (ii) is recourse to or obligates the
Company or any other Subsidiary of the Company in any way other than pursuant
to representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction, or (iii) subjects any property or asset of the Company or any
other Subsidiary of the Company, directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to
representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction, (b) with which neither the Company nor any other Subsidiary of
the Company has any material contract, agreement, arrangement or understanding
other than those customarily entered into in connection with Qualified
Receivables Transactions, and (c) with which neither the Company nor any of
its other Subsidiaries has any obligation to maintain or preserve such
Subsidiary's financial condition or cause such Subsidiary to achieve certain
levels of operating results. Any such designation by the Board of Directors of
the Company shall be evidenced to the Trustee by the filing with the Trustee a
certified copy of the resolution of the Board of Directors of the Company
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions.
"Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in
existence) ended immediately preceding any date upon which any determination
is to be made pursuant to the terms of the Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or
(b) constituting an amendment, extension, modification or supplement to any
scheduled principal payment (or in the case of Disqualified Capital Stock, any
payment) of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference, not to exceed
(after deduction of reasonable and customary fees and expenses incurred in
connection with the Refinancing) the lesser of (i) the principal amount or, in
the case of Disqualified Capital Stock, liquidation preference, of the
Indebtedness or Disqualified Capital Stock so Refinanced and (ii) if such
Indebtedness being Refinanced was issued with an original issue discount, the
accreted value thereof (as determined in accordance with GAAP) at the time of
such Refinancing; provided, that (A) such Refinancing Indebtedness of any
Subsidiary of the Company shall only be used to Refinance outstanding
Indebtedness or Disqualified Capital Stock of such Subsidiary, (B) such
Refinancing Indebtedness shall (x) not have an Average Life or final maturity
shorter than the Indebtedness or Disqualified Capital Stock to be so
refinanced at the time of such Refinancing and (y) in all
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respects, be no less subordinated or junior, if applicable, to the rights of
Holders of the Notes than was the Indebtedness or Disqualified Capital Stock
to be refinanced, and (C) except for Refinancing Indebtedness incurred to
refinance any Senior Debt incurred in accordance with the Indenture (with
respect to which this clause (C) shall be inapplicable), such Refinancing
Indebtedness shall be secured in a manner no more adverse to the Holders of
the Notes than the terms of the Liens securing such refinanced Indebtedness,
provided that the Indebtedness secured is not increased and the Lien is not
extended to any additional assets of property.
"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date and any
and all businesses that in the good faith judgment of the Board of Directors
of the Company are materially related businesses.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than investments in Cash Equivalents and other than
Permitted Investments.
"Restricted Payment" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Equity
Interests of such person or any parent or Subsidiary of such person, (b) any
payment on account of the purchase, redemption or other acquisition or
retirement for value of Equity Interests of such person or any Subsidiary or
parent of such person, (c) other than with the proceeds from the substantially
concurrent sale of, or in exchange for, Refinancing Indebtedness, any
purchase, redemption, or other acquisition or retirement for value of, or any
payment in respect of any amendment of the terms of or any defeasance of, any
Subordinated Indebtedness, directly or indirectly, by such person or a parent
or Subsidiary of such person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking fund payment, as the case may be,
of such Indebtedness and (d) any Restricted Investment by such person;
provided, however, that the term "Restricted Payment" does not include (i) any
dividend, distribution or other payment on or with respect to or with Equity
Interests of an issuer to the extent payable solely in or exchanged solely for
shares of Qualified Capital Stock of such issuer; (ii) any dividend,
distribution or other payment to the Company, or to any of its Subsidiary
Guarantors, by the Company or any of its Subsidiaries; (iii) any dividend,
distribution or other payment to a Foreign Subsidiary by a Foreign Subsidiary
that is not a Guarantor; (iv) redemptions of Doskocil Series C Preferred Stock
(or any Capital Stock of the Company into or for which such Doskocil Series C
Preferred Stock may be converted or exchanged in compliance with the
Indenture) in an aggregate amount not to exceed $2.4 million; provided that,
immediately after giving effect to any such redemption on a pro forma basis,
the Company could incur at least $1.00 of Indebtedness pursuant to the Debt
Incurrence Ratio in the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock"; or (v) payments made pursuant to
the Transactions, including, without limitation, payments made after
consummation of the Merger to shareholders of the Company pursuant to the
Transactions.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a bankruptcy
petition at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on parity with or
subordinated in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium,
if any, interest (including any interest accruing subsequent to the filing of
a petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (y) all
monetary obligations (including guarantees thereof) of every nature of the
Company under the New Credit Facility, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities, and (z) all Interest Swap
and Hedging Obligations (including guarantees thereof), in each case whether
outstanding on the Issue Date or thereafter incurred. Notwithstanding the
foregoing, "Senior Debt" shall not include (i) any Indebtedness of the Company
to a Subsidiary of the Company, (ii) Indebtedness of the Company or any of its
Subsidiaries to any shareholder (other than a parent corporation) of the
Company, (iii) Indebtedness to, or guaranteed by the Company or any of its
Subsidiaries for the benefit of, any director, officer or employee of the
Company or any Subsidiary of the Company (including, without limitation,
amounts owed for compensation), (iv) Indebtedness and other amounts incurred
to trade creditors in connection with obtaining goods, materials or services,
(v) Indebtedness represented by Disqualified Capital Stock, (vi) any liability
for federal, state, local or other taxes owed or owing by the Company, (vii)
any Indebtedness incurred in violation of the Indenture and (viii) any
Indebtedness which is, by its express terms, subordinated in right of payment
to any other Indebtedness of the Company. "Senior Debt," when used with
respect to a Guarantor, shall have a meaning substantially identical to that
applied to the Indebtedness of the Company (including any guarantees issued by
such Guarantor).
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"Significant Subsidiary" shall have the meaning provided under Regulation S-
X of the Securities Act, as in effect on the Issue Date.
"Stated Maturity" means September 15, 2007.
"Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor
that is subordinated in right of payment by its terms or the terms of any
document or instrument relating thereto to the Notes or such Guarantee, as
applicable, in any respect or has a stated maturity after the Stated Maturity.
"Subsidiary," with respect to any person, means (i) a corporation a majority
of whose Equity Interests with voting power, under ordinary circumstances, to
elect directors is at the time, directly or indirectly, owned by such person,
by such person and one or more Subsidiaries of such person or by one or more
Subsidiaries of such person, (ii) any other person (other than a corporation)
in which such person, one or more Subsidiaries of such person, or such person
and one or more Subsidiaries of such person, directly or indirectly, at the
date of determination thereof has at least majority ownership interest, or
(iii) a partnership in which such person or a Subsidiary of such person is, at
the time, a general partner. Notwithstanding the foregoing, an Unrestricted
Subsidiary shall not be a Subsidiary of the Company or of any Subsidiary of
the Company. Unless the context requires otherwise, Subsidiary means each
direct and indirect Subsidiary of the Company.
"Treasury Rate" means the yield to maturity at the time of computation of
U.S. Treasury securities with a constant maturity (as complied and published
in the most recent Federal Reserve Release H.15 (519) which has become
publicly available at least two Business Days prior to the applicable
Redemption Date (or, if such statistical release is no longer published, any
publicly available source or similar market data)) closest to the period from
the applicable Redemption Date to September 15, 2002, provided, however, that
if the period from such Redemption Date to September 15, 2002, is not equal to
the constant maturity of a U.S. Treasury security for which a weekly average
yield is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of one year) from the weekly average
yields of U.S. Treasury securities for which such yields are given, except
that if the period from the applicable Redemption Date to September 15, 2002,
is less than one year, the weekly average yield on actually traded U.S.
Treasury securities adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means any subsidiary of the Company that does not
own any Capital Stock of, or own or hold any Lien on any property of, the
Company or any other Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided, that (i) such subsidiary shall not
engage, to any substantial extent, in any line or lines of business activity
other than a Related Business, (ii) neither immediately prior thereto nor
after giving pro forma effect to such designation would there exist a Default
or Event of Default and (iii) immediately after giving pro forma effect
thereto, the Company could incur at least $1.00 of Indebtedness pursuant to
the Debt Incurrence Ratio in the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock." The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Subsidiary, provided that (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 Debt Incurrence Ratio in the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock." Each such designation shall be evidenced by filing with the Trustee a
certified copy of the resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"U.S. Government Obligations" means direct non-callable obligations of, or
noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"Wholly-owned Subsidiary" means a Subsidiary all the Equity Interests of
which are owned by the Company or one or more Wholly-owned Subsidiaries of the
Company, other than directors' qualifying shares or an immaterial amount of
shares to the extent required to be owned by other persons pursuant to
applicable law.
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REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Holders of the New Notes are not entitled to any registration rights
with respect to the New Notes. Pursuant to the Registration Rights Agreement,
the Company agreed to file with the SEC a registration statement (the
"Exchange Offer Registration Statement") on the appropriate form under the
Securities Act with respect to the New Notes. The Registration Statement of
which this Prospectus forms a part constitutes the Exchange Offer Registration
Statement.
The Registration Rights Agreement provides that in the event that applicable
interpretations of the staff of the SEC do not permit the Company to effect
the Exchange Offer, or if for any other reason the Exchange Offer is not
consummated within 210 days of the Issue Date, the Company will, at its own
expense, (a) as promptly as practicable, file a shelf registration statement
covering resales of the Notes (a "Shelf Registration Statement"), (b) use its
best efforts to cause such Shelf Registration Statement to be declared
effective under the Securities Act as promptly as practicable after the filing
of such Shelf Registration Statement and (c) use its best efforts to keep
effective such Shelf Registration Statement until the earlier of 24 months
following the Issue Date and such time as all of the Notes have been sold
thereunder, or otherwise cease to be a Transfer Restricted Security (as
defined in the Registration Rights Agreement). The Company will, in the event
a Shelf Registration Statement is required to be filed, provide to each Holder
of the Notes copies of the prospectus which is a part of such Shelf
Registration Statement, notify each such Holder when such Shelf Registration
Statement for the Notes has become effective and take certain other actions
that are required to permit unrestricted resales of the Notes. A Holder of the
Notes who sells such Notes pursuant to the Shelf Registration Statement
generally would be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject
to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which is applicable to such a Holder (including
certain indemnification and contribution rights and obligations).
If (a) the Company fails to consummate the Exchange Offer within 60 days of
the effectiveness of the Exchange Offer Registration Statement, or (b) the
Shelf Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Notes during the period
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) and (b) above a "Registration Default"), then the Company will pay
liquidated damages ("Liquidated Damages") to each holder of Transfer
Restricted Securities, during the first 90-day period immediately following
the occurrence of such Registration Default in an amount equal to $0.05 per
week per $1,000 principal amount of Notes constituting Transfer Restricted
Securities held by such holder. The amount of the Liquidated Damages will
increase by an additional $0.05 per week per $1,000 principal amount
constituting Transfer Restricted Securities for each subsequent 90-day period
until the Registration Default is cured, up to a maximum amount of liquidated
damages of $0.25 per week per $1,000 principal amount of Notes constituting
Transfer Restricted Securities. All accrued liquidated damages shall be paid
to Holders in the same manner as interest payments on the Notes on semi-annual
damages payment dates which correspond to interest payment dates for the
Notes.
Holders of Notes to be included in a Shelf Registration Statement will be
required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights
Agreement in order to have their Notes included in the Shelf Registration
Statement and benefit from the provisions regarding Liquidated Damages set
forth above.
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 is filed as an exhibit to the Registration
Statement of which this Prospectus constitutes a part.
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BOOK-ENTRY, DELIVERY AND FORM
The Old Notes were offered and sold to "qualified institutional buyers" in
reliance on Rule 144A. The Old Notes were issued in registered, global form in
minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof.
The Old Notes are represented by one or more Notes in registered, global
form without interest coupons (the "Restricted Global Note"), and, except as
set forth below, the New Notes will be represented by one or more Notes in
registered, global form without interest coupons (the "Unrestricted Global
Note," and together with the Restricted Global Note, the "Global Note"). The
Restricted Global Note was, and the Unrestricted Global Note will be,
deposited upon issuance with the Trustee as custodian for The Depository Trust
Company ("DTC"), in New York, New York and registered in the name of DTC or
its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Note may not be exchanged for
Notes in certificated form except in the limited circumstances described
below. See "Exchange of Book-Entry Notes for Certificated Notes."
The Trustee will act as paying agent and registrar.
DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests and
transfer of ownership interests of each actual purchaser of each security held
by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by
it, (i) upon deposit of the Global Note, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Note and (ii) ownership of such interests in
the Global Note will be maintained by DTC (with respect to the Participants)
or by the Participants and the Indirect Participants (with respect to other
owners of beneficial interests in the Global Note).
Investors in the Global Note may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations which are Participants in such system. All interests in the
Global Note may be subject to the procedures and requirements of DTC. The laws
of some states require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such persons will be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants and certain banks, the ability of
a person having beneficial interests in a Global Note to pledge such interests
to persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests. For certain other restrictions
on the transferability of the Notes, see "--Exchange of Book-Entry Notes for
Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTE WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
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Payments in respect of the principal of and premium, if any, and interest
and Liquidated Damages, if any, on a Global Note registered in the name of DTC
or its nominee will be payable by the Trustee to DTC in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee will treat the persons in whose names the Notes,
including the Global Note, 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, the Trustee nor any agent of
the Company or the Trustee has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Note, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect Participants's
records relating to the beneficial ownership interests in the Global Note or
(ii) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants. DTC has advised the Company that
its current practice, upon receipt of any payment in respect of securities
such as the Notes (including principal and interest), is to credit the
accounts of the relevant Participants with the payment on the payment date, in
amounts proportionate to their respective holdings in the principal amount of
beneficial interests in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee
or the Company. Neither the Company nor the Trustee will be liable for any
delay by DTC or any of its Participants in identifying the beneficial owners
of the Notes, and the Company and the Trustee may conclusively rely on and
will be protected in relying on instructions from DTC or its nominee for all
purposes.
Interests in the Global Note are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants. Transfers
between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Participants
to whose account with DTC interests in the Global Note are credited and only
in respect of such portion of the aggregate principal amount of the Notes as
to which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the
right to exchange the Global Note for Notes in certificated form, and to
distribute such Notes to its Participants.
The information in this section concerning DTC and its book-entry system has
been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof. Neither the Company
nor the Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their obligations under the rules and
procedures governing the DTC's operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
The Global Note is exchangeable for definitive Notes in registered
certificated form if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as depositary for the Global Note and the Company thereupon
fails to appoint a successor depositary or (y) has ceased to be a clearing
agency registered under the Exchange Act, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Notes in certificated form or (iii) there shall have occurred and be
continuing an Event of Default or any event which after notice or lapse of
time or both would be an Event of Default with respect to the Notes. In all
cases, certificated Notes delivered in exchange for the Global Note or
beneficial interests therein will be registered in the names, and issued in
any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures) and will bear the applicable
restrictive legend referred to in "Notice to Investors," unless the Company
determines otherwise in compliance with applicable law.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 180 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1997, (90 days after the date of this Prospectus) all
dealers effecting transactions in the New Notes may be required to deliver a
Prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer 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 incident to the Exchange Offer
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not be considered a taxable exchange for federal income tax purposes because
the New Notes will not differ materially in kind or extent from the Old Notes
and because the exchange will occur by operation of the terms of the Old
Notes. Accordingly, such exchange will have no federal income tax consequences
to Holders of Old Notes. A Holder's adjusted tax basis and holding period in a
New Note will be the same as such Holder's adjusted tax basis and holding
period, respectively, in the Old Note exchanged therefor.
Holders considering the exchange of Old Notes for New Notes should consult
their own tax advisors concerning the United States federal income tax
consequences in light of their particular situations as well as any
consequences arising under state, local and foreign income tax and other tax
law.
LEGAL MATTERS
Certain legal matters with respect to the validity of the New Notes will be
passed upon for the Company by O'Melveny & Myers LLP and Lidell, Sapp, Zivley,
Hill & LaBoon LLP.
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EXPERTS
The combined financial statements of Doskocil Manufacturing Company, Inc.
for the six months ended June 30, 1997 and the financial statements of Dogloo,
Inc. for each of the previous two years in the period ended December 31, 1996
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports
appearing elsewhere herein and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The combined financial statements of Doskocil Manufacturing Company, Inc.
and Spectrum Polymers, Ltd. as of December 28, 1996 and December 30, 1995, and
for the years ended December 28, 1996, December 30, 1995, and December 31,
1994, have been included herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The financial statements of Dogloo, Inc. for the year ended December 31,
1994 included in this Prospectus, have been audited by Grant Thornton LLP,
independent certified public accountants, as stated in their report appearing
herein.
107
<PAGE>
INDEX TO FINANCIAL STATEMENTS
DOSKOCIL MANUFACTURING COMPANY, INC.
AND SPECTRUM POLYMERS, LTD.
<TABLE>
<CAPTION>
PAGE
<S> <C>
Reports of Independent Auditors........................................... F-2
Combined Balance Sheets as of December 30, 1995, December 28, 1996, and
June 30, 1997............................................................ F-4
Combined Statements of Operations for the years ended December 31, 1994,
December 30, 1995, December 28, 1996, and for the six-month period ended
June 30, 1996 (unaudited) and 1997....................................... F-5
Combined Statements of Equity for the years ended December 31, 1994,
December 30, 1995, December 28, 1996, and for the six-month period ended
June 30, 1997............................................................ F-6
Combined Statements of Cash Flows for the years ended December 31, 1994,
December 30, 1995, December 28, 1996, and for the six-month period ended
June 30, 1996 (unaudited) and 1997....................................... F-7
Notes to Combined Financial Statements.................................... F-8
DOGLOO, INC.
Reports of Independent Auditors........................................... F-16
Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997
(unaudited).............................................................. F-18
Statements of Operations for the years ended December 31, 1994, 1995 and
1996, and for six month periods ended June 30, 1996 (unaudited) and June
30, 1997 (unaudited)..................................................... F-19
Statements of Changes in Redeemable Preferred Stock and Shareholders
Deficit for the years ended December 31, 1994, 1995 and 1996, and for the
six month period ended June 30, 1997 (unaudited)......................... F-20
Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996, and for the six month periods ended June 30, 1996 (unaudited) and
June 30, 1997 (unaudited)................................................ F-21
Notes to Financial Statements............................................. F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors
Doskocil Manufacturing Company, Inc. and Spectrum Polymers, Ltd.
We have audited the accompanying combined balance sheet of Doskocil
Manufacturing Company, Inc. (the Company), and Spectrum Polymers, Ltd. (the
Partnership), as of June 30, 1997, and the related combined statements of
operations, equity, and cash flows for the six-month period then ended. These
combined financial statements are the responsibility of the Company's and the
Partnership's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Doskocil
Manufacturing Company, Inc., and Spectrum Polymers, Ltd., as of June 30, 1997,
and the combined results of their operations and their cash flows for the six
month period then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
July 25, 1997
Dallas, Texas
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Doskocil Manufacturing Company, Inc. and Spectrum Polymers, Ltd.:
We have audited the accompanying combined balance sheets of Doskocil
Manufacturing Company, Inc. (Company) and Spectrum Polymers, Ltd.
(Partnership) as of December 28, 1996 and December 30, 1995, and the related
combined statements of operations, equity, and cash flows for the years ended
December 28, 1996, December 30, 1995, and December 31, 1994. These combined
financial statements are the responsibility of the Company's and the
Partnership's management. Our responsibility is to express an opinion on these
combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Doskocil
Manufacturing Company, Inc. and Spectrum Polymers, Ltd. as of December 28,
1996 and December 30, 1995, and the results of their operations and their cash
flows for the years ended December 28, 1996, December 30, 1995, and December
31, 1994, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Fort Worth, Texas
March 12, 1997
F-3
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC. AND SPECTRUM POLYMERS, LTD.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, JUNE 30,
1995 1996 1997
------------- ------------- ------------
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 4,258 $ 6,975 $ 2,066
Trade accounts receivable, less
allowance for doubtful accounts
of $120 in 1995, $220 in 1996,
and $248 in 1997 (Notes 1 and 8). 13,427 14,016 14,585
Other accounts receivable (Note
2)............................... 209 934 131
Accounts receivable from affiliate
(Note 6)......................... 4,435 427 --
Inventories (Note 2).............. 20,335 19,268 16,484
Prepaid expenses.................. 214 309 92
------------ ------------ ------------
Total current assets............ 42,878 41,929 33,358
Property, plant, and equipment, net
(Notes 3, 4, 5, and 6)............. 28,078 22,566 16,904
Other assets (Note 6)............... 1,920 1,640 417
------------ ------------ ------------
Total assets.................... $ 72,876 $ 66,135 $ 50,679
============ ============ ============
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.................. $ 3,350 $ 3,840 $ 3,235
Accounts payable to affiliate, net
(Note 6)......................... -- 1,523 --
Accrued expenses.................. 3,371 3,842 2,733
Lines of credit................... 13,794 12,110 7,250
Current portion of long term debt
(Note 4)......................... 1,535 1,645 1,712
Current portion of deferred gain,
net (Note 5)..................... -- 6 6
------------ ------------ ------------
Total current liabilities....... 22,050 22,966 14,936
Revolving line of credit............ 10,569 -- --
Long term debt, less current portion
(Note 4)........................... 9,109 7,465 6,590
Deferred gain, net (Note 5)......... -- 66 63
------------ ------------ ------------
Total liabilities............... 41,728 30,497 21,589
------------ ------------ ------------
Commitments and contingencies (Notes
2, 5, and 9)
Equity:
Common stock, no par value:
Authorized shares--12,500,000,
Issued and outstanding shares--
5,998,900........................ 24 24 24
Retained earnings................. 25,827 31,336 25,258
------------ ------------ ------------
Total stockholders' equity...... 25,851 31,360 25,282
Limited partners.................. 5,244 4,235 3,770
General partner................... 53 43 38
------------ ------------ ------------
Total partners' equity.......... 5,297 4,278 3,808
------------ ------------ ------------
Total equity.................... 31,148 35,638 29,090
------------ ------------ ------------
Total liabilities and equity.... $ 72,876 $ 66,135 $ 50,679
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC. AND SPECTRUM POLYMERS, LTD.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
-------------------------------------- ---------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales (Note 8)...... $ 92,267 $ 97,496 $ 103,455 $ 51,737 $ 51,756
Cost of goods sold...... 62,485 71,552 73,128 37,345 38,389
--------- --------- --------- --------- ---------
Gross profit............ 29,782 25,944 30,327 14,392 13,367
Operating expenses:
Selling, general and
administrative
expenses............. 20,675 20,733 20,682 10,388 10,446
Write-down of
equipment to be
disposed (Note 3).... -- -- -- -- 3,846
--------- --------- --------- --------- ---------
Operating income (loss). 9,107 5,211 9,645 4,004 (925)
Other (income) expense:
Officer's bonus (Note
6)................... 4,378 -- 2,030 853 --
Retention bonus (Note
7)................... -- -- -- -- 2,875
Interest expense, net. 822 2,456 2,176 1,750 471
Litigation expense
(Note 9)............. -- 2,106 -- -- --
Other, net (Note 2)... (44) (541) 696 71 5
--------- --------- --------- --------- ---------
Total other (income)
expense............ 5,156 4,021 4,902 2,674 3,351
--------- --------- --------- --------- ---------
Net income (loss)....... $ 3,951 $ 1,190 $ 4,743 $ 1,330 $ (4,276)
========= ========= ========= ========= =========
Pro forma net income
(loss) per share
(Note 1) (Unaudited
1994-1996)............. $ 1.78 $ .56 $ 2.25 $ .63 $ (2.02)
========= ========= ========= ========= =========
Pro forma weighted
average common shares
outstanding (Note 1)
(Unaudited 1994-1996).. 1,331,021 1,331,021 1,331,021 1,331,021 1,331,021
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC. AND SPECTRUM POLYMERS, LTD.
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
DOSKOCIL
MANUFACTURING SPECTRUM
COMPANY, INC. POLYMERS, LTD.
--------------- ----------------
COMMON RETAINED LIMITED GENERAL
STOCK EARNINGS PARTNERS PARTNER TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994............ $ 24 $26,387 $ -- $ -- $26,411
Capital contributions............... -- -- 99 1 100
Net income.......................... -- 922 2,999 30 3,951
----- ------- ------ ----- -------
Balance at December 31, 1994.......... 24 27,309 3,098 31 30,462
Distributions....................... -- -- (499) (5) (504)
Net income (loss)................... -- (1,482) 2,645 27 1,190
----- ------- ------ ----- -------
Balance at December 30, 1995.......... 24 25,827 5,244 53 31,148
Distributions....................... -- -- (250) (3) (253)
Net income (loss)................... -- 5,509 (759) (7) 4,743
----- ------- ------ ----- -------
Balance at December 28, 1996.......... 24 31,336 4,235 43 35,638
Distributions (Note 6).............. -- (1,836) (431) (5) (2,272)
Net loss............................ -- (4,242) (34) -- (4,276)
----- ------- ------ ----- -------
Balance at June 30, 1997.............. $ 24 $25,258 $3,770 $ 38 $29,090
===== ======= ====== ===== =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC. AND SPECTRUM POLYMERS, LTD.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
-------------------------------------- --------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (loss)...... $ 3,951 $ 1,190 $ 4,743 $ 1,330 $(4,276)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization......... 4,283 5,545 5,928 2,877 2,857
Write-down of
equipment to be
disposed............. -- -- -- -- 3,846
Other................. (17) (22) 9 (39) (86)
Changes in current
assets and
liabilities:
Trade accounts
receivable.......... (4,012) (561) (589) (1,420) (569)
Other accounts
receivable.......... (137) 127 (725) (119) 803
Account receivable
from affiliate...... -- (4,435) 4,008 4,008 427
Inventories.......... (3,893) (6,366) 1,068 (243) 2,784
Prepaid expenses..... (37) 33 (95) (237) 217
Accounts payable..... 1,446 (459) 489 408 (605)
Accounts payable to
affiliate........... -- -- 1,523 -- (1,523)
Accrued expenses..... (104) 163 471 737 (1,109)
-------- -------- -------- ------- -------
Net cash provided by
(used in) operating
activities............. 1,480 (4,785) 16,830 7,302 2,766
Investing Activities
Acquisition of property,
plant, and equipment... (11,474) (19,156) (4,129) (2,740) (971)
Proceeds from sale of
property, plant, and
equipment.............. 9 13,939 4,116 -- --
Cash paid for
acquisition (Note 10).. (4,267) -- -- -- --
Repayments of advances
to related parties..... 1,760 -- -- -- --
Decrease (increase) in
other assets........... (141) (102) (61) 49 (1)
-------- -------- -------- ------- -------
Net cash used in
investing activities... (14,113) (5,319) (74) (2,691) (972)
Financing Activities
Net (payments)
borrowings on lines of
credit................. 10,500 5,325 (12,252) (4,253) (4,860)
Proceeds from long-term
debt................... 2,600 9,046 -- -- --
Payments on long-term
debt................... (354) (649) (1,534) (754) (808)
Capital (distributions)
contributions.......... 100 (504) (253) (252) (1,035)
-------- -------- -------- ------- -------
Net cash provided by
(used in) financing
activities............. 12,846 13,218 (14,039) (5,259) (6,703)
-------- -------- -------- ------- -------
Net increase (decrease)
in cash and cash
equivalents............ 213 3,114 2,717 (648) (4,909)
Cash and cash
equivalents at
beginning of period.... 931 1,144 4,258 4,258 6,975
-------- -------- -------- ------- -------
Cash and cash
equivalents at end of
period................. $ 1,144 $ 4,258 $ 6,975 $ 3,610 $ 2,066
======== ======== ======== ======= =======
Supplemental Disclosure
of Cash Flow
Information
Interest paid.......... $ 588 $ 2,376 $ 2,672 $ 1,676 $ 633
======== ======== ======== ======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
During 1997, the Company made noncash distributions of assets totaling $1,237
(Note 6).
During 1996, the Company deferred a gain of $246 on a sale-leaseback
transaction (Note 5).
In addition, the Company deferred a loss of $203 on a sale-leaseback in 1995,
which was included in other assets at December 30, 1995 (Note 5).
See accompanying notes.
F-7
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC. AND SPECTRUM POLYMERS, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESSES
Doskocil Manufacturing Company, Inc. (the Corporation), and Spectrum
Polymers, Ltd. (the Partnership) are under common ownership and are referred
to herein collectively as the Company. The Corporation is a Texas corporation
engaged in the manufacturing and sale of injection molded consumer plastic
products primarily for the pet care, hardware, sports, and leisure industries
principally in the United States. The Partnership is organized under the Texas
revised Limited Partnership Act and is engaged in the purchasing, recycling,
and blending of plastic resin primarily for use by the Corporation in
injection molded consumer plastic products.
Effective July 1, 1997, the Company was recapitalized through the following
transactions: (1) 100% of the Partnership interest was sold to a group of
investors for $11,005; (2) the Partnership interests were exchanged for
798,612 shares of the Corporation's common stock; (3) the Corporation's
Articles of Incorporation were amended to establish the Corporation as a C
Corporation and authorized 15,000,000 shares of preferred stock and 15,000,000
shares of common stock, each with no par value per share; (4) the group of
investors purchased 199,654 shares of common stock for $3,000 and 1,530,674
shares of Series A Preferred Stock for $23,000; (5) all outstanding balances
under the lines of credit and long-term debt, along with related accrued
interest and pre-payment penalties were paid in full (see Note 4); and (6) the
Corporation redeemed 5,666,145 shares of common stock from the majority
stockholder for approximately $87.4 million.
Excluding the impact, if any, from any purchase price adjustments for the
acquisition of the Partnership interest and after giving effect to the above
mentioned recapitalization, the Corporation is expected to have a deficit in
equity of approximately $26,000 as of July 1, 1997.
The Series A Preferred Stock is convertible into common stock at the option
of the holder at a defined conversion price concurrent with or following the
consummation of the closing of a merger with or acquisition of another company
engaged principally in supplying products to the pet industry with annual
revenues in excess of $25,000. The preferred stock is also subject to a 10%
cash dividend per share commencing July 1, 1998, which is cumulative. The
conversion price is initially equivalent to one share of preferred stock for
one share of common stock based on a price of $15.02607 per share of preferred
stock. The preferred stockholders are entitled to vote their shares on any
matter submitted to the common stockholders, except those matters required by
law to be submitted to a class vote.
A portion of the proceeds received as a result of the recapitalization was
used to repurchase assets previously sold and leased back. The aggregate
purchase price was $18,724 (see Note 5). The remaining proceeds of
approximately $2,600 was used to pay fees incurred in connection with the
recapitalization.
The Company entered into two new debt agreements which include $65,000 in
borrowings from a $80,000 credit agreement and $32,500 in senior subordinated
increasing rate notes. The credit agreement was signed with a bank and an
unrelated investment company on July 1, 1997. Under the terms of the
agreement, $40,000 was borrowed under Term A Loans and $25,000 was borrowed
under Term B Loans. The Term A Loans bear interest at rates ranging from prime
plus 0% to .75% to LIBOR plus 1.5% to 2.25% and are payable in quarterly
principal installments of $1,000 beginning September 30, 1998, through June
30, 1999, $2,000 through June 30, 2001, and $2,500 through June 30, 2003. The
Term B Loans bear interest at prime plus 1.25% to LIBOR plus 2.75% and are
payable in quarterly principal installments of $62.5 beginning September 30,
1997, through June 30, 2003, and $5,875 through June 30, 2004. Borrowings may
also be made under the Revolving Credit Commitment of $15,000 subject to
certain borrowing base provisions. The Revolving Credit Commitment matures on
June 30, 2003. The Credit agreement includes various restrictive covenants
including capital expenditure limitations,
F-8
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC. AND SPECTRUM POLYMERS, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
maintaining maximum leverage ratios, minimum fixed charge coverage ratios and
EBITDA, and interest coverage ratios. Interest on the credit agreement is paid
on a quarterly basis.
The senior subordinated increasing rate notes initially bear interest at
prime plus 3.5% and increase on each Rate Determination Date, as defined.
Interest is payable quarterly in arrears, on the first day of each January,
April, July, and October. The notes mature on July 1, 1998; however, the notes
will be automatically extended until January 1, 2005, if on the first
anniversary no default of principal or interest exists, all fees payable on or
prior to the first anniversary have been paid in full, and an election was not
made by the Company to pay the debt in full on July 1, 1998.
If the senior subordinated increasing rate notes are not paid in full by
July 1, 1998, the holders of the senior subordinated increasing rate notes are
entitled to warrants representing 15% of the outstanding common stock at an
exercise price of $0.01 per share.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of the
Corporation and the Partnership. All significant intercompany balances and
transactions are eliminated.
FISCAL YEARS
The Company changed its fiscal year end to June 30 beginning in 1997. Prior
to 1997, the Company prepared its financial statements and reported its
results of operations on the basis of a fiscal year which ended on the
Saturday nearest December 31. Accordingly, the fiscal years ended December 31,
1994, December 30, 1995, and December 28, 1996, consist of 52 weeks.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of weighted-average cost or market.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost and depreciated over the
estimated useful lives of the respective assets on a straight-line basis.
Repairs and maintenance which do not extend the lives or improve the
respective assets are charged to expense as incurred.
INTANGIBLE ASSETS
The cost of intangible assets (patents and noncompete agreements) are being
amortized on a straight-line basis over the estimated useful lives of such
assets. The cost of such assets, net of the related accumulated amortization,
is included in other assets in the accompanying combined financial statements.
Accumulated amortization at December 30, 1995, December 28, 1996, and June 30,
1997, was $689, $847, and $926, respectively.
F-9
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC. AND SPECTRUM POLYMERS, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RISK CONCENTRATIONS
Financial instruments that potentially subject the Company to concentrations
of credit risk are accounts receivable. The Company generally sells consumer
products to wholesale distributors and retail customers throughout the United
States, Canada, and Europe who are associated with the pet, sport, home and
garden, and leisure industries. The Company continuously evaluates the
creditworthiness of its customers' financial condition and generally does not
require collateral. Included in trade accounts receivable at June 30, 1997, is
$4,300 of receivables which are not due until October 1997.
FEDERAL INCOME TAXES
Effective January 1, 1988, the Corporation elected to be taxed as an
Subchapter S Corporation under the provisions of the Internal Revenue Code.
Under these provisions, the Corporation did not pay a corporate level tax on
its taxable income. Rather, the Corporation's taxable income or loss was
passed through to the shareholders and included on their individual income tax
returns. However, the Corporation is subject to tax on "built-in-gains" as
prescribed by the Internal Revenue Code up through the date of termination of
its status as an S Corporation. The Corporation terminated its S Corporation
status on June 30, 1997. No provision for income taxes has been made in the
accompanying combined financial statements for the Corporation.
Under Subchapter K of the Internal Revenue Code, the Partnership is not
subject to income tax and its taxable income or loss is passed through to the
partners and included on their respective income tax returns. No provision for
income taxes has been made in the accompanying combined financial statements
for the Partnership.
As a result of the Corporation's termination as an S Corporation on June 30,
1997, the Corporation became a C Corporation effective July 1, 1997. For tax
years subsequent to July 1, 1997, the Corporation's taxable income will be
subject to a corporate level income tax. Accordingly, the following deferred
tax assets and liabilities were established with a net charge to earnings on
July 1, 1997:
<TABLE>
<S> <C>
Deferred tax assets:
Reserve for equipment to be disposed.......................... $ 1,423
Accrued expenses.............................................. 359
Reserve for inventory......................................... 298
Allowance for co-op advertising............................... 153
Allowance for doubtful accounts............................... 92
Other......................................................... 67
-------
Total deferred tax assets....................................... 2,392
Deferred tax liability:
Tax depreciation in excess of book............................ (4,062)
-------
Net deferred tax liability...................................... $(1,670)
=======
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Such estimates relate principally to allowances for
doubtful accounts and slow moving inventory. Actual results could differ from
those estimates.
F-10
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC. AND SPECTRUM POLYMERS, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Advertising expense was
approximately $2,702, $3,226, $3,443, and $1,762 for 1994, 1995, 1996, and the
six month period ended June 30, 1997, respectively.
PRO FORMA INCOME (LOSS) PER COMMON SHARE (UNAUDITED 1994-1996)
Pro forma net income (loss) per common share and pro forma weighted average
common shares outstanding are based on the common shares outstanding after the
recapitalization and the termination of the Company's S Corporation status
discussed above. Earnings have been reduced by pro forma income tax expense
(benefit) of $1,580, $440, $1,755, $492, and $(1,582), for 1994, 1995, 1996
and the six months ended June 30, 1996 and 1997, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
during fiscal year 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this Statement did not have a material
impact on the combined financial position or results of operations of the
Company.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, JUNE 30,
1995 1996 1997
------------ ------------ --------
<S> <C> <C> <C>
Finished goods............................ $ 9,385 $ 9,074 $ 9,610
Work in progress.......................... 1,622 1,346 876
Raw materials............................. 9,328 8,848 5,998
------- ------- -------
$20,335 $19,268 $16,484
======= ======= =======
</TABLE>
During 1997, the Company recorded $1,300 as an allowance for inventory and
wrote off $939 against such allowance.
During 1996, the Partnership had a fire at its manufacturing facility,
during which approximately $1,300 in raw material inventory was destroyed.
Other losses and expenses of approximately $130 were also incurred related to
the fire. The Partnership recorded a receivable from the insurance carrier of
$801 relating to the loss which is included in other accounts receivable in
the accompanying combined balance sheet as of December 28, 1996. The resulting
loss of $628 is included in other expense, net for the year ended December 28,
1996. The insurance proceeds were received during 1997.
F-11
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC. AND SPECTRUM POLYMERS, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
2. INVENTORIES (CONTINUED)
As a result of the fire, the Partnership had environmental tests performed.
It is the opinion of management that there are no environmental liabilities
relating to this issue.
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, JUNE 30,
1995 1996 1997
------------ ------------ --------
<S> <C> <C> <C>
Machinery and equipment................. $ 52,505 $ 52,032 $ 48,239
Computer equipment...................... 2,455 2,525 2,540
Leasehold improvements.................. 1,834 2,225 2,199
Office furniture and equipment.......... 947 970 954
Equipment to be disposed................ -- -- 500
Autos and trucks........................ 196 196 196
Land and land improvements.............. 15 15 --
-------- -------- --------
57,952 57,963 54,628
Accumulated depreciation and
amortization........................... (29,874) (35,397) (37,724)
-------- -------- --------
$ 28,078 $ 22,566 $ 16,904
======== ======== ========
</TABLE>
During 1997, the Company decided to dispose of certain equipment (molds,
tools, and dies) which was deemed to be obsolete or in a line of business
which will no longer be manufactured by the Company. Accordingly, the assets
were written down to their net realizable value with a charge to operating
income of $3,846.
4. LINES OF CREDIT AND LONG-TERM DEBT
On July 2, 1997, all borrowings under lines of credit and long-term debt
discussed in this footnote were paid off and related agreements canceled. (See
Note 1).
The Company has an unsecured line of credit with a bank allowing for maximum
borrowings of $11,755. The line of credit matured on May 31, 1997, and was
extended to August 31, 1997, in connection with the anticipated
recapitalization (see Note 1). The line of credit bears interest at various
prime rate options, 8% at June 30, 1997. The balance outstanding at June 30,
1997, was $2,850.
The Company has another unsecured line of credit with another bank allowing
for maximum borrowings of $10,000. The line of credit matured on May 31, 1997,
and was extended to August 31, 1997, in connection with the anticipated sale
of the Company (see Note 1). The line of credit bears interest at various
prime rate options, 8% at June 30, 1997. The outstanding balance was $4,400 at
June 30, 1997.
The unsecured lines of credit include various affirmative and negative
covenants relating primarily to certain financial ratios, net worth levels and
incurrence of additional debt. The Company was in compliance with these
covenants at June 30, 1997. At June 30, 1997, the Company had available
borrowings of $14,505 from the lines of credit.
F-12
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC. AND SPECTRUM POLYMERS, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
4. LINES OF CREDIT AND LONG-TERM DEBT (CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, JUNE 30,
1995 1996 1997
------------ ------------ --------
<S> <C> <C> <C>
Note payable due in monthly installments
including interest at 7.85%, maturing in
2002, secured by certain equipment with a
carrying value of approximately $5,000 at
June 30, 1997.............................. $ 8,884 $ 7,861 $ 7,319
Note payable due in quarterly installments
of principal and interest to mature in
1999, bearing interest at 5.12%, secured by
certain equipment with a carrying value of
approximately $4,400 at June 30, 1997...... 1,760 1,249 983
------- ------- -------
10,644 9,110 8,302
Less current portion........................ (1,535) (1,645) (1,712)
------- ------- -------
$ 9,109 $ 7,465 $ 6,590
======= ======= =======
</TABLE>
At June 30, 1997, the Company was party to a $1,800 amortizing interest rate
swap agreement which expires July 31, 1997. The Company utilizes this swap to
limit interest rate risk or modify terms of certain interest rate sensitive
liabilities.
The weighted average interest rate on the Company's short term borrowings
were 7.9%, 7.8%, and 8%, as of December 30, 1995, December 28, 1996, and June
30, 1997, respectively.
Based on current market rates and the outstanding balances being paid in
full subsequent to June 30, 1997, management believes the carrying values of
the lines of credit and long-term debt approximates their fair value.
5. LEASES
The Company is obligated under various long-term operating lease agreements
for the manufacturing plant, warehouse and office space, and equipment. Total
rent expense for all operating leases was approximately $3,148, $3,434,
$6,195, and $3,334 for the years ended 1994, 1995, and 1996 and the six month
period ended June 30, 1997, respectively.
In 1995 and 1996, the Company entered into agreements for the sale and
leaseback of certain equipment. The leases were classified as operating
leases. The book value of the equipment sold was approximately $18,012.
Ultimately, the transactions resulted in a net gain that was deferred and
amortized to income as an adjustment of rent expense over the lease term.
Rentals on the leases began in 1996 and ranged from approximately $1,725 to
$2,787 annually.
Effective July 1, 1997, the Company repurchased the equipment previously
sold and leased back in 1995 and 1996, for approximately $18,724 and canceled
the existing lease arrangements. The unamortized net deferred gain at June 30,
1997 of approximately $69 was offset against the purchase price. The lease
payments remaining at June 30, 1997, have been excluded from the Company's
future minimum lease payments.
The Company conducts the major part of its operations from leased facilities
which include the manufacturing plant, warehouse, and offices. These
facilities are leased under long-term noncancelable operating leases with the
Chairman of the Board of Directors who was formerly the majority stockholder.
Rent paid approximated $2,282, $2,448, $3,438, and $1,179 for the years ended
1994, 1995, and 1996, and the six month period ended June 30, 1997,
respectively.
F-13
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC. AND SPECTRUM POLYMERS, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
5. LEASES (CONTINUED)
Effective July 1, 1997, the Company canceled its existing leases for the
manufacturing plant and warehouse and office space and entered into new lease
agreements with terms ranging from five to ten years. Leases with terms in
excess of ten years include a clause which increases the monthly rent payments
by 10% beginning in year six. The leases have various renewal options which
are available at the end of the lease term. Aggregate monthly payments are
$284.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of June 30, 1997,
are $3,465 in 1998, $3,409 in 1999 through 2002, and $17,382 thereafter.
6. RELATED PARTY TRANSACTIONS
During 1995, the Company advanced $4,435 to Marybe, Ltd., a related party.
The balance at December 28, 1996, was $427, which was paid in full during the
six month period ended June 30, 1997.
During 1994 and 1996, the Company expensed $4,378 and $2,030, respectively,
in officer's bonus to the former majority stockholder. The $1,523 payable at
December 28, 1996, was paid in full during 1997. No such bonuses were declared
or paid for the six month period ended June 30, 1997.
The Company also made advances to fund the annual premiums on a life
insurance policy on the former majority stockholder. The policy is owned by a
trust. As collateral for these advances, the trust assigned the premium
receivable rights in the cash value and death proceeds of the policy to the
Company. The advances for premiums receivable, included in other assets the
accompanying financial statements, were approximately $764 and $825 at
December 30, 1995, and December 28, 1996, respectively. The balance of the
trust was distributed to the stockholders prior to June 30, 1997.
During the six month period ended June 30, 1997, the Company made cash
distributions of $1,035 to the stockholders and partners. In addition, the
Company distributed other assets of $1,237, which included an insurance trust
receivable, the cash surrender value of life insurance policies on the
stockholders, and property and equipment.
7. PROFIT SHARING PLAN
The Company has established an employee defined contribution profit sharing
plan. Contributions are at the discretion of the Board of Directors and the
Partners. Eligible employees are those who have been employed for one year or
more and are currently employed on the admittance dates of January 1 and July
1 each year. Profit sharing plan expense was approximately $1,067, $452, $992,
and $29 in the years ended 1994, 1995, and 1996 and the six month period ended
June 30, 1997, respectively.
In connection with the recapitalization of the Company, employees who
remained with the Company through the date of the recapitalization were
eligible to receive a bonus. Such bonuses amounted $2,875 for the six month
period ended June 30, 1997.
8. MAJOR CUSTOMERS
During 1994, two customers accounted for 11% and 11% of total sales,
respectively. During 1995, no one customer accounted for more than 10% of
total sales. During 1996, two customers accounted for 10% and 11% of total
sales, respectively. During the six month period ended June 30, 1997, two
customers accounted for 11% and 11% of total sales. Included in trade accounts
receivable is approximately $2,610 and $1,963 due from these customers at
December 28, 1996, and June 30, 1997.
F-14
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC. AND SPECTRUM POLYMERS, LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
9. COMMITMENTS AND CONTINGENCIES
LITIGATION
During 1995, the Company settled a patent infringement lawsuit. The Company
incurred $2,106 in legal costs during 1995 related to this case, which is
included in other income (expense).
Various claims and lawsuits are pending against the Company. In the opinion
of the Company's management, the potential loss on all claims will not be
significant to the Company's financial position or results of operations.
SELF-INSURANCE
The Company is a nonsubscriber for worker's compensation insurance in
accordance with the Texas Worker's Compensation Act and is therefore self
insured for all worker's compensation claims.
The Company is self-insured for medical and dental benefits for their
employees and their covered dependents. Medical claims exceeding $60 per
covered individual are covered through a private insurance carrier.
10. ACQUISITIONS
In January 1994, the Company purchased certain assets of a company for cash
of $4,267. The assets acquired consisted of the following: inventory of $496,
equipment of $3,705, and prepaid expenses of $65. This acquisition has been
accounted for using the purchase method of accounting and, accordingly, the
acquired assets were recorded at their estimated fair values at the date of
the acquisition. The operating results of the acquired business are included
in the accompanying combined financial statements from the date of
acquisition. This acquisition did not have a significant effect on the 1994
operating results.
On July 3, 1997, the Company signed a letter of intent to acquire Dogloo,
Inc. (Dogloo). Under the terms of the letter of intent, all outstanding shares
of Dogloo common stock will be converted into shares of the Company's common
stock. In addition, shares of outstanding Dogloo preferred stock will be
converted into shares of newly designated Company Series B and Series C
Preferred Stock.
F-15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Dogloo, Inc.
We have audited the accompanying balance sheets of Dogloo, Inc. (the
"Company") as of December 31, 1996 and 1995, and the related statements of
operations, changes in redeemable preferred stock and shareholders deficit and
cash flows for the years then ended. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dogloo, Inc. at December
31, 1996 and 1995, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
January 30, 1997, except for Note 14, as to which the date is July 24, 1997
Riverside, California
F-16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Dogloo, Inc.
We have audited the accompanying statements of operations, changes in
redeemable preferred stock and shareholders' equity (deficit) and cash flows
of Dogloo, Inc. for the year ended December 31, 1994. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Dogloo,
Inc. for the year ended December 31, 1994, in conformity with generally
accepted accounting principles.
Grant Thornton LLP
Irvine, California
February 15, 1995
F-17
<PAGE>
DOGLOO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ----------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................... $ -- $ 102 $ 508
Accounts receivable, net of
allowance for doubtful accounts
of $211 in 1995, $172 in 1996,
and $240 in 1997.................. 8,130 7,929 5,211
Other receivables.................. 325 130 48
Inventories........................ 6,473 4,870 6,847
Prepaid expenses and other......... 495 464 1,008
Deferred income taxes.............. 738 589 590
------------ ------------ ------------
Total current assets................ 16,161 14,084 14,212
Property, plant and equipment:
Land.............................. 576 629 629
Buildings and improvements........ 4,010 4,017 4,047
Molds, tools and dies............. 9,198 10,436 10,848
Machinery and equipment........... 14,446 14,685 14,722
Furniture and fixtures............ 1,229 1,297 1,509
Leasehold improvements............ 326 334 334
Construction in progress.......... 1,039 417 637
------------ ------------ ------------
30,824 31,815 32,726
Less accumulated depreciation and
amortization..................... (3,277) (5,867) (7,285)
------------ ------------ ------------
27,547 25,948 25,441
Deferred income taxes............... 1,120 254 875
Other assets........................ 2,422 2,152 1,889
------------ ------------ ------------
Total assets....................... $ 47,250 $ 42,438 $ 42,417
============ ============ ============
LIABILITIES AND SHAREHOLDERS'
DEFICIT
Current liabilities:
Accounts payable................... $ 5,411 $ 3,542 $ 4,575
Accrued expenses................... 1,106 1,985 1,960
Line of credit..................... 8,140 6,323 7,516
Current portion of capital lease
obligations and long-term debt.... 11,145 9,588 9,610
------------ ------------ ------------
Total current liabilities....... 25,802 21,438 23,661
Long-term debt, less current
portion............................ 7,295 13,988 12,916
Capital lease obligations, less
current portion.................... 9,030 -- --
Redeemable preferred stock, Series
A, no par value:
Authorized shares--15,000,000
Issued and outstanding shares--
10,660,000......................... 7,640 9,482 10,462
Shareholders' deficit:
Preferred stock, Series B, no par
value:
Authorized shares--15,000,000
Issued and outstanding shares--
11,841,280........................ 9,700 9,700 9,700
Common stock, no par value:
Authorized shares--70,000,000
Issued and outstanding shares
32,668,481 in 1995, 32,573,296 in
1996, and 32,542,148 in 1997....... 5,386 5,285 5,250
Accumulated deficit................. (17,603) (17,455) (19,572)
------------ ------------ ------------
Total shareholders' deficit......... (2,517) (2,470) (4,622)
------------ ------------ ------------
Total liabilities and shareholders'
deficit............................ $ 47,250 $ 42,438 $ 42,417
============ ============ ============
</TABLE>
See accompanying notes.
F-18
<PAGE>
DOGLOO, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
-------------------------- -----------------------
1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.................. $44,267 $ 51,520 $56,519 $20,351 $21,041
Cost of goods sold......... 30,177 40,222 37,886 15,738 14,513
------- -------- ------- ------- -------
Gross profit............... 14,090 11,298 18,633 4,613 6,528
Operating expenses......... 11,470 13,680 12,008 4,587 6,697
Impairment of molds, tools
and dies (Note 4)......... -- 1,891 -- -- --
------- -------- ------- ------- -------
Operating income (loss).... 2,620 (4,273) 6,625 26 (169)
Other (income) expense:
Interest expense--
warrants................ 35 3,995 -- -- --
Interest expense--other.. 1,194 3,032 3,599 1,741 1,594
Loss on disposal of fixed
assets.................. -- 203 -- -- --
Other.................... 35 (4) (35) (29) (5)
------- -------- ------- ------- -------
Income (loss) before income
taxes..................... 1,356 (11,499) 3,061 (1,686) (1,758)
Income tax (expense)
benefit................... (34) 1,896 (1,071) 590 621
------- -------- ------- ------- -------
Net income (loss).......... $ 1,322 $ (9,603) $ 1,990 $(1,096) $(1,137)
======= ======== ======= ======= =======
</TABLE>
See accompanying notes.
F-19
<PAGE>
DOGLOO, INC.
STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
REDEEMABLE EARNINGS SHAREHOLDERS'
PREFERRED STOCK PREFERRED STOCK (ACCUMULATED EQUITY
SERIES A SERIES B COMMON STOCK DEFICIT) (DEFICIT)
------------------- ------------------ ------------------- ------------ -------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... -- -- -- -- 32,350,000 $ 737 $ 6,449 $ 7,186
Stock issued for cash.. -- -- -- -- 389,000 425 -- 425
Stock repurchased...... -- -- -- -- (18,519) (20) -- (20)
Dividends paid......... -- -- -- -- -- -- (1,230) (1,230)
Net income............. -- -- -- -- -- -- 1,322 1,322
---------- ------- ---------- ------- ----------- ------ -------- -------
Balance at December 31,
1994................... -- -- -- -- 32,720,481 1,142 6,541 7,683
Stock issued for cash.. -- -- 11,841,280 $ 9,700 21,536,186 4,817 -- 14,517
Stock repurchased...... -- -- -- -- (4,779,630) (370) (3,074) (3,444)
Common stock exchanged
for Preferred
Series A.............. 12,792,000 $ 610 -- -- (16,808,556) (203) (407) (610)
Accretion of preferred
stock subject to
mandatory redemption,
net of canceled
shares................ (2,132,000) 7,030 -- -- -- -- (7,030) (7,030)
Dividends paid......... -- -- -- -- -- -- (4,030) (4,030)
Net loss............... -- -- -- -- -- -- (9,603) (9,603)
---------- ------- ---------- ------- ----------- ------ -------- -------
Balance at December 31,
1995................... 10,660,000 7,640 11,841,280 9,700 32,668,481 5,386 (17,603) (2,517)
Stock repurchased...... -- -- -- -- (95,185) (101) -- (101)
Accretion of preferred
stock subject to
mandatory redemption.. -- 1,842 -- -- -- -- (1,842) (1,842)
Net income............. -- -- -- -- -- -- 1,990 1,990
---------- ------- ---------- ------- ----------- ------ -------- -------
Balance at December 31,
1996................... 10,660,000 9,482 11,841,280 9,700 32,573,296 5,285 (17,455) (2,470)
Stock repurchased
(unaudited)........... -- -- -- -- (31,148) (35) -- (35)
Accretion of preferred
stock subject to
mandatory redemption
(unaudited)........... -- 980 -- -- -- -- (980) (980)
Net loss (unaudited)... -- -- -- -- -- -- (1,137) (1,137)
---------- ------- ---------- ------- ----------- ------ -------- -------
Balance at June 30, 1997
(unaudited)............ 10,660,000 $10,462 11,841,280 $9,700 32,542,148 $5,250 $(19,572) $(4,622)
========== ======= ========== ======= =========== ====== ======== =======
</TABLE>
See accompanying notes.
F-20
<PAGE>
DOGLOO, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------------
1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......... $ 1,322 $ (9,603) $ 1,990 $(1,096) $(1,137)
Adjustments to reconcile
net income (loss) to net
cash used in operating
activities:
Depreciation and
amortization............ 1,059 2,303 3,067 1,424 1,718
Impairment of molds,
tools and dies.......... -- 1,891 -- -- --
Loss on disposal of
fixed assets............ -- 203 -- -- --
Provision for doubtful
accounts................ (18) 120 (39) 3 67
Deferred taxes........... -- (1,898) 1,015 -- --
Changes in operating
assets and liabilities:
Accounts receivable.... 51 (1,511) 240 4,274 2,651
Other receivables...... (571) 257 195 277 82
Inventories............ (3,720) 1,348 1,604 (875) (1,977)
Prepaid expenses and
other................. (57) 96 31 130 (544)
Other assets........... (803) 378 (16) (607) (633)
Accounts payable....... (1,829) 1,118 (1,868) (391) 1,033
Accrued expenses....... 1,677 (425) 878 (289) (25)
Nondetachable warrants. 35 (35) -- -- --
------- -------- -------- ------- -------
Net cash provided by (used
in) operating activities. (2,854) (5,758) 7,097 2,850 1,235
INVESTING ACTIVITIES
Additions to patents and
trademarks............... (10) (1,269) (20) (4) (25)
Purchases of property,
plant and equipment...... (8,266) (6,630) (1,000) (266) (911)
------- -------- -------- ------- -------
Net cash used in investing
activities............... (8,276) (7,899) (1,020) (270) (936)
FINANCING ACTIVITIES
Net (payments) proceeds
from line of credit...... 3,485 200 (1,817) (1,682) 1,193
Proceeds from long-term
debt..................... 8,312 20,133 9,441 392 260
Loan origination costs.... -- (856) (162) -- --
Repayment of long-term
debt..................... (553) (11,554) (2,755) (1,290) (1,311)
Payment of capital lease
obligations.............. (609) (1,310) (10,581) -- --
Proceeds from sale of
stock.................... 425 14,518 -- -- --
Stock repurchase.......... (20) (3,444) (101) -- (35)
Dividends paid............ (1,231) (4,030) -- -- --
------- -------- -------- ------- -------
Net cash (used in)
provided by financing
activities............... 9,809 13,657 (5,975) (2,580) 107
------- -------- -------- ------- -------
Net increase (decrease) in
cash..................... (1,321) -- 102 -- 406
Cash at beginning of year. 1,321 -- -- -- 102
------- -------- -------- ------- -------
Cash at end of year....... $ -- $ -- $ 102 $ -- $ 508
======= ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Cash paid during the year
for:
Interest................. $ 1,210 $ 2,928 $ 3,562 $ 1,303 $ 1,264
======= ======== ======== ======= =======
Income taxes............. $ 15 $ -- $ 80 $ -- $ 7
======= ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF
NONCASH TRANSACTIONS
Capital lease obligations
incurred for the
acquisition of machinery
and equipment............ $ 8,355 $2,500 $ -- $ -- $ --
======= ======== ======== ======= =======
16,808,556 common shares
exchanged for 12,792,000
shares of Preferred
Stock, Series A.......... $ -- $ 610 $ -- $ -- $ --
======= ======== ======== ======= =======
Accretion of preferred
stock subject to
mandatory redemption and
accrual of dividends..... $ -- $7,030 $ 1,842 $ 921 $ 980
======= ======== ======== ======= =======
</TABLE>
See accompanying notes.
F-21
<PAGE>
DOGLOO, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND JUNE 30, 1997 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Dogloo, Inc. (the Company), a California corporation, is a manufacturer and
distributor of pet products and accessories to large retail chains and
distributors throughout the United States and foreign markets. The Company has
four main product lines--plastic dog houses, plastic pet carriers, pet bedding
and plastic pet bowls and crocks.
On September 22, 1995, the Company underwent a recapitalization whereby an
investor group acquired 65% of the Company. Since there was not a substantial
change in control as defined by generally accepted accounting principles, the
assets and liabilities of the Company were not adjusted to their fair market
values. (See Note 10)
2. SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM INFORMATION
In the opinion of management, the accompanying unaudited financial
statements contain all the adjustments necessary (all of which are normal
and/or recurring in nature) to present fairly the Company's financial position
at June 30, 1997 and results of operations and cash flows for the six month
periods ended June 30, 1996 and 1997. Due to the seasonality of the Company's
business, which peaks in the fourth quarter, the unaudited financial
statements for the six month periods ended June 30, 1996 and 1997, are not
necessarily indicative of the anticipated operating results for the year.
INVENTORIES
Inventories are stated at the lower of standard cost, which approximates the
first-in, first-out method (FIFO), or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost including capitalized
interest when appropriate. Depreciation and amortization are computed using
the straight-line method over their estimated service lives of 3 to 39 years.
(See Note 4)
PATENTS AND TRADEMARKS
The Company capitalizes the costs of acquiring patents and trademarks as
well as the legal costs of successfully defending its right to these assets.
Amortization is computed using the straight-line method over the estimated
useful lives which are ten years.
DEFERRED DEBT ISSUANCE COSTS
Direct costs incurred as a result of financing transactions are capitalized
and amortized over the terms of the applicable debt agreements.
REVENUES, NET
Revenues are recognized when products are shipped and are recorded at the
total invoice price. The Company allows customer credits for co-operative
advertising, cash discounts, volume rebates and certain other allowances and,
therefore, reports revenues in the financial statements net of these credits.
F-22
<PAGE>
DOGLOO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Advertising and promotional costs are expensed as incurred. Co-op
advertising costs are recorded against sales.
INCOME TAXES
Deferred taxes are determined based on the difference between financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which temporary differences are expected to reverse.
Deferred tax expense (benefit) represents the change in the deferred tax asset
and liability balances.
USE OF ESTIMATES AND CONCENTRATION OF CREDIT RISK
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.
The Company is potentially subject to a concentration of credit risk for
trade receivables. Concentration of credit risk with respect to trade
receivables is limited to the dispersion of the Company's customers over
geographic locations, operating primarily in the retail industry. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. The Company maintains reserves for potential losses for
uncollectible accounts and such losses have been within managements
expectations.
The activity in the allowance for doubtful accounts was as follows for the
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
DEDUCTIONS
BEGINNING CHARGED TO FROM ENDING
BALANCE EXPENSE RESERVES BALANCE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
1994................................. $109 $195 $213 $ 91
==== ==== ==== ====
1995................................. $ 91 $160 $ 40 $211
==== ==== ==== ====
1996................................. $211 $334 $373 $172
==== ==== ==== ====
</TABLE>
Sales to the Company's two largest customers approximated the following (in
thousands, except percentages):
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- --------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT NET REVENUES AMOUNT NET REVENUES AMOUNT NET REVENUES
<S> <C> <C> <C> <C> <C> <C>
Customer A... $ 6,548 14.8% $ 8,488 16.5% $ 8,277 14.6%
Customer B... 4,761 10.7 5,080 9.9 7,058 12.5
------- ---- ------- ---- ------- ----
Total........ $11,309 25.5% $13,568 26.4% $15,335 27.1%
======= ==== ======= ==== ======= ====
</TABLE>
3. INVENTORIES
Inventories (in thousands) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
------------- -------
1995 1996 1997
<S> <C> <C> <C>
Finished goods......................................... $2,301 $2,278 $2,526
Work in progress....................................... 729 472 683
Raw materials.......................................... 3,443 2,120 3,638
------ ------ ------
$6,473 $4,870 $6,847
====== ====== ======
</TABLE>
F-23
<PAGE>
DOGLOO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. IMPAIRMENT OF MOLDS, TOOLS AND DIES
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement on Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company elected to early adopt
SFAS No. 121 for the year ended December 31, 1995.
At December 31, 1995, the Company determined, based on an internal study,
that the carrying value of the tooling associated with the plastic pet bowls
had been impaired. The impairment is principally the result of competition in
the product line and high manufacturing costs. As a result, the Company has
recorded a provision of approximately $878,000 for the year ended December 31,
1995 to write down the carrying value of the impaired assets to their fair
value determined utilizing the discounted cash flow method.
In conjunction with bringing the Company's manufacturing facility into full
production and discontinuing the use of outside vendors for the production of
plastic dog houses, the Company identified tooling which are surplus to its
manufacturing requirements and which are not configured to operate within the
Company's manufacturing facility as well as tools for certain discontinued
products. Accordingly, the Company has concluded that these assets have been
impaired based on the absence of additional cash flows from these assets and a
provision of approximately $1,013,000 has been recorded at December 31, 1995.
5. LINE OF CREDIT
The Company has a $15,000,000 revolving line of credit agreement based on
qualifying inventory and accounts receivable balances with a Senior Lender, of
which $500,000 may be used for letters of credit. During May 1997, the Company
entered into an "Over-Advance" Agreement with the Senior Lender for $2,500,000
in additional borrowings above those normally available under the line of
credit agreement to assist the Company with its cash flow requirements during
its off-season months. The Over-Advance is being phased in three parts and
will be phased out by September 1997. As of June 30, 1997 (unaudited), the
Company had utilized approximately $800,000 of the Over-Advance and
approximately $1,200,000 was available for borrowing. No amounts are
outstanding under letters of credit. The line of credit bears interest at the
Senior Lender's base rate plus 1.5% (9.25% at June 30, 1997, unaudited) and is
collateralized by substantially all the assets of the Company.
During the year ended December 31, 1996, the approximate average borrowings
outstanding were $6,851,000 ($7,100,000 in 1995), the approximate weighted
average interest rate was 10.2% (10.1% in 1995), and the maximum amount of
month-end borrowings outstanding was $8,918,000 ($9,497,000 in 1995). The
averages were computed based on the borrowings outstanding at the end of each
month and the applicable interest rate.
The line expires September 1998 and requires the Company to maintain certain
current and fixed charge ratios, meet minimum earnings before interest
charges, limit preferred stock dividends and have $2,000,000 available for
borrowing after redeeming preferred stock or repaying subordinated debt. As of
June 30, 1997, the Company failed to meet its working capital covenant and
received a waiver from the Senior Lender.
F-24
<PAGE>
DOGLOO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Term loan payable to Senior Lender due in monthly principal
installments of $83,000 plus interest at Senior Lender's base
rate plus 1.5% (9.75% at December 31, 1996), with unpaid
principal balance due September 22, 1998. Loan is
collateralized by substantially all the assets of the Company
and is subject to the same financial covenants as the
revolving line of credit. (See Note 5)....................... $ 4,750 $ 3,750
Term loan payable to Senior Lender in monthly installments of
$107,729 plus interest at the Senior Lender's base rate plus
1.0% (9.25% at December 31, 1996), with unpaid principal due
September 22, 1998. Loan is collateralized by substantially
all of the assets of the Company and subject to the same
financial covenants as the revolving line of credit. (See
Note 5)...................................................... -- 8,942
Revolving equipment loan payable to Senior Lender up to
$5,000,000 for the purchase of specified capital equipment.
Each equipment purchase is evidenced by a separate note
payable and amounts repaid are eligible for reborrowing.
Amounts borrowed are collateralized by substantially all of
the assets of the Company. Each note is repayable over 60
months or at the expiration of the Loan and Security
Agreement with the Senior Lender on September 22, 1998, and
bears interest at the Senior Lender's base rate plus 1.5%
(9.75% at December 31, 1996). Monthly principal payments on
outstanding equipment notes aggregate $18,776. The loans are
subject to the same financial covenants as the revolving line
of credit. (See Note 5)...................................... 735 1,051
Mortgage loan payable to a bank in monthly installments of
$30,000 including interest at the bank's base rate plus 3.5%
(8.875% at December 31, 1996), due January 2011,
collateralized by real estate................................ 2,950 2,851
Subordinated debentures bearing interest at 16% with interest
only payable until balance is due September 1997. Debentures
are collateralized by substantially all the Company's assets.
Debentures are subject to the same financial covenants as
required by the Senior Lender and other financial covenants
including tangible net worth and debt to net worth ratios. At
December 31, 1996, the Company was in compliance with the
applicable covenants. (See Note 5)........................... 7,000 6,250
Subordinated notes payable to shareholders bearing interest at
10.25% payable as permitted by the Senior Lender and the
holders of the subordinated debentures. The outstanding
balance at December 31, 1996 is collateralized by a third
position on substantially all the assets of the Company...... 1,455 732
------- -------
16,890 23,576
Less current portion.......................................... 9,595 9,588
------- -------
$ 7,295 $13,988
======= =======
</TABLE>
F-25
<PAGE>
DOGLOO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
Future maturities of long-term debt as of December 31, 1996 were as follows
(in thousands):
<TABLE>
<S> <C>
1997............................................................ $ 9,588
1998............................................................ 11,360
1999............................................................ 128
2000............................................................ 139
2001............................................................ 152
Thereafter...................................................... 2,209
-------
$23,576
=======
</TABLE>
In December 1996, the Company completed a refinancing of the capital lease
obligations outstanding at December 31, 1995 and entered into a term loan
agreement with its Senior Lender. As part of the refinancing, the Company's
subordinated debenture holders agreed to extend the due date from September
1996 to September 1997 and to increase the interest rate from 13% to 16%.
Included in interest expense are amounts paid to shareholders of
approximately $56,000, $129,000 and $59,000 for 1994, 1995 and 1996,
respectively.
7. CAPITAL LEASE OBLIGATIONS
At December 31, 1995, the Company had two lease financing facilities with a
bank (the Lessor). The combined facilities provide for the financing of
machinery and equipment up to $12,500,000. Borrowings were to bear interest at
9.6% to 10.4% and were payable in aggregate monthly installments of $213,000
with balances due from July 1999 through October 2002. These leases were
repaid in a refinancing agreement with the Company's Senior Lender in December
1996. (See Note 6)
Machinery and equipment under long-term capital lease obligations at
December 31, 1995 totaled $12,851,000, net of accumulated amortization.
Total interest expense under these lease facilities was approximately
$368,000, $960,000 and $1,011,000 for 1994, 1995 and 1996, respectively.
8. NONCANCELABLE OPERATING LEASE COMMITMENTS AND RELATED PARTY TRANSACTION
The Company leases a facility in Corona, California, under a noncancelable
operating lease expiring November 30, 1999 with an option to extend the lease
for an additional two-year term. The Company leased another facility in
Corona, California, from two major shareholders of the Company on a month-to-
month basis which expired November 1995.
The Company also leases various trucks and office equipment under
noncancelable operating leases expiring on various dates through January 2001.
Future minimum lease payments under these operating leases as of December 31,
1996 are $897,000, $733,000, $384,000, $94,000 and $38,000 for 1997, 1998,
1999, 2000, and 2001, respectively.
Total rental expense for the above leases amounted to $703,000, $516,000,
and $970,000 for 1994, 1995, and 1996, respectively. Included in rent expense
for 1994 and 1995 are amounts paid to shareholders of $120,000 and $108,000,
respectively.
F-26
<PAGE>
DOGLOO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
On September 22, 1995, the Company changed its income tax status from a
Subchapter S Corporation to a C Corporation. As an S Corporation, income or
losses pass through to the Company's shareholders and no provision for federal
income taxes is reflected in the accompanying financial statements for the
period the Company operated as an S Corporation. State income taxes have been
provided at a reduced rate applicable to S Corporations for the appropriate
period. As a C Corporation, income taxes and benefits are recognized at the
corporate level.
With its conversion to a C Corporation, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes."
SFAS No. 109 requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
financial statements and tax basis of assets and liabilities at the applicable
enacted tax rates. The effect on the accompanying statement of operations for
1995 of adopting SFAS No. 109 for the change in tax status was a tax benefit
of $1,858,700 which has been included as a component of income tax benefit.
The components of income tax (benefit) expense consist of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- ------
<S> <C> <C> <C>
Current:
Federal............................................ -- -- $ 47
State.............................................. $34 $ 2 9
Deferred:
Federal............................................ -- (1,762) 861
State.............................................. -- (136) 154
------ ------- ------
Total income tax (benefit) expense............... $34 $(1,896) $1,071
====== ======= ======
</TABLE>
At December 31 the Company had net deferred tax assets as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Vacation accrual........................................... $ 63 $ 60
Allowances for bad debts, damages and discounts............ 234 182
Allowance for inventory obsolescence....................... 228 186
Uniform capitalization..................................... 213 161
------- -------
738 589
Net operating loss carryforwards........................... 2,657 2,152
Depreciation and amortization.............................. (1,537) (1,898)
------- -------
1,120 254
------- -------
$ 1,858 $ 843
======= =======
</TABLE>
Although there can be no assurances as to future taxable income of the
Company, the Company believes that its expectations of future taxable income,
when combined with the income taxes paid in prior years, will be adequate to
realize the deferred income tax assets.
At December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $5,914,000 expiring December 2010 and state net
operating loss carryforwards, for California and Indiana in the aggregate, of
approximately $4,268,000 expiring in December 2000.
F-27
<PAGE>
DOGLOO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES (CONTINUED)
A reconciliation of the effective income tax rate to the federal statutory
rate, for financial reporting purposes, is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- ----
<S> <C> <C> <C>
Federal statutory rate................................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit...................... 3.0 3.0 3.0
Permanent differences.................................... -- (15.7) --
Subchapter S corporate rate differential................. (34.5) -- --
Other.................................................... -- (4.8) (2.0)
----- ----- ----
2.5% 16.5% 35.0%
===== ===== ====
</TABLE>
The effective tax rates for 1994 and 1995 are based on a full year and
partial year, respectively, at the rates in effect for a Subchapter S
Corporation as the Company changed its income tax status to C Corporation on
September 22, 1995 as discussed above.
10. SHAREHOLDERS' EQUITY
On September 22, 1995, two major shareholders exchanged 21,291,889 shares of
common stock for cash of $3,128,000 and 12,792,000 shares of Preferred Stock,
Series A. In addition, the Company purchased and retired 296,297 shares of its
common stock for $316,000. The Company then issued 21,536,186 shares of common
and 9,700,000 shares of Preferred Stock, Series B, to an investor group and
2,141,280 shares of Preferred Stock, Series B, to a major shareholder,
resulting in proceeds of $14,518,000. (See Note 1)
In connection with this transaction, the Company paid $4,030,000 to buy back
nondetachable stock purchase warrants issued in 1994 with its $7,000,000
debentures. The amount paid in excess of the prior year accrual ($35,000) has
been recorded as interest expense on the accompanying statement of operations
in 1995.
STOCK OPTION PLAN
In 1994, the Company adopted a nonqualified stock option plan. Under the
plan, options may be granted to key management employees to purchase the
Company's common stock at a price determined by the Board of Directors and not
less than the fair market value for incentive stock options. Options granted
become exercisable during a five-year period from the date of the grant and
expire ten years after the award date. As adopted, the plan calls for adequate
shares of common stock to be reserved for issuance upon exercise of options.
No compensation expense was incurred by the Company during 1994, 1995, 1996,
or the six months ended June 30, 1997 under the plan.
<TABLE>
<CAPTION>
OPTIONAL SHARES
OUTSTANDING
-----------------
SHARES PRICE
<S> <C> <C>
Balance at December 31, 1994............................... -- --
Options granted.......................................... 781,000 $0.23
--------- ------
Balance at December 31, 1995............................... 781,000 $0.23
Options expired.......................................... (245,000) $0.23
Options granted.......................................... 225,000 $0.23
--------- ------
Balance at December 31, 1996............................... 761,000 $0.23
========= ======
</TABLE>
F-28
<PAGE>
DOGLOO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
its plan. Had the Company adopted Statement on Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, the impact on net
income would have been immaterial.
PREFERRED STOCK, SERIES A
Series A shareholders are entitled to receive cash dividends of $.10 per
share annually, payable on March 1. Dividends accrue whether or not earned or
declared and are cumulative. If, on any dividend payment date, the holders of
Series A shares have not received the full annual dividend, then the holders
are entitled to additional dividends which are cumulative and accrue at the
same rate as the Series A dividends. No dividends have been declared by the
Board of Directors as of December 31, 1996. Dividends in arrears ratably
$295,000 and $1,400,000 at December 31, 1995 and 1996, respectively, and are
included in redeemable preferred stock on the balance sheet.
Series A shares are subject to mandatory redemption in five annual
installments beginning March 1, 1997 until March 1, 2001 whereupon the
remaining shares outstanding shall be redeemed. On each of the first four
redemption dates, 16 2/3% of the shares originally issued are to be redeemed
at $1 per share plus any unpaid dividends. The March 1, 1997 redemption was
conditioned upon the Company meeting a specified earnings level for the year
ended December 31, 1995, which it did not meet, and resulted in a permanent
forfeiture of this redemption aggregating 2,132,000 shares as of December 31,
1995. Such shares were subsequently canceled.
Series A shares are convertible at the option of the holder into
subordinated debt which would accrue interest at 10% per year. In the event of
any liquidation, Series A shares receive preference over common stock and any
other series of preferred stock and are entitled to distribution amounts equal
to the redemption amounts defined above. Series A shares have no other
conversion or voting rights.
PREFERRED STOCK, SERIES B
Series B shareholders are entitled to receive cash dividends of $.10 per
share annually, payable on March 1. Dividends accrue whether or not earned or
declared and are cumulative. Series B shares are convertible at the option of
the holder into subordinated debt which would accrue interest at 10% per year.
In the event of any liquidation, Series B shares are entitled to distribution
amounts equal to $1 per share plus any unpaid dividends. Series B shares have
no other conversion or voting rights. No dividends have been declared by the
Board of Directors as of December 31, 1996. Dividends in arrears ratably were
$328,000 and $1,512,000 at December 31, 1995 and 1996, respectively.
COMMON STOCK
Dividends are payable when declared. Each common share has the right to one
vote. At December 31, 1996, 1,300,000 shares were reserved for the Company's
stock option plan.
11. CONTINGENCIES
The Company is involved in various legal actions and claims arising in the
ordinary course of business. It is the opinion of management that such
litigation will be resolved without material effect on the Company's financial
position.
F-29
<PAGE>
DOGLOO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. RELATED PARTY TRANSACTION
The Company has a management agreement with one of its shareholders. Fees
paid under this agreement were approximately $50,000, $200,000, and $150,000
in 1995, 1996, and the six months ended June 30, 1997 (unaudited),
respectively, and none in 1994.
13. SAVINGS PLAN
The Company sponsors a 401(k) savings plan (the Plan) for its employees. The
Plan is a defined contribution plan covering all eligible employees. All
employees who have a minimum of three months of service may elect to
contribute to the Plan up to 18% of their compensation to the annual maximum
limit established by the Internal Revenue Service. The Company may make
matching contributions to the Plan at its discretion which are allocated to
participants in proportion to salary deferral amounts for the applicable plan
year, not to exceed 4% of a participant's salary and subject to limitations
imposed by the Internal Revenue Code. The Company made contributions to the
Plan totaling approximately $14,000 for the year ended December 31, 1996. The
Company did not make any contributions to the Plan for the year ended 1995.
14. SUBSEQUENT EVENT
During July 1997, the Company had entered into an agreement to be merged
with and into Doskocil Manufacturing Company (Doskocil). As a result of the
impending transaction, certain financial amounts for all periods presented
have been reclassified to conform to Doskocil's financial statement
presentation and certain additional disclosure has been presented.
F-30
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE NOTES OFFERED
HEREBY, TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLI-
CATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information..................................................... 3
Special Cautionary Notice Regarding Forward-Looking Statements............ 4
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 17
The Exchange Offer........................................................ 23
The Doskocil Recapitalization............................................. 29
The Merger................................................................ 29
Use of Proceeds........................................................... 31
Pro Forma Capitalization.................................................. 32
Pro Forma Condensed Financial Data........................................ 32
Unaudited Pro Forma Condensed Statements of Operations.................... 33
Notes to Unaudited Pro Forma Condensed Statements of Operations........... 35
Unaudited Pro Forma Condensed Balance Sheet............................... 37
Notes to Unaudited Pro Forma Condensed Balance Sheet...................... 38
Doskocil Selected Historical Financial Data............................... 41
Dogloo Selected Historical Financial Data................................. 43
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 45
Business.................................................................. 55
Management................................................................ 64
Summary Compensation Table................................................ 66
Principal Stockholders.................................................... 69
Description of Capital Stock.............................................. 71
Certain Relationships and Related Transactions............................ 71
Description of New Credit Facility........................................ 73
Description of the Notes.................................................. 75
Registration Rights; Liquidated Damages................................... 103
Plan of Distribution...................................................... 106
United States Federal Income Tax Consequences of the Exchange Offer....... 106
Legal Matters............................................................. 106
Experts................................................................... 107
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$85,000,000
[LOGO OF DOSKOCIL] [LOGO OF DOGLOO]
DOSKOCIL MANUFACTURING COMPANY, INC.
10 1/8% SENIOR SUBORDINATED NOTES DUE 2007
--------------------------------
PROSPECTUS
--------------------------------
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Articles of Incorporation provide that
the Company shall indemnify every director and officer of the Company against
and reimburse and advance to every director and officer for all liabilities,
costs and expenses incurred in connection with such directorship or office and
any actions taken or omitted in such capacity to the greatest extent permitted
under the Texas Business Corporation Act and other applicable laws at the time
of such indemnification, reimbursement or advance payment.
Further, the Company's Amended and Restated Articles of Incorporation
provide that no director of the Company shall be liable to the Company or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that the Amended and Restated Articles of
Incorporation do not eliminate or limit the liability of a director to the
extent the director is found liable for: (i) a breach of the director's duty
of loyalty to the Company or its shareholders; (ii) an act or omission not in
good faith that constitutes a breach of duty of the director to the Company or
an act or omission that involves intentional misconduct or a knowing violation
of the law; (iii) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action taken within the
scope of the director's office; or (iv) an act or omission for which the
liability of a director is expressly provided for by an applicable statute.
Articles 2.02A(16) and 2.02-1 of the Texas Business Corporation Act grant to
each corporation organized thereunder the power to indemnify its directors and
officers against liability, and to purchase and maintain liability insurance
for those persons as, and to the extent, permitted by Article 2.02-1 of the
Texas Business Corporation Act. Article 2.02-1 of the Texas Business
Corporation Act permits the Company, in certain circumstances, to indemnify
any present or former director, officer, employee or agent of the Company
against judgments, penalties, fines, settlements and reasonable expenses
incurred in connection with a proceeding in which any such person was, is or
is threatened to be, made party by reason of holding such office or position,
but only to a limited extent for obligations resulting from a proceeding in
which the person is found liable on the basis that a personal benefit was
improperly received or in circumstances in which the person is found liable in
a derivative suit brought on behalf of the Company.
The Company has or will enter into agreements with each of its officers and
directors which provide, among other things, for the Company to hold harmless
and indemnify such director and/or officer who is a party thereto (the
"Indemnitee") against any and all expenses, liabilities and losses (including,
without limitation, investigation expenses and expert witnesses' and
attorneys' fees and expenses, judgments, penalties, fines, Employee Retirement
Income Security Act of 1974, as amended, excise taxes and amounts paid or to
be paid in settlement) actually incurred by the Indemnitee (net of any related
insurance proceeds or other amounts received by the Indemnitee or paid by or
on behalf of the Company on the Indemnitee's behalf), in connection with any
action, suit, arbitration or proceeding (or any inquiry or investigation,
whether brought by or in the right of the Company or otherwise, that the
Indemnitee in good faith believes might lead to the institution of any such
action, suit, arbitration or proceeding), whether civil, criminal,
administrative or investigative, or any appeal therefrom, in which the
Indemnitee is a party, is threatened to be made a party, is a witness or is
participating (a "Proceeding") based upon, arising from, relating to or by
reason of the fact that Indemnitee is, was, shall be or shall have been a
director and/or officer of the Company or is or was serving, shall serve, or
shall have served at the request of the Company as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation
or non-profit corporation, cooperative, partnership, joint venture, trust or
other incorporated or unincorporated enterprise. In providing such
indemnification, the Company shall, with respect to a Proceeding, hold
harmless and indemnify the Indemnitee to the fullest extent required by
Section 2.202-1 of the Texas Business Corporation Act or by any amendment
thereof or other statutory provisions expressly permitting such
indemnification which is adopted thereafter (but, in the case of any such
amendment, only to the extent that such amendment permits the Company to
provide broader indemnification rights than such law required or permitted the
Company to provide prior to such amendment). The Indemnitee is entitled to
such rights of indemnification for any expenses actually incurred in any
Proceeding initiated by or in the right of the Company, provided that
II-1
<PAGE>
in the event that the Indemnitee shall have been adjudged in a final,
nonapplicable judgment or other final adjudication to be liable to the Company
or shall have been adjudged liable on the basis that personal benefit was
improperly received by the Indemnitee, indemnification (i) is limited to
reasonable expenses actually incurred by the Indemnitee in connection with the
Proceeding; and (ii) shall not be made in respect of any Proceeding in which
the persons shall have been found liable for wilful or intentional misconduct
in the performance of his duty to the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <S>
3.1 Amended and Restated Articles of Incorporation of Doskocil Manufacturing
Corporation, Inc.
3.2 Bylaws of Doskocil Manufacturing Corporation, Inc.
4.1 Indenture, dated as of September 19, 1997, between Doskocil
Manufacturing Company, Inc. and First Trust National Association.
5.1 Opinion of O'Melveny & Myers LLP regarding validity of New Senior
Subordinated Notes offered hereby.
5.2 Opinion of Lidell, Sapp, Zivley, Hill and LaBoon LLP regarding validity
of New Senior Subordinated Notes.
10.1 Recapitalization Agreement, dated July 1, 1997, among Enterprise
Partners III, L.P., Enterprise Partners III Associates, L.P., Enterprise
Partners IV, L.P., Enterprise Partners IV Associates, L.P., Enterprise
Management Partners Corporation, Enterprise Partners Texas Company, LLC,
Benjamin L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock
International, Inc., Doskocil Manufacturing Company, Inc. and Spectrum
Polymers, Ltd.
10.2 Merger Agreement, dated September 19, 1997, between Doskocil
Manufacturing Company, Inc. and Dogloo, Inc.
10.3 Stock Redemption Agreement, dated as of September 19, 1997, among
Enterprise Partners III, L.P., Enterprise Partners III Associates, L.P.,
Enterprise Partners IV, L.P., Enterprise Partners IV Associates, L.P.
and Enterprise Management Partners Corporation.
10.4 Stock Redemption and Purchase Agreement, dated August 28, 1997, among
Aurelio F. Barreto, III, Doskocil Manufacturing Company, Inc. and Westar
Capital, L.P.
10.5 Stock Redemption Agreement, dated as of September 15, 1997, among
Darrell R. Paxman, Doskocil Manufacturing Company, Inc. and the other
parties thereto.
10.6 Purchase Agreement, dated September 11, 1997, among Doskocil
Manufacturing Company, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Capital Markets, Inc.
10.7 Registration Rights Agreement, dated as of September 19, 1997, among
Doskocil Manufacturing Company, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBanc Capital Markets, Inc.
10.8 Confidentiality, Non-Competition Agreement and Non-Solicitation
Agreement, dated as of July 1, 1997, among Benjamin L. Doskocil, Sr.,
Mary Frances Doskocil and Doskocil Manufacturing Company, Inc.
10.9 Letter/Consulting Agreement, dated as of July 1, 1997, between Doskocil
Manufacturing Company, Inc. and Benjamin L. Doskocil, Sr.
10.10 Credit Agreement, dated September 19, 1997, among Doskocil Manufacturing
Company, Inc. and Nationsbank of Texas, N.A., a national banking
association, as administrative agent for certain lenders named therein.
10.11 Commercial Industrial Lease Agreement, dated December 4, 1996, between
Doskocil Manufacturing Company, Inc. and COL MET, INC. for property
located at 4301 Kathey Drive, Arlington, Texas 76017.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.12 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr. and Mary Frances Doskocil, as landlord, and Doskocil
Manufacturing Company, Inc., as tenant, for the property located at 4209
Barnett, Arlington, Texas 76017 and commonly referred to as Building A.
10.13 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr., as landlord, and Doskocil Manufacturing Company, Inc., as
tenant, for the property located at 4300 Barnett, Arlington, Texas 76017
and commonly referred to as Building B.
10.14 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr., as landlord, and Doskocil Manufacturing Company, Inc., as
tenant, for approximately 24,000 square feet of Building "C" located at
4408 Barnett, Arlington, Texas 76017 and commonly referred to as
Building C.
10.15 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr., as landlord, and Doskocil Manufacturing Company, Inc., as
tenant, for the property located at 4401 Barnett, Arlington, Texas 76017
and commonly referred to as Building D.
10.16 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr. and Mary Frances Doskocil, as landlord, and Doskocil
Manufacturing Company, Inc., as tenant, for the property located at 4208
Larry Lane, Arlington, Texas 76017 and commonly referred to as Building
E.
10.17 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr. and Mary Frances Doskocil, as landlord, and Doskocil
Manufacturing Company, Inc., as tenant, for the property located at 4207
Larry Lane, Arlington, Texas 76017 and commonly referred to as Building
F.
10.18 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr. and Mary Frances Doskocil, as landlord, and Doskocil
Manufacturing Company, Inc., as tenant, for the property located at 4209
Larry Lane, Arlington, Texas 76017 and commonly referred to as Building
F Parking Lot.
10.19 Industrial Real Estate Lease, dated July 1, 1997, between Marybe
Investments, Ltd., as landlord, and Doskocil Manufacturing Company,
Inc., as tenant, for the property located at 800 Stephens, Arlington,
Texas 76017 and commonly referred to as Building G.
10.20 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr., as landlord, and Doskocil Manufacturing Company, Inc., as
tenant, for the property located at 4205 Barnett, Arlington, Texas 76017
and commonly referred to as Building J.
10.21 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr., as landlord, and Doskocil Manufacturing Company, Inc., as
tenant, for the property located at 720 and 722 West Interstate 20,
Arlington, Texas and commonly referred to as the Parking Facilities.
10.22 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr. and Mary Frances Doskocil, as landlord, and Doskocil
Manufacturing Company, Inc., as tenant, for the building(s) located at
600 Justice, Mansville, Texas and commonly referred to as Spectrum.
10.23 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr., as landlord, and Doskocil Manufacturing Company, Inc., as
tenant, for the building(s) located at 1708 and 1712 Peyco, Arlington,
Texas 76017 and commonly referred to as Peyco.
10.24 Lease Agreement, dated January 1, 1997, between Belmont Warehousing
Complex, Inc., as landlord, and Dogloo, Inc., as tenant, for the
property located at 212 South Belmont, Indianapolis, Indiana 46241.
10.25 Lease, dated November 2, 1992, as amended by First Amendment to Lease,
dated July 29, 1996, among Dogloo, Inc., Patrician Associates, Inc. and
Club Drive Partners, also known as Old Temescal Road Project.
10.26 Form of Indemnification Agreement between Doskocil Manufacturing
Company, Inc. and certain of its directors and/or officers.
10.27 Doskocil Manufacturing Company, Inc. Stock Option Plan.
10.28 Employment Agreement, dated as of November 1, 1996, between Michael J.
Farmer and Dogloo, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.29 Stockholders' Agreement, dated as of July 1, 1997, among Enterprise
Partners III, L.P., Enterprise Partners III Associates, L.P., Enterprise
Partners IV, L.P., Enterprise Partners IV Associates, L.P., Enterprise
Management Partners Corporation, Benjamin L. Doskocil, Sr., Mary Frances
Doskocil and Doskocil Manufacturing Company, Inc.
10.30 First Amendment to Stockholders' Agreement, dated as of September 19,
1997, among Enterprise Partners III, L.P., Enterprise Partners III
Associates, L.P., Enterprise Partners IV, L.P., Enterprise Partners IV
Associates, L.P., Enterprise Management Partners Corporation, Benjamin
L. Doskocil, Sr., Mary Frances Doskocil, Doskocil Manufacturing Company,
Inc., Westar Capital, L.P. and Westar Capital II, LLC.
10.31 Amended and Restated Securityholders Agreement, dated September 19,
1997, among Doskocil Manufacturing Company, Inc., Dogloo, Inc., Westar
Capital, L.P., Westar Capital II, LLC, HBI Financial Inc., Enterprise
Partners III, L.P., Enterprise Partners III Associates, L.P., Enterprise
Partners IV, L.P., Enterprise Partners IV Associates, L.P., Aurelio F.
Barreto III and other parties thereto.
12.1 Statement regarding the computation of unaudited pro forma earnings to
fixed charges for Doskocil Manufacturing Company, Inc.
21.1 List of subsidiaries (Doskocil Manufacturing Company, Inc. has no
subsidiaries).
23.1 Consent of Ernst & Young LLP regarding Doskocil Manufacturing Company,
Inc. and Dogloo, Inc.
23.2 Consent of KPMG Peat Marwick LLP regarding Doskocil Manufacturing
Company, Inc. and Spectrum Polymers, Ltd.
23.3 Consent of Grant Thornton LLP regarding Dogloo, Inc.
23.4 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1 hereto).
23.5 Consent of Liddell, Sapp, Zivley, Hill & LaBoon, LLP (included in
Exhibit 5.2 hereto).
24.1 Powers of Attorney (included on signature pages hereof).
25.1 Statement of Eligibility and Qualification on Form T-1 of Trustee under
the Indenture related to the Notes.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of letter to brokers, dealers, commercial banks, trust companies
and other nominees.
99.4 Form of Letter to clients.
99.5 Guidelines for Certification of Taxpayer Identification Number On
Substitute Form W-9
</TABLE>
(b) Financial Statement Schedules:
All schedules are omitted because they are not required, are not applicable,
or the information is included in the Financial Statements or notes thereto.
II-4
<PAGE>
ITEM 22. 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 event arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Arlington, State of Texas, on October 2, 1997.
DOSKOCIL MANUFACTURING COMPANY, INC.
/s/ Donald J. Fritschen
By:__________________________________
Donald J. Fritschen
Vice President and Chief Financial
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Doskocil Manufacturing
Company, Inc. do hereby constitute and appoint Gary E. Kleinjan, Donald J.
Fritschen and John W. Clark, or either of them, our true and lawful attorneys
and agents, to do any and all acts and things in our name and behalf in our
capacities as directors and officers and to execute any and all instruments
for us and in our names in the capacities indicated below, which said
attorneys and agents, or any of them, may deem necessary or advisable to
enable said corporation to comply with the Securities Act of 1933, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or
any of us in our names and in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto or any related
registration statement that is to be effective upon filling pursuant to Rule
462(b) under the Securities Act of 1933, as amended; and we do hereby ratify
and confirm all that the said attorneys and agents, or any of them, shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on October , 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
President and Chief Executive Officer,
____________________________________ Director
Gary E. Kleinjan
/s/ Larry E. Rembold Interim President and Chief Executive
____________________________________ Officer, Director
Larry E. Rembold
/s/ Donald J. Fritschen Vice President and Chief Financial Officer
_________________________________ (Principal Financial and Accounting Officer)
Donald J. Fritschen
____________________________________ Director
George L. Argyros
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ John W. Clark Director
____________________________________
John W. Clark
/s/ Benjamin L. Doskocil, Sr. Director
____________________________________
Benjamin L. Doskocil, Sr.
/s/ Michael Hoopis Director
____________________________________
Michael P. Hoopis
/s/ Charles D. Martin Director
____________________________________
Charles D. Martin
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
----------- ----------- -------------
<C> <S> <C>
3.1 Amended and Restated Articles of Incorporation of Doskocil Manufacturing
Corporation, Inc.
3.2 Bylaws of Doskocil Manufacturing Corporation, Inc.
4.1 Indenture, dated as of September 19, 1997, between Doskocil Manufacturing
Company, Inc. and First Trust National Association.
5.1 Opinion of O'Melveny & Myers LLP regarding validity of New Senior
Subordinated Notes offered hereby.
5.2 Opinion of Lidell, Sapp, Zivley, Hill and LaBoon LLP regarding validity of
New Senior Subordinated Notes.
10.1 Recapitalization Agreement, dated July 1, 1997, among Enterprise Partners
III, L.P., Enterprise Partners III Associates, L.P., Enterprise Partners
IV, L.P., Enterprise Partners IV Associates, L.P., Enterprise Management
Partners Corporation, Enterprise Partners Texas Company, LLC, Benjamin L.
Doskocil, Sr., Mary Frances Doskocil, Bed Rock International, Inc.,
Doskocil Manufacturing Company, Inc. and Spectrum Polymers, Ltd.
10.2 Merger Agreement, dated September 19, 1997, between Doskocil Manufacturing
Company, Inc. and Dogloo, Inc.
10.3 Stock Redemption Agreement, dated as of September 19, 1997, among
Enterprise Partners III, L.P., Enterprise Partners III Associates, L.P.,
Enterprise Partners IV, L.P., Enterprise Partners IV Associates, L.P. and
Enterprise Management Partners Corporation.
10.4 Stock Redemption and Purchase Agreement, dated August 28, 1997, among
Aurelio F. Barreto, III, Doskocil Manufacturing Company, Inc. and Westar
Capital, L.P.
10.5 Stock Redemption Agreement, dated as of September 15, 1997, among Darrell
R. Paxman, Doskocil Manufacturing Company, Inc. and the other parties
thereto.
10.6 Purchase Agreement, dated September 11, 1997, among Doskocil Manufacturing
Company, Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
NationsBanc Capital Markets, Inc.
10.7 Registration Rights Agreement, dated as of September 19, 1997, among
Doskocil Manufacturing Company, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBanc Capital Markets, Inc.
10.8 Confidentiality, Non-Competition Agreement and Non-Solicitation Agreement,
dated as of July 1, 1997, among Benjamin L. Doskocil, Sr., Mary Frances
Doskocil and Doskocil Manufacturing Company, Inc.
10.9 Letter/Consulting Agreement, dated as of July 1, 1997, between Doskocil
Manufacturing Company, Inc. and Benjamin L. Doskocil, Sr.
10.10 Credit Agreement, dated September 19, 1997, among Doskocil Manufacturing
Company, Inc. and Nationsbank of Texas, N.A., a national banking
association, as administrative agent for certain lenders named therein.
10.11 Commercial Industrial Lease Agreement, dated December 4, 1996, between
Doskocil Manufacturing Company, Inc. and COL MET, INC. for property
located at 4301 Kathey Drive, Arlington, Texas 76017.
10.12 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr. and Mary Frances Doskocil, as landlord, and Doskocil
Manufacturing Company, Inc., as tenant, for the property located at 4209
Barnett, Arlington, Texas 76017 and commonly referred to as Building A.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
----------- ----------- -------------
<C> <S> <C>
10.13 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr., as landlord, and Doskocil Manufacturing Company, Inc., as
tenant, for the property located at 4300 Barnett, Arlington, Texas 76017
and commonly referred to as Building B.
10.14 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr., as landlord, and Doskocil Manufacturing Company, Inc., as
tenant, for approximately 24,000 square feet of Building "C" located at
4408 Barnett, Arlington, Texas 76017 and commonly referred to as Building C.
10.15 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr., as landlord, and Doskocil Manufacturing Company, Inc., as
tenant, for the property located at 4401 Barnett, Arlington, Texas 76017
and commonly referred to as Building D.
10.16 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr. and Mary Frances Doskocil, as landlord, and Doskocil
Manufacturing Company, Inc., as tenant, for the property located at 4208
Larry Lane, Arlington, Texas 76017 and commonly referred to as Building E.
10.17 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr. and Mary Frances Doskocil, as landlord, and Doskocil
Manufacturing Company, Inc., as tenant, for the property located at 4207
Larry Lane, Arlington, Texas 76017 and commonly referred to as Building F.
10.18 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr. and Mary Frances Doskocil, as landlord, and Doskocil
Manufacturing Company, Inc., as tenant, for the property located at 4209
Larry Lane, Arlington, Texas 76017 and commonly referred to as Building F
Parking Lot.
10.19 Industrial Real Estate Lease, dated July 1, 1997, between Marybe
Investments, Ltd., as landlord, and Doskocil Manufacturing Company, Inc.,
as tenant, for the property located at 800 Stephens, Arlington, Texas
76017 and commonly referred to as Building G.
10.20 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr., as landlord, and Doskocil Manufacturing Company, Inc., as
tenant, for the property located at 4205 Barnett, Arlington, Texas 76017
and commonly referred to as Building J.
10.21 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr., as landlord, and Doskocil Manufacturing Company, Inc., as
tenant, for the property located at 720 and 722 West Interstate 20,
Arlington, Texas and commonly referred to as the Parking Facilities.
10.22 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr. and Mary Frances Doskocil, as landlord, and Doskocil
Manufacturing Company, Inc., as tenant, for the building(s) located at 600
Justice, Mansville, Texas and commonly referred to as Spectrum.
10.23 Industrial Real Estate Lease, dated July 1, 1997, between Benjamin L.
Doskocil, Sr., as landlord, and Doskocil Manufacturing Company, Inc., as
tenant, for the building(s) located at 1708 and 1712 Peyco, Arlington,
Texas 76017 and commonly referred to as Peyco.
10.24 Lease Agreement, dated January 1, 1997, between Belmont Warehousing
Complex, Inc., as landlord, and Dogloo, Inc., as tenant, for the property
located at 212 South Belmont, Indianapolis, Indiana 46241.
10.25 Lease, dated November 2, 1992, as amended by First Amendment to Lease,
dated July 29, 1996, among Dogloo, Inc., Patrician Associates, Inc. and
Club Drive Partners, also known as Old Temescal Road Project.
10.26 Form of Indemnification Agreement between Doskocil Manufacturing Company,
Inc. and certain of its directors and/or officers.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
10.27 Doskocil Manufacturing Company, Inc. Stock Option Plan.
10.28 Employment Agreement, dated as of November 1, 1996, between Michael J.
Farmer and Dogloo, Inc.
10.29 Stockholders' Agreement, dated as of July 1, 1997, among Enterprise
Partners III, L.P., Enterprise Partners III Associates, L.P., Enterprise
Partners IV, L.P., Enterprise Partners IV Associates, L.P., Enterprise
Management Partners Corporation, Benjamin L. Doskocil, Sr., Mary Frances
Doskocil and Doskocil Manufacturing Company, Inc.
10.30 First Amendment to Stockholders' Agreement, dated as of September 19,
1997, among Enterprise Partners III, L.P., Enterprise Partners III
Associates, L.P., Enterprise Partners IV, L.P., Enterprise Partners IV
Associates, L.P., Enterprise Management Partners Corporation, Benjamin L.
Doskocil, Sr., Mary Frances Doskocil, Doskocil Manufacturing Company,
Inc., Westar Capital, L.P. and Westar Capital II, LLC.
10.31 Amended and Restated Securityholders Agreement, dated September 19, 1997,
among Doskocil Manufacturing Company, Inc., Dogloo, Inc., Westar Capital,
L.P., Westar Capital II, LLC, HBI Financial Inc., Enterprise Partners III,
L.P., Enterprise Partners III Associates, L.P., Enterprise Partners IV,
L.P., Enterprise Partners IV Associates, L.P., Aurelio F. Barreto III and
other parties thereto.
12.1 Statement regarding the computation of uaudited pro forma earnings to
fixed charges for Doskocil Manufacturing Company, Inc.
21.1 List of subsidiaries (Doskocil Manufacturing Company, Inc. has no
subsidiaries).
23.1 Consent of Ernst & Young LLP regarding Doskocil Manufacturing Company,
Inc. and Dogloo, Inc.
23.2 Consent of KPMG Peat Marwick LLP regarding Doskocil Manufacturing Company,
Inc. and Spectrum Polymers, Ltd.
23.3 Consent of Grant Thornton LLP regarding Dogloo, Inc.
23.4 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1 hereto).
23.5 Consent of Liddell, Sapp, Zivley, Hill & LaBoon, LLP (included in Exhibit
5.2 hereto).
24.1 Powers of Attorney (included on signature pages hereof).
25.1 Statement of Eligibility and Qualification on Form T-1 of Trustee under
the Indenture related to the Notes.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of letter to brokers, dealers, commercial banks, trust companies and
other nominees.
99.4 Form of Letter to clients.
99.5 Guidelines for Certification of Taxpayer Identification Number On
Substitute Form W-9
</TABLE>
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
ARTICLE ONE
Doskocil Manufacturing Company, Inc. (the "Corporation"), pursuant to the
provisions of Article 4.07 of the Texas Business Corporation Act (the "TBCA"),
hereby adopts restated articles of incorporation which accurately copy the
articles of incorporation and all amendments thereto that are in effect to date
and as further amended by such restated articles of incorporation as hereinafter
set forth and which contain no other change in any provision thereof.
ARTICLE TWO
The name of the Corporation is Doskocil Manufacturing Company, Inc.
ARTICLE THREE
The Articles of Incorporation of the Corporation are hereby amended by
these Amended and Restated Articles of Incorporation as follows: (i) current
Article 1 is redesignated as Article I below; (ii) current Article 2 is amended
in its entirety to read as set forth in Article III below; (ii) current Article
3 is amended in its entirety to read as set forth in Article V below; (iv)
current Article 4 is amended in its entirety to read as set forth in Article IV
below so as to increase the number of authorized shares of Common Stock, to
authorize the issuance of Preferred Stock and to create a series of Preferred
Stock; (v) current Article 5 is redesignated as Article V below; (vi) current
Article 6 is amended in its entirety to read as set forth in Article II below to
change the name and address of the registered agent and registered office; (vii)
current Article 7 is amended in its entirety to read as set forth in Article XII
below to list the names and addresses of the directors of the Corporation;
(viii) current Article 8 naming the incorporator is deleted; and (ix) Articles
VI, VII, VIII, IX, X and XI set forth below have been added as new provisions.
ARTICLE FOUR
Each such amendment made by these Amended and Restated Articles of
Incorporation has been effected in conformity with the provisions of the TBCA
and these Amended and Restated Articles of Incorporation and each amendment
effected hereby was duly adopted by the shareholders of the Corporation on the
27th day of June, 1997.
ARTICLE FIVE
The number of shares of the Corporation outstanding at the time of such
adoption was 5,998,900 shares of Common Stock and the number of shares entitled
to vote on the Amended and Restated Articles of Incorporation was 5,998,900
shares of Common Stock. All of the shareholders have signed a written consent
to the adoption of such Amended and Restated Articles of Incorporation pursuant
to Article 9.10 of the TBCA and any written notice required by Article 9.10 has
been given.
<PAGE>
ARTICLE SIX
The Articles of Incorporation of the Corporation and all amendments thereto
are hereby superseded by the following Amended and Restated Articles of
Incorporation, which accurately copy the entire text thereof and as amended as
set forth above:
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
DOSKOCIL MANUFACTURING COMPANY, INC.
ARTICLE I
The name of the Corporation is Doskocil Manufacturing Company, Inc.
ARTICLE II
REGISTERED AGENT AND OFFICE
The registered office of the Corporation in the State of Texas is located
at 4209 Barnett, Arlington, Texas 76017. The name of the registered agent of
the Corporation at such address is Donald J. Fritschen.
ARTICLE III
PURPOSE AND EXISTENCE
The purpose for which the Corporation is organized is to engage in any and
all lawful acts and activities for which corporations may be organized under the
Texas Business Corporation Act ("TBCA"). The Corporation will have perpetual
existence.
ARTICLE IV
SHARES
The Corporation is authorized to issue two classes of capital stock to be
designated, respectively, "Preferred Stock" and "Common Stock." The total
number of shares of capital stock which the Corporation shall have authority to
issue is 30,000,000 shares, 15,000,000 shares of which shall be Preferred Stock,
no par value per share, and 15,000,000 shares of which shall be Common Stock, no
par value per share.
The designations and the powers, preferences, rights, qualifications,
limitations and restrictions of the Preferred Stock are as follows:
A. PROVISIONS RELATING TO THE PREFERRED STOCK.
1. The Preferred Stock may be issued from time to time in one or more
series, the shares of each series to have such designations and
powers, preferences and rights and qualifications, limitations and
restrictions thereof, as are stated and expressed herein and in the
resolution or resolutions providing for
2
<PAGE>
the issue of such series adopted by the Board of Directors of the
Corporation (the "Board of Directors") as hereafter prescribed.
2. Authority is hereby expressly granted to and vested in the Board of
Directors to authorize the issuance of the Preferred Stock from time
to time in one or more series, and with respect to each series of the
Preferred Stock, to fix and state by the resolution or resolutions
from time to time adopted providing for the issuance thereof the
following:
(i) whether or not the series is to have voting rights, full,
special or limited, or is to be without voting rights, unless
otherwise provided by law, and whether or not such series is to
be entitled to vote as a separate class either alone or together
with the holders of one or more other series of stock;
(ii) the number of shares to constitute the series and the
distinctive designations thereof;
(iii) the preferences, and relative participating, optional or
other special rights, if any, and the qualifications,
limitations or restrictions thereof, if any, with respect to any
series;
(iv) whether or not the shares of any series shall be redeemable
at the option of the Corporation or the holders thereof or upon
the happening of any specified event and, if redeemable, the
redemption price or prices (which may be payable in the form of
cash, notes, securities or other property), and the time or
times at which, and the terms and conditions upon which, such
shares shall be redeemable and the manner of redemption;
(v) whether or not the shares of a series shall be subject to the
operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement and, if
such retirement or sinking fund or funds are to be established,
the annual amount thereof and the terms and provisions relative
to the operation thereof;
(vi) the dividend rate or amount, if any, for the shares of such
series, whether dividends are payable in cash, stock of the
Corporation or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the
relation to the payment of dividends payable on any other class
or classes or series of stock, whether or not such dividends
shall be cumulative or noncumulative and, if cumulative, the
date or dates from which such dividends shall accumulate;
3
<PAGE>
(vii) the preferences, if any, and the amounts thereof which the
holders of any series thereof shall be entitled to receive upon
the voluntary or involuntary dissolution of, or upon any
distribution of the assets of, the Corporation;
(viii) whether or not the shares of any series, at the option of
the Corporation or the holder thereof or upon the happening of
any specified event, shall be convertible into or exchangeable
for the shares of any other class or classes or of any other
series of the same or any other class or classes of stock,
securities or other property of the Corporation and the
conversion price or prices or ratio or ratios or the rate or
rates at which such exchange may be made, with such adjustments,
if any, as shall be stated and expressed or provided for in such
resolution or resolutions; and
(ix) such other special rights and protective provisions with
respect to any series, and the qualification, limitations or
restrictions thereof, to the full extent now or hereafter
permitted by law and not inconsistent with the provisions hereof
as may to the Board of Directors seem advisable.
3. The shares of each series of Preferred Stock may vary from the
shares of any other series thereof in any or all of the foregoing
respects. The Board of Directors may increase the number of shares of
Preferred Stock designated for any existing series by a resolution
adding to such series authorized and unissued shares of Preferred
Stock not designated for any other series. The Board of Directors may
decrease the number of shares of Preferred Stock designated for any
existing series, but not below the number of shares then outstanding,
by a resolution subtracting from such series authorized and unissued
shares of Preferred Stock designated for such existing series, and the
shares so subtracted shall become authorized, unissued and
undesignated shares of Preferred Stock.
IA. SERIES A PREFERRED STOCK
1.1 Designations. The initial series of Preferred Stock shall be
------------
designated "Series A Preferred Stock" ("Series A Preferred Stock").
2.1 Number of Shares. The number of shares constituting the Series A
----------------
Preferred Stock shall be 1,530,674 shares.
3.1 Conversion and Sale Price. The term "Conversion Price" as used
-------------------------
herein shall mean the price per share at which the Series A Preferred Stock is
convertible into Common Stock, initially equal to the Sale Price (as defined),
and adjusted as provided herein. The term "Sale Price" shall mean the price per
share at which the Preferred Stock is originally to be issued, equal to
$15.02607 in the case of all shares of Series A Preferred Stock.
4
<PAGE>
4.1 Dividends. Subject to (i) applicable provisions of the TBCA,
---------
(ii) the rights of any series of Preferred Stock which may from time to time
come into existence, and (iii) any loan covenant or other provision for the
benefit of the holders of Corporation's indebtedness for borrowed money, the
holders of the Series A Preferred Stock shall be entitled to an annual cash
dividend of $1.502607 per share (as adjusted for subsequent stock dividends,
stock splits or recapitalizations of the Series A Preferred Stock) payable on an
annual basis commencing July 1, 1998. Such dividends shall accrue on each
outstanding share of Series A Preferred Stock commencing on the date of issuance
thereof, whether or not earned or declared. Such dividends shall be cumulative
so that, if such dividends in respect of any previous or current annual dividend
period, at the annual rate specified above, shall not have been paid, then
subject to the rights of any series of Preferred Stock which may from time to
time come into existence, the deficiency shall first be fully paid before any
dividend or other distribution shall be paid on or declared and set apart for
the Common Stock. Subject to (i) applicable provisions of the TBCA, (ii) the
rights of any series of Preferred Stock which may from time to time come into
existence, and (iii) any loan covenant or other provision for the benefit of the
holders of the Corporation's indebtedness for borrowed money, any unpaid
accumulated dividends on the Series A Preferred Stock at the time of conversion
of shares of Series A Preferred Stock shall either be paid to the holders of
such shares of Series A Preferred Stock or remain an accrued but unpaid dividend
until paid.
4.2 Liquidation. In the event of any liquidation, dissolution or
-----------
winding up of the Corporation, either voluntary or involuntary, the holders of
Series A Preferred Stock shall be entitled to share ratably with the holders of
Common Stock in the assets of the Corporation after assuming for such purposes
that, whether or not the Series A Preferred Stock is then convertible, all then
outstanding shares of the Series A Preferred Stock had been converted into
shares of Common Stock. If no shares of Common Stock are outstanding at the
time of such distribution, the holders of the Series A Preferred Stock shall be
entitled to receive, ratably (assuming conversion of all shares of Series A
Preferred Stock to Common Stock), all assets of the Corporation. A merger or
consolidation of the Corporation with or into another corporation, or the sale
of all or substantially all of the Corporation's properties and assets to any
other person shall not be deemed a liquidation, dissolution or winding up of the
Corporation; provided that, in the case of a merger or consolidation, the
Corporation is the survivor or, in the event that the Corporation is not the
survivor, the Series A Preferred Stock is converted into shares of preferred
stock of the surviving corporation with substantially the same rights,
preferences and privileges as the Series A Preferred Stock.
4.3 Conversion Rights. Each share of Series A Preferred Stock shall,
-----------------
at the option of the holder, be convertible into shares of Common Stock at the
then effective Conversion Price concurrent with or following the consummation of
the closing of a merger or acquisition of another company engaged principally in
supplying products to the pet industry with annual revenues in excess of $25
million.
5
<PAGE>
4.4 Conversion Procedure.
--------------------
(a) Before any holder of shares of Series A Preferred Stock shall be
entitled to convert the same into shares of Common Stock, the holder shall
surrender the certificate or certificates therefor, duly endorsed in blank
or accompanied by proper instruments of transfer, at the office of the
Corporation or of any transfer agent for the shares of the Series A
Preferred Stock, and shall give written notice to the Corporation at such
office that such holder elects to convert the same and shall state in
writing therein the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of shares of the Series A Preferred Stock, or to
such holder's nominee or nominees, certificates for the number of full
shares of Common Stock to which such holder shall be entitled, as
aforesaid, together with cash in lieu of any accrued but unpaid dividend or
any fraction of a share as hereinafter provided in Section 4.4(i). Such
conversion shall be deemed to have been made as of the date of such
surrender of the shares of the Series A Preferred Stock to be converted,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on said date.
(b) Adjustment for Stock Splits and Combinations. If the Corporation
--------------------------------------------
shall at any time after the filing with the Secretary of State of this
Amended and Restated Articles of Corporation (the "Filing Date") effect a
subdivision or combination of the outstanding Common Stock, the Conversion
Price then in effect immediately before such subdivision or combination
shall be proportionately decreased or increased. Any adjustment under this
subsection shall become effective at the close of business on the effective
date of the subdivision or combination.
(c) Adjustment for Certain Dividends and Distributions. If the
--------------------------------------------------
Corporation at any time after the Filing Date shall issue additional shares
of Common Stock, by reason of the declaration or payment of a dividend or
other distribution on the Common Stock payable in additional shares of
Common Stock, then and in each such event, the Conversion Price then in
effect shall be decreased as of the time of such issuance or, if such a
record date shall have been fixed, as of the close of business on such
record date, by multiplying the Conversion Price then in effect by a
fraction:
(i) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date
plus the number of shares of Common Stock issuable in payment of such
dividend or distribution; provided, however, that if such record date
shall have been fixed and such dividend is not
6
<PAGE>
fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of
the close of business on such record date and thereafter the
Conversion Price shall be adjusted pursuant to this subsection as of
the time of actual payment of such dividends or distributions.
(d) Adjustments for Other Dividends and Distributions. If the
-------------------------------------------------
Corporation at any time after the Filing Date shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then in each such event
provision shall be made so that the holders of Series A Preferred Stock
shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities of the
Corporation which they would have received had their Series A Preferred
Stock been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including
the conversion date, retained such securities (together with any
distributions payable thereon during such period) receivable by them as
aforesaid during such period, giving application to all adjustments called
for during such period under Section 4.4 with respect to the rights of the
holders of the Series A Preferred Stock.
(e) Adjustment for Reclassification, Exchange or Substitution. If the
---------------------------------------------------------
Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or different number of shares of any class
or classes of stock, by capital reorganization, involving exchange,
substitution, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for
below), then the holder of each share of Series A Preferred Stock shall
have the right thereafter to convert each such share into the same kind and
amount of shares of stock and other securities and property receivable upon
such exchange, reclassification or other change, as a holder of the number
of shares of Common Stock into which such shares of Series A Preferred
Stock might have been converted immediately prior to such substitution,
reclassification or other change, all subject to further adjustment as
provided herein.
(f) Reorganization, Merger, Consolidation or Sale of Assets. If at
-------------------------------------------------------
any time there shall be a capital reorganization of the Common Stock (other
than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 4.4) or a merger or consolidation of
the Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation's properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation or
sale, provision shall be made so that the holders of the Series A Preferred
Stock shall thereafter be entitled to receive upon conversion of such
Series A Preferred Stock, the number of shares of stock or other securities
or property of the Corporation, or of the successor corporation resulting
from such reorganization, merger, consolidation or sale,
7
<PAGE>
to which a holder of Common Stock deliverable upon conversion would have
been entitled upon such capital reorganization, merger, consolidation or
sale.
(g) Minimum Adjustment. No adjustment of the Conversion Price shall
------------------
be made in an amount less than $0.001, but any such lesser adjustments
shall be carried forward and shall be made at the time together with the
next subsequent adjustment which together with any adjustments so carried
forward shall amount to $0.001 or more.
(h) Certificate of Adjustment. Upon the occurrence of each adjustment
-------------------------
or readjustment of the Conversion Price of the Series A Preferred Stock
pursuant to this Section 4.4, the Corporation shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of such Series A Preferred Stock, as applicable,
a certificate, signed by the Chairman of the Board, the President or the
Chief Financial Officer, setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based.
(i) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to the product of such fraction multiplied
by the fair market value of one share of the Corporation's Common Stock on
the date of conversion, as determined reasonably and in good faith by the
Board.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available, out of its authorized but
unissued Common Stock, solely for the purpose of effecting the conversion
of the Series A Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all shares of the Series A Preferred
Stock from time to time outstanding. The Corporation shall from time to
time, in accordance with the TBCA, use its best efforts to increase the
authorized amount of its Common Stock if at any time the authorized number
of shares of Common Stock remaining unissued shall not be sufficient to
permit the conversion of all of the shares of the Series A Preferred Stock
at the time outstanding.
(k) Payment of Taxes. The Corporation shall pay any and all issuance
----------------
and other taxes that may be payable in respect of any issuance or delivery
of Common Stock upon conversion of the Series A Preferred Stock pursuant
hereto. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issuance
and delivery of Common Stock in a name other than that in which the Series
A Preferred Stock so converted was registered, and no such issuance or
delivery shall be made unless and until the person requesting such issuance
has paid to the Corporation the amount of any such tax.
(l) No Impairment. The Corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities
or any other voluntary action, avoid or seek to
8
<PAGE>
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4.4 and in
the taking of all such action as may be necessary or appropriate in order
to protect the conversion rights of the holders of the Series A Preferred
Stock against impairment.
4.5 Redemption. Subject to (i) applicable provisions of the TBCA,
----------
(ii) the rights of any series of Preferred Stock which may from time to time
come into existence, and (iii) any loan covenant or other provision for the
benefit of the holders of Corporation indebtedness for borrowed money, the
Corporation may at any time, upon 10 days notice to the holders of the then
outstanding shares of Series A Preferred Stock, require redemption hereunder of
all (but not less than all without the consent of holders electing not to have
their shares of Series A Preferred Stock redeemed) of the then outstanding
shares of Series A Preferred Stock. Any such redemption shall be at the Sale
Price of the Series A Preferred Stock to be redeemed plus all accrued but unpaid
dividends on the shares of Preferred Stock to be redeemed. The redemption
procedure shall be as set forth in this Section 4.5.
(a) Redemption Procedure. The Corporation may initiate redemption of
--------------------
the Series A Preferred Stock in accordance with this Section 4.5, by
mailing written notice (the "Redemption Notice"), postage prepaid, to the
holders of the then outstanding shares of Series A Preferred Stock at least
10 days but not more that 60 days prior to the date fixed by the
Corporation for redemption (the "Redemption Date"). The Redemption Notice
shall state: (A) the number of shares of Series A Preferred Stock held by
the holders, (B) the Redemption Date and the total Redemption Price, and
(C) that the Corporation will require such holders to surrender to the
Corporation, in the manner and at the place designated by the Corporation,
the certificate or certificates representing the shares. This notice
provision may be waived by any holder of Series A Preferred Stock with
respect to the shares held by that holder.
(b) Notice of Redemption. The Notice of Redemption shall notify all
--------------------
holders of Preferred Stock that on or before the Redemption Date, each
holder of Series A Preferred Stock shall surrender its certificate or
certificates representing its shares of Series A Preferred Stock to the
Corporation, in the manner and at the place designated in the notice from
the Corporation, and thereupon the Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate
or certificates as the owner thereof, and each surrendered certificate
shall be cancelled.
(c) Payment. On the Redemption Date, the Corporation shall pay by
-------
wire transfer the Redemption Price to the respective holders upon the
surrender of their share certificates.
4.6 Voting Rights of Series A Preferred Stock. The holders of Series
-----------------------------------------
A Preferred Stock shall not be entitled to vote their shares on any matters
submitted to a vote of holders of Common Stock, except those matters required by
law to be submitted to a class vote.
9
<PAGE>
4.7 Status of Converted Stock. In case any shares of Series A
-------------------------
Preferred Stock shall be converted pursuant to Section 4.3 hereof, the shares so
converted shall assume the status of authorized but undesignated and unissued
shares of Series A Preferred Stock.
4.8 Notices. Any notice required herein except as otherwise
-------
specifically provided herein, to be given to the holders of shares of Series A
Preferred Stock shall be in writing and may be delivered by personal service,
sent by overnight professional courier service, sent by telegraph or cable or
sent by United States registered or certified mail, return receipt requested,
with postage thereon fully prepaid. All such communications shall be addressed
to each holder of record at its address appearing on the books of the
Corporation. If sent by telegraph or cable, a confirmed copy of such
telegraphic or cabled notice shall promptly be sent by mail (in the manner
provided above) to the holders. Service of any such communication made only by
mail shall be deemed complete on the date of actual delivery as shown by the
addressee's registry or certification receipt or at the expiration of the third
business day after the date of mailing, whichever is earlier in time.
4.9 Consent for Certain Repurchases of Common Stock Deemed to be
------------------------------------------------------------
Distributions. Each holder of Series A Preferred Stock shall be deemed to have
- -------------
consented, for purposes of any applicable laws concerning corporate governance,
to distributions made by the Corporation in connection with the repurchase of
shares of Common Stock issued to or held by employees or consultants pursuant to
agreements providing for such right of repurchase between the Corporation and
such persons.
ARTICLE V
COMMENCEMENT OF BUSINESS
The Corporation will not commence business until it has received for the
issuance of its shares consideration for the value of $1,000 consisting of
money, labor done, or property actually received.
ARTICLE VI
DENIAL OF PREEMPTIVE RIGHTS
The statutory right of a shareholder to exercise preemptive rights to
acquire additional, unissued or treasury shares of the Corporation or securities
of the Corporation convertible into or carrying a right to subscribe to or
acquire shares of the Corporation is hereby denied.
ARTICLE VII
NONCUMULATIVE VOTING
Directors shall be elected by majority vote of the holders of Common Stock.
No shareholder of the Corporation shall have the right to cumulate his or her
votes in the election of directors.
10
<PAGE>
ARTICLE VIII
POWER TO AMEND BYLAWS
Without limiting the power of the shareholders of the Corporation to amend
or repeal the Corporation's Bylaws or to adopt new Bylaws, the Board of
Directors shall have the power to amend or repeal the Corporation's Bylaws and
to adopt new Bylaws.
ARTICLE IX
INDEMNIFICATION
The Corporation shall indemnify every Director and officer of the
Corporation against and reimburse and advance to every Director and officer for,
all liabilities, costs and expenses incurred in connection with such
directorship or office and any actions taken or omitted in such capacity to the
greatest extent permitted under the TBCA and other applicable laws at the time
of such indemnification, reimbursement or advance payment.
ARTICLE X
LIABILITY OF DIRECTORS
No director of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this article does not eliminate or limit the
liability of a director to the extent the director is found liable for: (i) a
breach of the director's duty of loyalty to the Corporation or its shareholders;
(ii) an act or omission not in good faith that constitutes a breach of duty of
the director to the Corporation or an act or omission that involves intentional
misconduct or a knowing violation of the law; (iii) a transaction from which the
director received an improper benefit, whether or not the benefit resulted from
an action taken within the scope of the director's office; or (iv) an act or
omission for which the liability of a director is expressly provided for by an
applicable statute.
ARTICLE XI
ACTIONS BY SHAREHOLDERS WITHOUT A MEETING
Any action required by the TBCA to be taken at any annual or special
meeting of shareholders, or any action which may be taken at any annual or
special meeting of shareholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing , setting forth
the action so taken, shall be signed by the holder or holders of shares having
not less than the minimum number of votes that would be necessary to take such
action at a meeting at which the holders of all shares entitled to vote on the
action were presented and voted.
11
<PAGE>
ARTICLE XII
DIRECTORS
The number of directors constituting the Board of Directors is two and the
name and address of the persons who are to serve as directors until the next
annual meeting of the shareholders, or until his or her successor or successors
are elected and qualified are:
Benjamin L. Doskocil, Sr.
c/o Doskocil Manufacturing Company, Inc.
4209 Barnett
Arlington, Texas 76017
Mary Frances Doskocil
c/o Doskocil Manufacturing Company, Inc.
4209 Barnett
Arlington, Texas 76017
The number of directors may hereafter be increased or decreased as provided
in the Bylaws of the Corporation.
12
<PAGE>
IN WITNESS WHEREOF, and in accordance with Article 4.07D of the TBCA, the
undersigned has executed these Amended and Restated Articles of Incorporation on
this 30th day of June, 1997.
/s/ BENJAMIN L. DOSKOCIL, SR.
------------------------------------
Benjamin L. Doskocil, Sr., President
13
<PAGE>
[LOGO OF THE STATE OF TEXAS]
The State of Texas
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
DOSKOCIL MANUFACTURING COMPANY, INC.
The undersigned, as Secretary of State of Texas, hereby certifies that the
attached Articles of Amendment for the above named entity have been received in
this office and are found to conform to law.
ACCORDINGLY the undersigned, as Secretary of State, and by virtue of the
authority vested in the Secretary by law, hereby issues this Certificate of
Amendment.
Dated: September 11, 1997
Effective: September 11, 1997
[SEAL OF THE STATE OF TEXAS] /s/ ANTONIO O. GARZA, JR.
------------------------
Antonio O. Garza, Jr.
Secretary of State
<PAGE>
----------------------------
FILED
In the Office of the
Secretary of State of Texas
SEP 11 1997
Corporations Section
----------------------------
ARTICLES OF AMENDMENT
OF THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DOSKOCIL MANUFACTURING COMPANY, INC.
ARTICLE ONE
-----------
DOSKOCIL MANUFACTURING COMPANY, INC. (the "Corporation"), pursuant to the
provisions of Article 4.04 of the Texas Business Corporation Act, hereby amends
its Articles of Incorporation as set forth in these Articles of Amendment.
ARTICLE TWO
-----------
The name of the Corporation is Doskocil Manufacturing Company, Inc.
ARTICLE THREE
-------------
The following provision of the original Amended and Restated Articles of
Incorporation of the Corporation has been amended as set forth in detail below.
The first two sentences of Article IV are amended in their entirety to read
as follows:
ARTICLE IV
----------
The Corporation is authorized to issue two classes of capital stock to
be designated, respectively, "Preferred Stock" and "Common Stock." The
total number of shares of capital stock which the Corporation shall have
authority to issue is 40,000,000 shares, 25,000,000 shares of which shall
be Preferred Stock, no par value per share, and 15,000,000 shares of which
shall be Common Stock, no par value per share.
ARTICLE FOUR
------------
The above described amendment was adopted by the unanimous written consent
of the directors and shareholders of the Corporation effective September 9,
1997. The number of shares of Common Stock outstanding on September 9, 1997 was
1,331,021, and the number of shares of Common Stock entitled to vote on the
amendments to the Articles of Incorporation was 1,331,021. The shareholders of
Series A Preferred Stock were entitled to vote as a class, and the number of
shares of Series A Preferred Stock outstanding on September 9, 1997 was
1,530,674. The
<PAGE>
shareholders signed a unanimous written consent approving the adoption of such
amendment to the Articles of Incorporation pursuant to Article 9.10 of the TBCA
and any written notice required by Article 9.09 of the TBCA has been given or
waived.
The undersigned President of the Corporation hereby executes these
Articles of Amendment on behalf of the Corporation effective as of September 11,
1997.
DOSKOCIL MANUFACTURING COMPANY, INC.
/s/ LARRY E. REMBOLD
------------------------------------
Larry E. Rembold
President
<PAGE>
[LOGO OF THE STATE OF TEXAS]
The State of Texas
SECRETARY OF STATE
IT IS HEREBY CERTIFIED that the attached is/are true and correct copies
of the following described document(s) on file in this office:
DOSKOCIL MANUFACTURING COMPANY, INC.
STATEMENT OF DESIGNATION SEPTEMBER 18, 1997
[SEAL OF THE STATE OF TEXAS] IN TESTIMONY WHEREOF, I have hereunto signed my
name officially and caused to be impressed hereon
the Seal of State at my office in the City of
Austin, on September 19, 1997.
/s/ ANTONIO O. GARZA, JR.
------------------------------
Antonio O. Garza, Jr.
Secretary of State
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC.
A TEXAS CORPORATION
STATEMENT OF DESTINATION
OF
SERIES B AND SERIES C PREFERRED STOCK
The undersigned, Larry E. Rembold, President and Chief Executive
Officer of Doskocil Manufacturing Company, Inc., a corporation organized and
existing under and by virtue of the Texas Business Corporation Act, in
accordance with the provisions of Article 2.13 thereof, hereby certifies as
follows:
FIRST: The name of the corporation is Doskocil Manufacturing Company,
Inc. (the "CORPORATION").
SECOND: Pursuant to the authority vested in the Board of Directors of
the corporation by Article IV of the Corporation's Articles of Incorporation, as
amended and restated on July 1, 1997, and as further amended by a Certificate
of Amendment on September 11, 1997, the Board of Directors of the Corporation
duly adopted a resolution establishing two series of preferred stock of the
Corporation out of the authorized but unissued shares of the capital stock of
the Corporation and designating such series as Series B Preferred Stock (the
"SERIES B PREFERRED STOCK") consisting of 10,224,255 shares, no par value, and
Series C Preferred Stock (the "SERIES C PREFERRED STOCK") consisting of
11,841,280 shares, no par value.
THIRD: The following is a true and correct copy of the preferences and
relative and other rights, and the qualifications, limitations or restrictions
of the Series B Preferred Stock and Series C Preferred Stock as approved
pursuant to the foregoing resolution:
I. SERIES B PREFERRED STOCK
The rights, preferences, privileges and restrictions granted to and
imposed upon the Series B Preferred Stock are as set forth below:
1.1 Designation. The secondary series of the Corporation Preferred
------------
Stock shall be designated "SERIES B PREFERRED STOCK."
1.2 Number of Shares. The number of shares constituting the
-----------------
Series B Preferred Stock shall be 10,224,255 shares.
1
<PAGE>
1.3 Dividend Provisions.
--------------------
(a) Subject to (i) the rights of the Series A Preferred Stock and any
series of Preferred Stock which may from time to time come into existence, other
than the Series C Preferred Stock, and (ii) any loan covenant or other provision
for the benefit of the holders of Senior Debt (as defined herein), the holders
of shares of Series B Preferred shall be entitled to receive cash dividends, out
of any assets legally available therefor, prior and in preference to any
declaration or payment of any cash dividend on the Common Stock of this
corporation, at the rate of $0.10 per share of Series B Preferred Stock (as
adjusted for subsequent stock dividends, stock splits or recapitalizations of
the Series B Preferred Stock), per annum payable annually on March 1 of each
year beginning March 1, 1998. The amount of accrued but unpaid dividends on
each share of the Series B Preferred Stock shall, as of September 19, 1997, be
deemed to be $0.2118 (referred to herein as the "CURRENT UNPAID SERIES B
DIVIDENDS"). Dividends on the Series B Preferred Stock shall accrue, whether or
not declared, and such dividends shall be cumulative so that, if such dividends
in respect of any previous or current annual dividend period, at the annual rate
specified above, shall not have been paid, subject to the rights of Series A
Preferred Stock and any series of Preferred Stock, other than the Series C
Preferred Stock, which may from time to time come into existence, the deficiency
shall first be fully paid before any dividend or other distribution shall be
paid on or declared and set apart for the Common Stock. Except as provided in
subsection (b) below, any accumulation of dividends on the Series B Preferred
Stock shall not bear interest.
"SENIOR DEBT" shall mean all principal of, premium and interest
(including, without limitation, any interest which accrues (or which would
accrue but for such case, proceeding or other action) after the commencement of
any case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of this corporation (whether or not such interest is allowed or
allowable as a claim in such case, proceeding or other action)) on any
indebtedness created, incurred, assumed or guaranteed by this corporation and
its subsidiaries (present or future), whether now existing or hereafter arising,
due or to become due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, under any working capital or other credit agreement
or facility with a lender, any debt issued to the public pursuant to a private
placement or registration statement filed with and declared effective by the
Securities and Exchange Commission, any debt incurred in connection with any
past or future acquisitions by this corporation and its subsidiaries (present
and future), and any sale/leaseback financing on equipment or real property of
this corporation or its subsidiaries (present and future).
(b) The holders of Series B Preferred Stock shall be entitled to
additional dividends on the Current Unpaid Series B Dividends and, if, on any
dividend payment date, the holders of Series B Preferred Stock shall not have
received the full annual dividend provided for herein (the "UNPAID DIVIDEND"),
then the holders of Series B Preferred Stock shall also be entitled to
additional dividends on such Unpaid Dividends (collectively, the "ADDITIONAL
DIVIDENDS"). Additional Dividends shall also be cumulative and shall accrue at
the same rate as dividends are then accruing on the Series B Preferred Stock,
whether or not declared, for each succeeding dividend period during which
accumulated annual dividends, or Additional Dividends thereon, shall remain
unpaid.
2
<PAGE>
1.4 Liquidation Preference
----------------------
(a) In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, subject to (i) the rights of any
series of Preferred Stock (other than the Series A and Series C Preferred Stock)
which may from time to time come into existence and (ii) any loan covenant or
other provision for the benefit of the holders of Senior Debt, the holders of
Series B Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets of this corporation to the holders of
Common Stock, an amount per share equal to the sum of the Series B Redemption
Price (as defined in Section 1.6 herein). If upon the occurrence of such event,
the assets and funds to be distributed among the holders of the Series B
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then, subject to the rights of any
series of Preferred Stock which may from time to time come into existence (other
than the Series A and Series C Preferred Stock), the entire assets and funds of
this corporation legally available for distribution shall be distributed ratably
among the holders of the Series B Preferred Stock in proportion to the amount of
such stock owned by each such holder. Written notice of the liquidation,
dissolution or winding up, stating a payment date, the amount of the liquidation
payment and place where the amount distributable shall be payable, shall be
given by mail), postage prepaid, not less than fifteen (15) days prior to the
payment dated stated therein, to each holder of record of the Series B Preferred
Stock, such notice to be addressed to each such holder at his or its post office
address as shown by the records of this corporation.
(b) Upon the completion of (i) the distributions to the holders of Series B
Preferred Stock required by Section 1.4(a), (ii) the distributions to the
holders of Series C Preferred Stock required by 2.4(a) and (iii) any other
distribution that may be required with respect to any series of Preferred Stock
that exists or may from time to time come into existence, if assets remain in
this corporation, the holders of the Common Stock of this corporation (based on
the number of shares of Common Stock held by each), shall receive all of the
remaining assets of this corporation.
1.5 Exchange and Replacement of Certificates.
----------------------------------------
(a) This corporation shall keep at its principal office (or such other place
as this corporation reasonably designates) a register for the registration of
shares of Series B Preferred Stock. Upon the surrender of any certificates
representing shares of Series B Preferred Stock at such place, this corporation
shall, at the request of the registered holder of such certificate, execute and
deliver a new certificate or certificates in exchange therefor representing in
the aggregate the number of shares represented by the surrendered certificate
(and this corporation forthwith shall cancel such surrendered certificate),
subject to the requirements of all applicable securities laws and the
Securityholders Agreement. Each such new certificate shall be registered in such
name and shall represent such number of shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate. The issuance of new certificates shall be made without
charge to the holders of the surrender certificates or any issuance tax in
respect thereof or other costs incurred by this corporation in connection with
such issuance; provided, that this corporation shall not be required to pay any
tax which may be payable in respect of any transfer
3
<PAGE>
involved in the issuance and delivery of any certificate in a name other than
that of the holder of the surrendered certificate.
(b) Upon receipt of evidence reasonably satisfactory to this
corporation (an affidavit of the registered holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing one or more shares of Series B Preferred Stock and, in the case of
any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to this corporation, or in the case of any such mutilation, upon
surrender of such certificate, this corporation shall execute and deliver in
lieu of such certificate a new certificate of like kind representing the number
of shares represented by such lost, stolen, destroyed or mutilated certificate
dated the date of such lost, stolen, destroyed or mutilated certificate. The
term "outstanding" when used in this Article is referenced to shares of the
Series B Preferred Stock as of any particular time and shall not include any
such shares represented by any certificate in lieu of which a new certificate
has been executed and delivered by this corporation in accordance with this
provision but shall include instead those shares represented by such new
certificate.
1.6 Redemption
----------
(a) Subject to (i) the rights of any series of Preferred Stock which
may from time to time come into existence, other than the Series A and Series C
Preferred Stock and (ii) any loan covenant or other provision for the benefit
of the holders of Senior Debt contained in any document or agreement evidencing
Senior Debt, this corporation shall redeem, from any source of funds legally
available therefor, the Series B Preferred Stock in four (4) annual
installments beginning on March 1, 1998 and continuing thereafter on each
subsequent March 1 (each a "SERIES B REDEMPTION DATE") until March l, 2001,
whereupon the remaining Series B Preferred Stock outstanding shall be redeemed.
This corporation shall effect such redemptions on the applicable Series B
Redemption Dates by paying in cash in exchange for shares of Series B Preferred
Stock to be redeemed a sum equal to $ 1.00 per share of Series B Preferred
Stock (as adjusted for any subsequent stock dividends, stock splits or
recapitalizations of the Series B Preferred Stock) plus all accrued but unpaid
dividends, if any, on such shares (the "SERIES B REDEMPTION PRICE"). The number
of shares of Series B Preferred Stock that this corporation shall be required
under this subsection 1.6(a) to redeem on (i) the first Series B Redemption
Date shall be 33.32% of the number of shares of Series B Preferred Stock
originally issued (less any shares of Series B Preferred Stock reacquired by
this corporation (other than pursuant to this subsection 1.6(a)) subsequent to
the immediately preceding Redemption Date, (ii) each of the second and third
Series B Redemption Dates shall be 16 2/3% of the number of shares of Series B
Preferred Stock originally issued (less any shares of Series B Preferred Stock
reacquired by the corporation (other than pursuant to this subsection 1.6(a))
subsequent to the immediately preceding Redemption Date and (iii) the final
Series B Redemption Date shall be the total number of shares of Series B
Preferred Stock outstanding on such date. Any redemption effected pursuant to
this subsection 1.6(a) shall be made on a pro rata basis among the holders of
the Series B Preferred Stock based upon the number of shares of Series B
Preferred Stock then held by each such holder in proportion to the total number
of shares of Series B Preferred Stock then held by all such holders.
4
<PAGE>
(b) Subject to (i) the rights of any series of Preferred Stock which
may from time to time come into existence, other than the Series A and Series C
Preferred Stock and (ii) any loan covenant or other provision for the benefit of
the holders of Senior Debt contained in any document or agreement evidencing
Senior Debt, this corporation shall redeem, from any source of funds legally
available therefor, all of the then outstanding shares of the Series B Preferred
Stock upon any "CORPORATION TRANSACTION," which shall mean (A) the combination
of this corporation with another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation); or (B) a sale of all or substantially all of the assets of
this corporation; unless this corporation's shareholders of record as
------
constituted immediately prior to such combination or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for this corporation's acquisition or sale or otherwise) hold at least 50% of
the voting power of the surviving or acquiring entity. This corporation shall
effect such redemptions by paying the Series B Redemption Price in cash in
exchange for each share of Series B Preferred Stock to be redeemed. Any
redemption effected pursuant to this subsection 1.6(b) shall be made on a pro
rata basis among the holders of the Series B Preferred Stock in proportion to
the number of shares of Series B Preferred Stock then held by such holders.
(c) Subject to the rights of series of Preferred Stock which may from
time to time come into existence, other than the Series A and Series C Preferred
Stock, this corporation may at any time it may lawfully do so, at the option of
the Board of Directors, redeem in whole or in part the Series B Preferred Stock
by paying in cash per share a sum equal to the Series B Redemption Price. Any
redemption effected pursuant to this subsection 1.6(c) shall be made on a pro
rata basis among the holders of the Series B Preferred Stock based upon the
number of shares of Series B Preferred Stock held by each such holder in
proportion to the total number of shares of Series B Preferred Stock then held
by all such holders and shall be applied against the annual installments of the
Series B Preferred Stock redemptions required pursuant to Section 1.6(a) hereof
in the order of their maturity. In the event of any redemption pursuant to this
subsection 1.6(c), at least twenty (20) but no more than sixty (60) days prior
to any such redemption, written notice (the "Series B Redemption Notice") shall
be mailed, first class postage prepaid, to each holder of record (at the close
of business on the business day next preceding the day on which notice is given)
of the Series B Preferred Stock to be redeemed, at the address last shown on the
records of this corporation for such holder, notifying such holder of the
redemption to be effected, specifying the number of shares to be redeemed from
such holder, the date such redemption is to occur, the Redemption Price, the
place at which payment may be obtained and calling upon such holder to surrender
to this corporation, in the manner and at the place designated, his, her or its
certificate or certificates representing the shares to be redeemed.
(d) Except as provided in this subsection 1.6(d), on or after the date
of any redemption pursuant to Section 1.6 hereof, each holder of Series B
Preferred Stock to be redeemed shall surrender to this corporation the
certificate or certificates representing such shares, and thereupon the Series B
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares. From and after
5
<PAGE>
the date of mailing of the Series B Redemption Notice, unless there shall have
been a default in payment of the Series B Redemption Price, all rights of the
holders of shares of Series B Preferred Stock designated for redemption (except
the right to receive the Series B Redemption Price upon surrender of their
certificate or certificates), including, without limitation, the right to
receive dividends thereon, shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of this corporation or
be deemed to be outstanding for any purpose whatsoever. Upon consummation of any
redemption of the reissuable by this corporation. If the funds of this
corporation legally available for redemption of shares of Series B Preferred
Stock on the date of any mandatory redemption under Section 1.6 are
insufficient to redeem the total number of shares of Series B Preferred Stock to
be redeemed on such date, subject to the rights of any series of Preferred Stock
which may from time to time come into existence, those funds which are legally
available will be used to redeem the maximum possible number of such shares
ratably among the holders of such shares to be redeemed based upon their
holdings of Series B Preferred Stock. The shares of Series B Preferred Stock not
redeemed on the date of any mandatory redemption shall remain outstanding and
shall be entitled to all the rights and preferences provided herein, including,
without limitation, accrual of dividends pursuant to Section 1.3. At any time
thereafter when additional funds of this corporation are legally available for
the redemption of shares of Series B Preferred Stock, subject to the rights of
any series of Preferred Stock which may from time to time come into existence in
compliance herewith, such funds will immediately be used to redeem the balance
of the shares which this corporation has become so obliged to redeem but which
it has not redeemed.
1.7 Conversion. The Series B Preferred Stock shall have no rights to
-----------
convert into any other equity security of this Corporation.
1.8 Voting Rights. The Series B Preferred Stock shall have no voting
--------------
rights other than those provided by law or in the Protective Provisions set
forth below in Section 1.9.
1.9 Protective Provisions
---------------------
(a) So long as any shares of Series B Preferred Stock are outstanding,
this corporation shall not, without first obtaining the approval (by vote or
written consent), of the holders of at least 66 2/3% of the then outstanding
shares of Series B Preferred Stock:
(i) amend the corporation's Articles of Incorporation to, or
otherwise, alter or change the rights, preferences or privileges of the shares
of Series B Preferred Stock so as to affect adversely such shares;
(ii) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, the Series B Preferred Stock with respect to redemption, dividends
or liquidation payments; or
6
<PAGE>
(iii) redeem or purchase or otherwise acquire shares of any
class of stock of this corporation, directly or indirectly, other than (A)
redemptions of Series B Preferred Stock pursuant to the provisions of Section
1.6 or (B) repurchases of options or capital stock issued upon exercise of
options from employees, officers, directors or consultants; (in addition, if at
any time there shall be either (A) accrued and unpaid dividends on any shares of
Series B Preferred Stock then outstanding or (B) any redemption required by
Section 1.6 to be made of shares of Series B Preferred Stock then outstanding
which has not been made, no dividends whatsoever of any kind may be paid upon,
nor may any distribution of any kind be made upon any share of any class of
stock of this corporation other than the Series B Preferred Stock).
(b) If this corporation shall in any manner sub-divide by stock-split,
stock dividend or otherwise) or combine (by reverse stock-split or otherwise)
the outstanding shares of Series B Preferred Stock, the liquidation payment per
share, the redemption price per share and the number of shares required to be
redeemed on any mandatory Series B Redemption Date shall be proportionately
reduced or increased, as the case may be.
II. SERIES C PREFERRED STOCK
The rights, preferences, privileges and restrictions granted to and
imposed on the Series C Preferred Stock are as set forth below:
2.1 Designation. The tertiary series of the Corporation Preferred
------------
Stock shall be designated "SERIES C PREFERRED STOCK."
2.2 Number of Shares. The number of shares constituting the Series C
-----------------
Preferred Stock shall be 11,841,280 shares.
2.3 Dividend Provisions. Subject to (i) the rights of the Series A
-------------------
Preferred Stock and Series B Preferred Stock and the rights of any series of
Preferred Stock which may from time to time come into existence, and (ii) any
loan covenant or other provision for the benefit of the holders of Senior Debt
contained in any document or agreement evidencing Senior Debt, the holders of
shares of Series C Preferred Stock shall be entitled to receive cash dividends,
out of any assets legally available therefor, prior and in preference to any
declaration or payment of any cash dividend on the Common Stock, at the rate
$0.10 per share of Series C Preferred Stock (as adjusted for subsequent stock
dividends, stock splits or recapitalizations of the Series C Preferred Stock),
per annum payable annually on March 1 of each year beginning March l, 1998. The
amount of accrued but unpaid dividends on each share of the Series C Preferred
Stock shall, as of September 19, 1997, be deemed to be $0.1995 (referred to
herein as the "Current Unpaid Series C Dividend"). Such dividends shall accrue
on each outstanding share of Series C Preferred Stock commencing on the Closing
Date, whether or not earned or declared. Such dividends shall be cumulative so
that, if such dividends in respect of any previous or current annual dividend
period, at the annual rate specified above, shall not have been paid, the
deficiency shall, subject to the rights of the Series B Preferred Stock and any
series of Preferred Stock which may from time to time come into existence, other
than
7
<PAGE>
the Series A Preferred Stock, first be fully paid before any dividend or other
distribution shall be paid on or declared and set apart for the Common Stock.
Any accumulation of dividends on the Series C Preferred Stock, including the
Current Unpaid Series C Dividend, shall not bear interest.
2.4 Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, subject to (i) the rights of the
Series B Preferred Stock and any other series of Preferred Stock that may from
time to time come into existence, other than the Series A Preferred Stock, and
(ii) any loan covenant or other provision for the benefit of the holders of
Senior Debt contained in any document or agreement evidencing Senior Debt, the
holders of Series C Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Common Stock, an amount per share equal to the Series C Redemption
Price as defined in Section 2.5(a). If upon the occurrence of such event and
after payment in full of the liquidation preference of the Series B Preferred
Stock and any other series of Preferred Stock that may from time to time come
into existence, other than the Series A Preferred Stock, the assets and funds
thus distributed among the holders of the Series C Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, the entire assets and funds of this corporation
legally available for distribution after payment in full of the liquidation
preference of the Series B Preferred Stock and any other series of Preferred
Stock that may from time to time come into existence, other than the Series A
Preferred Stock, shall be distributed ratably among the holders of the Series C
Preferred Stock in proportion to the amount of such stock owned by each such
holders.
(b) Upon the completion of (i) the distributions to the holders of the
Series B Preferred Stock, (ii) the distributions to the holders of Series C
Preferred Stock required by Section 2.4(a) and (iii) any other distribution
that may be required with respect to series of Preferred Stock that may from
time to time come into existence, other than the Series A Preferred Stock, if
assets remain in this corporation, the holders of the Common Stock of this
corporation (based on the number of shares of Common Stock held by each), shall
receive all of the remaining assets of this corporation.
2.5 Redemption.
----------
(a) Provided that the Series B Preferred Stock has been redeemed in
full and subject to (i) the rights of any series of Preferred Stock which may
from time to time come into existence, including the Series A Preferred Stock,
and (ii) any loan covenant or other provision for the benefit of the holders of
Senior Debt contained in any document or agreement evidencing Senior Debt, this
corporation shall redeem, from any source of funds legally available therefor,
all of the then outstanding shares of the Series C Preferred Stock upon the
consummation of any Corporation Transaction (as defined in Section 1.6(b)).
Provided that the Series B Preferred Stock has been redeemed in full and
subject to (i) the rights of any series of Preferred Stock which may from time
to time come into existence, including the Series A Preferred Stock, and (ii)
any loan covenant or other provision for the benefit of the holders of Senior
Debt contained in any document or agreement
8
<PAGE>
evidencing Senior Debt, upon the consummation of an initial underwritten public
offering of the Common Stock of this corporation pursuant to an effective
registration statement, this corporation shall, unless otherwise consented to by
the holders of at least a majority of the then outstanding shares of Series C
Preferred Stock, use the net proceeds it receives from such offering and which
remain after redemption of all shares of Series B Preferred Stock which are then
outstanding to redeem the Series C Preferred Stock. This corporation shall
effect the redemptions pursuant to this subsection 2.5(a) by paying in cash, in
exchange for each share of Series C Preferred Stock to be redeemed, a sum equal
to $1.00 per share of Series C Preferred Stock (as adjusted for any stock
dividends, subdivisions, combinations or reclassifications with respect to such
shares) plus all accrued but unpaid dividends on such share (the "Series C
Redemption Price"). Any redemption effected pursuant to this subsection 2.5(a)
or otherwise, including, without limitation, voluntary repurchases shall be made
on a pro rata basis among the holders of the Series C Preferred Stock based upon
the number of shares of Series C Preferred Stock held by each such holder in
proportion to the total number of shares of Series C Preferred Stock then held
by all such holders.
(b) Except as provided in this subsection 2.5(b), each holder of Series
C Preferred Stock to be redeemed pursuant to this Section 2.5 shall surrender
to this corporation the certificate or certificates representing such shares,
and thereupon the Series C Redemption Price of such shares shall be payable to
the order of the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be cancelled. In
the event less than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
From and after the date of any redemption under this Section 2.5, unless there
shall have been a default in payment of the Series C Redemption Price, all
rights of the holders of shares of Series C Preferred Stock designated for
redemption (except the right to receive the Redemption Price upon surrender of
their certificate or certificates, including, without limitation, the right to
receive dividends thereon) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of this corporation or
be deemed to be outstanding for any purpose whatsoever. Upon consummation of
any redemption of the Series C Preferred Stock, the shares which are redeemed
shall be cancelled and shall not be reissuable by this corporation.
2.6 Conversion. The Series C Preferred Stock shall have no rights to
----------
convert into any other equity security of this Corporation.
2.7 Voting Rights. The Series C Preferred Stock shall have no voting
--------------
rights other than those provided by law or in the Protective Provisions set
forth below in Section 2.8.
2.8 Protective Provisions
---------------------
(a) So long as any shares of Series C Preferred Stock are outstanding,
this corporation shall not, without first obtaining the approval (by vote or
written consent) of the holders of at least a majority of the then outstanding
shares of Series C Preferred Stock:
9
<PAGE>
(i) amend this corporation's Articles of Incorporation to, or
otherwise, alter or change the rights, preferences, privileges or restrictions
of the shares of Series C Preferred Stock so as to affect adversely such shares.
(b) If this corporation shall in any manner subdivide (by stock-split,
stock dividend or otherwise) or combine (by reverse stock-split or otherwise)
the outstanding shares of Series C Preferred Stock, the liquidation payment per
share, the redemption price per share and the number of shares required to be
redeemed shall be proportionately reduced or increased, as the case may be.
IN WITNESS WHEREOF, this Statement of Designation has been signed by
the undersigned on September 17, 1997.
/s/ LARRY E. REMBOLD
------------------------------------------------
Larry E. Rembold, President and Chief
Executive Officer
10
<PAGE>
EXHIBIT 3.2
BY-LAWS
-------
DOSKOCIL MANUFACTURING COMPANY, INC.
------------------------------------
ARTICLE I.
----------
1. Meetings of the Shareholders:
----------------------------
The annual meetings of the shareholders of Doskocil Manufacturing
Company, Inc., shall be held at the office of such corporation in Tarrant
County, Texas, on the first day of July of each year at 10:00 o'clock, a.m., at
which time there shall be elected by the shareholders, by ballot, a Board of
Directors for the ensuing year, and the shareholders shall transact such other
business as may properly come before them. A majority of the shares, issued and
outstanding, represented either in person or by proxy, shall constitute a quorum
for the transaction of business. Each shareholder shall be entitled to one vote
for each one share of corporation standing in his name on the books of the
corporation, whether represented in person or by proxy.
2. Notice of Meetings:
------------------
A notice setting out the time and place of any shareholders' meeting
shall be mailed, postage prepaid, to each shareholder at the address as the same
appears on the sharebook of the corporation, or, if no address appears, to his
last known address, at least two days prior to the date of the meeting. In the
case of the annual meeting regularly held after the end of the fiscal year, no
notice shall be required and the shareholders may transact any business that may
properly come before said body at said annual meeting, providing a quorum is
present, without giving any notice thereof.
3. Adjourned Meetings:
------------------
If a quorum is not present at the annual or any special meeting of the
shareholders, the shareholders present, in person or by proxy, may adjourn from
day to day as they see fit, until a quorum shall be present; or, if a quorum
shall be present, they may adjourn from day to day as they see fit and no notice
of such adjournment need be given.
4. Special Meetings:
----------------
A special meeting of the shareholders may be called at any time by the
President, any two directors, or the holders of ten shares of corporation. The
President or Secretary shall mail a notice of such call to each shareholder of
the corporation in the manner hereinabove provided, at least two days before
such meeting and such notice shall name the time and place of such meeting and
the purpose thereof.
5. Waiver of Notices:
-----------------
All notices herein provided my be waived in writing signed by
shareholders waiving notice, and upon such waiver, meetings of the shareholders
may be held at such time and place as may be agreed upon by the shareholders.
<PAGE>
ARTICLE II.
----------
Board of Directors
1. Number and Qualifications:
-------------------------
The Board of Directors shall consist of three (3) members.
2. Annual Meetings:
---------------
The annual meeting of the Board of Directors shall be held at the
office of such corporation in the same county in Texas wherein is held the
annual meeting of the shareholders, immediately following the annual meeting of
the shareholders. Stated meetings of the Board may be held at such time and
place as shall be determined by resolution of the Board. Both annual and stated
meetings may be held without notice thereof. A quorum shall consist of a
majority of the Board.
3. Special Meetings:
----------------
Special meetings of the Board may be called by the President or by any
two directors, on two days' notice, in person, in writing or by telegraph, to
each Director, and shall be called upon like notice by the Secretary on the
written request of two Directors. Such meetings may be held at any time and
place without previous notice if all Directors execute a waiver in writing of
the notice of time and place.
ARTICLE III.
-----------
Officers
1. Number and Qualifications:
-------------------------
The officers of the Corporation shall consist of a President, Vice
President, Secretary and Treasurer. All officers shall be chosen by the
Directors at the annual meeting of the Board and shall hold office for one year
or until their respective successors are elected and qualify.
2. President:
---------
The President shall preside at all meetings of the Board of Directors
and shall be ex officio chairman at all meetings of the shareholders. Subject to
the approval or direction or authorization of the Board of Directors, while the
Board is not in session, the President shall have general charge and care of the
business and property of the Corporation; execute all authorized contracts and
agreements; sign all certificates of shares; and do and perform such additional
duties as shall be endorsed by the Board of Directors.
3. Vice President:
--------------
The Vice President shall, in the absence or disability of the
President, be vested with all the powers and perform all the duties of the
President, and
<PAGE>
shall have such additional powers and perform such additional duties as shall be
ordered by the Board of Directors.
4. Secretary:
---------
The Secretary shall be ex officio secretary of the Board of Directors
and of the shareholders' meetings; shall give or cause to be given, all required
notices of meetings of the shareholders and Board of Directors; shall record all
proceedings of the meetings of the shareholders and directors in a book to be
kept for that purpose; and shall perform such other duties as may be assigned to
him by the Board of Directors; he shall have custody of the seal of the
Corporation and shall affix same to any instrument when duly authorized to so do
and attest same.
5. Treasurer:
---------
The Treasurer shall have custody of all monies and valuable papers and
documents of the Corporation; shall place the same for safekeeping in such
depositaries as may be designated by the Board of Directors; shall supervise and
direct the expenditures, assets, liabilities, losses and gains of the
Corporation; and shall, when and as required by the President or Board of
Directors, render a statement of the financial condition of the Corporation. He
shall register and transfer shares of the Corporation under such regulations as
may be prescribed by the Board of Directors.
6. Officers Holding Two Offices:
----------------------------
Any officer shall be entitled to hold one or more offices at the same
time, as deemed advisable by the Board of Directors, except that the President
and Secretary shall not be the same person at the same time.
ARTICLE IV.
----------
Capital Shares
1. Certificates of Shares:
----------------------
The President shall issue, or cause to be issued, to each shareholder a
certificate, or certificates, signed by himself or the Vice President and
co-signed or attested by the Secretary, with the seal of the Corporation affixed
thereto, certifying the number of shares of the Corporation owned by such
shareholder.
2. Transfer of Shares:
------------------
Transfer of shares of Corporation shall be made only upon the books of
the Corporation, and before a new certificate of shares shall be issued, the old
certificate of shares, properly endorsed, shall be surrendered. Surrendered
certificates of shares shall be cancelled, and shall be attached to their proper
stubs in the share certificate book.
3. Share Ledger:
------------
The original share ledger containing the names and addresses of the
<PAGE>
shareholders shall be kept at the principal office of the Corporation, which
ledger shall be the evidence as to the shareholders entitled to vote in person
or by proxy at any meeting or election.
ARTICLE V.
---------
Dividends and Finance
1. Dividends:
---------
Dividends may be declared by the Board of Directors in its discretion from
surplus or net profits of the Corporation, and the transfer books of the
Corporation shall be closed for a period not exceeding ten (10) days next
preceding the day appointed for the payments of any dividends.
2. Depositary:
----------
The funds of the Corporation shall be deposited in any bank or trust
company as the Directors shall designate, and shall be withdrawn only upon the
signature of officers designated by the Board of Directors.
ARTICLE VI.
----------
General Provisions
1. Method of Notice:
----------------
Unless otherwise expressly provided, any notice required by these By-Laws
to be given to any person or persons shall be in writing, and may be given by
depositing the same in a post office or letter box in a postpaid envelope,
properly addressed to such person or persons at his or their address as same
appears on the books of the Corporation, and such notice shall be held to have
been given on the day of such deposit.
2. Vacancies of Office:
-------------------
If, by reason of death, resignation, disqualification or otherwise, an
office, other than that of a Director, shall become vacant, the Directors in
office, although less than a quorum, may choose a successor who shall hold
office for the unexpired term, or until his successor shall be duly elected or
chosen and qualify.
3. Fiscal Year:
-----------
The fiscal year of the Corporation shall begin on the 1st day of July of
each year.
4. Place of Business:
-----------------
Until changed by the Board of Directors, the principal place of business of
the Corporation shall be in Tarrant County, Texas. The Corporation
<PAGE>
may maintain an office or offices at such other place or places within the State
or United States as the Directors may hereafter determine.
5. Status of the Corporation:
-------------------------
The Corporation shall be formed, and exist under Section 1244 of the
Internal Revenue Code of 1954.
ARTICLE VII.
-----------
1. Amendments:
----------
The By-Laws of this Corporation shall not be amended, altered or repealed,
except by approval of majority vote of the holders of the issued and outstanding
shares entitled to vote and then only if such amendment, alteration or repeal
does not conflict with the Articles of Incorporation. Such power to amend, alter
and repeal the By-Laws may be delegated by the shareholders to the Board of
Directors.
ADOPTION OF BY-LAWS
The by-laws set out above are hereby adopted
as the by-laws of Doskocil Manufacturing
Company, Inc.
Board of Directors:
/s/ BEN DOSKOCIL
------------------------
Ben Doskocil
/s/ MARY F. DOSKOCIL
------------------------
Mary F. Doskocil
------------------------
Clarence Doskocil
Dated: June 4, 1968
-
<PAGE>
AMENDMENT TO BYLAWS
-------------------
Amendments to Article I, Section 1, and Article II, Section 1 of the
Bylaws of DOSKOCIL MANUFACTURING COMPANY, INC. were approved at the annual
Meeting of Shareholders held on July 1, 1987. Such amendments are as follows:
ARTICLE I
---------
1. Meetings of the Shareholders:
-----------------------------
An annual meeting of the shareholders, commencing with the year
1988 shall be held each year at 10:00 a.m. at a place and on a day
during the month of January to be selected by the Board of Directors. If
such a day is a legal holiday, then the meeting shall be on the next
business day following. At the meeting, the shareholders shall elect
directors and transact such other business as may properly be brought
before the meeting.
ARTICLE II
----------
Board of Directors
1. Number; Qualification; Election; Term:
--------------------------------------
The Board of Directors shall consist of two (2) Directors, who
need not be a Shareholder or resident of any particular state. The
directors shall be elected at the annual meeting of the Shareholders.
Each director elected shall hold office until his successor shall be
elected and shall qualify.
CERTIFIED this 1st day of July, 1987.
/s/ MARY F. DOSKOCIL
--------------------
Mary F. Doskocil
Secretary
APPROVED:
/s/ BEN DOSKOCIL
- --------------------------------------
Ben Doskocil
President
<PAGE>
CERTIFICATE OF SECRETARY
OF
DOSKOCIL MANUFACTURING COMPANY, INC.,
A TEXAS CORPORATION
I, Mary Frances Doskocil, Secretary of Doskocil Manufacturing Company,
Inc., a Texas corporation (the "Company"), hereby certify that attached hereto
as Exhibit A is a true, correct and complete copy of the amendment to Article
II, Section I of the Bylaws of the Company as duly adopted by unanimous written
consent of the shareholders of the Company as of June 25, 1997.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
June 25, 1997.
/s/ MARY FRANCES DOSKOCIL
-----------------------------
Mary Frances Doskocil, Secretary
<PAGE>
EXHIBIT A
SECOND AMENDMENT
TO
BYLAWS
OF
DOSKOCIL MANUFACTURING COMPANY, INC.
Section 1. of Article II of the Bylaws is hereby amended to read in
its entirety as follows:
1. Number; Election; Term; Qualification. The number of directors
--------------------------------------
which shall constitute the board of directors shall be determined by resolution
of the board of directors at any meeting thereof or by the shareholders at any
meeting thereof, but shall never be less than one. At each annual meeting of
shareholders, directors shall be elected to hold office until the next annual
meeting of shareholders and until their successors are elected and qualified. No
director need be a shareholder, a resident of the State of Texas or a citizen of
the United States.
<PAGE>
EXHIBIT 4.1
=================================================
DOSKOCIL MANUFACTURING COMPANY, INC.
ISSUER,
AND
FIRST TRUST NATIONAL ASSOCIATION
TRUSTEE
_____________________________
INDENTURE
Dated as of September 19, 1997
_____________________________
$85,000,000
101/8% Senior Subordinated Notes due 2007
=================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C>
SECTION 1.1. Definitions.................................................. 1
SECTION 1.2. Incorporation by Reference of TIA............................ 24
SECTION 1.3. Rules of Construction........................................ 24
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating.............................................. 25
SECTION 2.2. Execution and Authentication................................. 25
SECTION 2.3. Registrar and Paying Agent................................... 26
SECTION 2.4. Paying Agent to Hold Assets in Trust......................... 27
SECTION 2.5. Securityholder Lists......................................... 27
SECTION 2.6. Transfer and Exchange........................................ 27
SECTION 2.7. Replacement Securities....................................... 33
SECTION 2.8. Outstanding Securities....................................... 34
SECTION 2.9. Treasury Securities.......................................... 34
SECTION 2.10. Temporary Securities......................................... 34
SECTION 2.11. Cancellation................................................. 35
SECTION 2.12. Defaulted Interest........................................... 35
SECTION 2.13. CUSIP Numbers................................................ 36
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption.......................................... 37
SECTION 3.2. Notices to Trustee........................................... 38
SECTION 3.3. Selection of Securities to Be Redeemed....................... 38
SECTION 3.4. Notice of Redemption......................................... 38
SECTION 3.5. Effect of Notice of Redemption............................... 39
SECTION 3.6. Deposit of Redemption Price.................................. 40
SECTION 3.7. Securities Redeemed in Part.................................. 40
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE IV
COVENANTS
<S> <C>
SECTION 4.1. Payment of Securities........................................ 41
SECTION 4.2. Maintenance of Office or Agency.............................. 41
SECTION 4.3. Limitation on Restricted Payments............................ 42
SECTION 4.4. Corporate and Partnership Existence.......................... 43
SECTION 4.5. Payment of Taxes and Other Claims............................ 44
SECTION 4.6. Maintenance of Properties and Insurance...................... 44
SECTION 4.7. Compliance Certificate; Notice of Default.................... 45
SECTION 4.8. Reports...................................................... 45
SECTION 4.9. Limitation on Status as Investment Company................... 46
SECTION 4.10. Limitation on Transactions with Affiliates................... 46
SECTION 4.11. Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock.............................. 46
SECTION 4.12. Limitations on Dividends and Other Payment Restrictions
Affecting Subsidiaries...................................... 47
SECTION 4.13. Limitations on Layering Indebtedness......................... 49
SECTION 4.14. Limitation on Sales of Assets and Subsidiary Stock........... 49
SECTION 4.15. Waiver of Stay, Extension or Usury Laws...................... 54
SECTION 4.16. Limitation on Liens Securing Indebtedness.................... 54
SECTION 4.17. Rule 144A Information Requirement............................ 54
SECTION 4.18. Limitations on Lines of Business............................. 54
SECTION 4.19. Transactions Not Subject to Covenants........................ 55
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation................. 55
SECTION 5.2. Successor Corporation Substituted........................... 56
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default............................................ 56
SECTION 6.2. Acceleration of Maturity Date; Rescission
and Annulment............................................... 58
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 6.3. Collection of Indebtedness and Suits for
Enforcement by Trustee...................................... 59
SECTION 6.4. Trustee May File Proofs of Claim............................. 60
SECTION 6.5. Trustee May Enforce Claims Without
Possession of Securities.................................... 61
SECTION 6.6. Priorities................................................... 61
SECTION 6.7. Limitation on Suits.......................................... 61
SECTION 6.8. Unconditional Right of Holders to Receive
Principal, Premium and Interest............................. 62
SECTION 6.9. Rights and Remedies Cumulative............................... 63
SECTION 6.10. Delay or Omission Not Waiver................................. 63
SECTION 6.11. Control by Holders........................................... 63
SECTION 6.12. Waiver of Existing or Past Default........................... 63
SECTION 6.13. Undertaking for Costs........................................ 64
SECTION 6.14. Restoration of Rights and Remedies........................... 64
ARTICLE VII
TRUSTEE
SECTION 7.1. Duties of Trustee............................................ 65
SECTION 7.2. Rights of Trustee............................................ 66
SECTION 7.3. Individual Rights of Trustee................................. 67
SECTION 7.4. Trustee's Disclaimer......................................... 67
SECTION 7.5. Notice of Default............................................ 67
SECTION 7.6. Reports by Trustee to Holders................................ 68
SECTION 7.7. Compensation and Indemnity................................... 68
SECTION 7.8. Replacement of Trustee....................................... 69
SECTION 7.9. Successor Trustee by Merger, Etc............................. 70
SECTION 7.10. Eligibility; Disqualification................................ 70
SECTION 7.11. Preferential Collection of Claims Against Company............ 70
ARTICLE VIII
DISCHARGE; LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Discharge; Option to Effect Legal
Defeasance or Covenant Defeasance........................... 71
SECTION 8.2. Legal Defeasance and Discharge............................... 71
SECTION 8.3. Covenant Defeasance.......................................... 72
SECTION 8.4. Conditions to Legal or Covenant Defeasance................... 72
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 8.5. Deposited Cash and U.S. Government
Obligations to be Held in Trust; Other Miscellaneous
Provisions.................................................. 73
SECTION 8.6. Repayment to the Company..................................... 74
SECTION 8.7. Reinstatement................................................ 74
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders........... 75
SECTION 9.2. Amendments, Supplemental Indentures
and Waivers with Consent of Holders......................... 76
SECTION 9.3. Compliance with TIA.......................................... 77
SECTION 9.4. Revocation and Effect of Consents............................ 77
SECTION 9.5. Notation on or Exchange of Securities........................ 78
SECTION 9.6. Trustee to Sign Amendments, Etc.............................. 78
ARTICLE X
RIGHT TO REQUIRE REPURCHASE
SECTION 10.1. Repurchase of Securities at Option of the
Holder Upon a Change of Control............................ 78
ARTICLE XI
GUARANTEE
SECTION 11.1. Guarantee................................................... 81
SECTION 11.2. Execution and Delivery of Guarantee......................... 83
SECTION 11.3. Certain Bankruptcy Events................................... 83
SECTION 11.4. Limitation on Merger of Subsidiaries and
Release of Guarantors...................................... 84
ARTICLE XII
SUBORDINATION
SECTION 12.1. Securities Subordinated to Senior Debt...................... 84
SECTION 12.2. No Payment on Securities in Certain Circumstances........... 85
SECTION 12.3. Securities Subordinated to Prior Payment of
All Senior Debt on Dissolution, Liquidation or
Reorganization............................................. 86
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 12.4. Securityholders to Be Subrogated to
Rights of Holders of Senior Debt........................... 87
SECTION 12.5. Obligations of the Company and the
Guarantors Unconditional................................... 87
SECTION 12.6. Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice............................ 88
SECTION 12.7. Application by Trustee of Assets Deposited with It.......... 88
SECTION 12.8. Subordination Rights Not Impaired by Acts or Omissions of
the Company, the Guarantors or Holders of Senior Debt...... 89
SECTION 12.9. Securityholders Authorize Trustee to Effectuate
Subordination of Securities................................ 89
SECTION 12.10. Right of Trustee to Hold Senior Debt........................ 90
SECTION 12.11. Article XII Not to Prevent Events of Default................ 90
SECTION 12.12. No Fiduciary Duty of Trustee to Holders
of Senior Debt............................................. 90
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. TIA Controls................................................ 90
SECTION 13.2. Notices..................................................... 91
SECTION 13.3. Communications by Holders with Other Holders................ 92
SECTION 13.4. Certificate and Opinion as to Conditions Precedent.......... 92
SECTION 13.5. Statements Required in Certificate or Opinion............... 92
SECTION 13.6. Rules by Trustee, Paying Agent, Registrar................... 93
SECTION 13.7. Legal Holidays.............................................. 93
SECTION 13.8. Governing Law............................................... 93
SECTION 13.9. No Adverse Interpretation of Other Agreements............... 94
SECTION 13.10. No Recourse Against Others................................. 94
SECTION 13.11. Successors................................................. 94
SECTION 13.12. Duplicate Originals........................................ 94
SECTION 13.13. Severability............................................... 94
SECTION 13.14. Table of Contents, Headings, Etc........................... 94
SECTION 13.15. Qualification of Indenture................................. 95
SECTION 13.16. Registration Rights........................................ 95
EXHIBIT A
[FORM OF SECURITY]............................ A-1
</TABLE>
v
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
------------
<S> <C>
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;
13.2
(c)...................................... N.A.
311(a).................................... 7.11
(b).................................... 7.11
(c).................................... N.A.
312(a).................................... 2.5
(b).................................... 13.3
(c).................................... 13.3
313(a).................................... 7.6
(b)(1)................................. 7.6
(b)(2)................................. 7.6
(c).................................... 7.6;
13.2
(d).................................... 7.6
314(a).................................... 4.7(a);
4.8;
(b).................................... N.A.
(c)(1)................................. 2.2;
7.2;
13.4
(c)(2)................................. 7.2;
13.4
(c)(3)................................. N.A.
(d).................................... N.A.
(e).................................... 13.5
(f).................................... N.A.
315(a).................................... 7.1(b)
(b).................................... 7.5;
7.6;
13.2
(c).................................... 7.1(a)
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
------- -------
<S> <C>
(d)....................................... 6.11;
7.1(b),
(c)
(e)....................................... 6.13
316(a)(last sentence)........................ 2.9
(a)(1)(A)................................. 6.11
(a)(1)(B)................................. 6.12
(a)(2).................................... N.A.
(b)....................................... 6.12;
6.7;
6.8
317(a)(1).................................... 6.3
(a)(2).................................... 6.4
(b)....................................... 2.4
</TABLE>
__________
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to
be a part of this Indenture.
vii
<PAGE>
INDENTURE, dated as of September 19, 1997, by and between Doskocil
Manufacturing Company, Inc., a Texas corporation (the "Company"), and First
Trust National Association, as trustee (the "Trustee").
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's 10
1/8% Series A Senior Subordinated Notes due 2007 and the class of 10 1/8% Series
B Senior Subordinated Notes due 2007 to be exchanged for the 10 1/8% Series A
Senior Subordinated Notes due 2007:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
-----------
"Acquired Indebtedness" means Indebtedness or Disqualified Capital
Stock of any person existing at the time such person becomes a Subsidiary of the
Company, including by designation, or is merged or consolidated into or with the
Company or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person or operating unit by any other
person, whether by purchase, merger, consolidation, or other transfer, and
whether or not for consideration.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided that, with respect to ownership interest in the Company
and its Subsidiaries, a Beneficial Owner of 10% or more of the total voting
power normally entitled to vote in the election of directors, managers or
trustees, as applicable, shall for such purposes be deemed to constitute control
(except that Benjamin L. Doskocil, Sr. shall not be deemed to be an Affiliate
solely by reason of such voting power so long as he is the Beneficial Owner of
no more than 15% of such voting power); provided, further, that no person (other
than the Company or any Subsidiary of the Company) in whom a Receivables
Subsidiary makes an Investment in connection with a Qualified Receivables
Transaction shall be deemed to be an Affiliate solely by reason of such
Investment.
"Affiliate Transaction" shall have the meaning specified in Section
4.10.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Applicable Premium" means, with respect to a Security at any
applicable Redemption Date, the greater of (i) 1.0% of the principal amount of
such Security and (ii) the
<PAGE>
excess of (A) the present value at such time of (1) the redemption price of such
Security at September 15, 2002 as specified in Paragraph 5 in the form of
Security attached hereto as Exhibit A plus (2) all required interest payments
due on such Security through September 15, 2002, computed using a discount rate
equal to the Treasury Rate plus 0.5% per annum, over (B) the principal amount of
such Security.
"Asset Sale" shall have the meaning specified in Section 4.14.
"Asset Sale Offer" shall have the meaning specified in Section 4.14.
"Asset Sale Offer Amount" shall have the meaning specified in Section
4.14.
"Asset Sale Offer Period" shall have the meaning specified in Section
4.14.
"Asset Sale Offer Price" shall have the meaning specified in Section
4.14.
"Average Life" means, as of the date of determination, with respect to
any security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal,
state or foreign law for the relief of debtors.
"Beneficial Owner" or "beneficial owner" for purposes of the
definition of Change of Control has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or
not applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the board of directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
are authorized or obligated by law or executive order to close.
2
<PAGE>
"Capitalized Lease Obligation" means, as to any person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means, with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation, and with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person.
"Cash" or "cash" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public or private debts.
"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) obligations issued or
directly and fully guaranteed by any state of the United States of America or
political subdivision or instrumentality thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either S&P or
Moody's, (iii) 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 million and commercial
paper issued by others rated at least A-2 or the equivalent thereof by S&P or at
least P-2 or the equivalent thereof by Moody's, (iv) the repurchase obligations
with a term of not more than thirty days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iii) above, and (v) investments in money
market funds having assets of at least $100 million and which invest
substantially all their assets in securities of the types described in clauses
(i) through (iv) above, and in the case of each of (i), (ii), (iii), (iv) and
(v), maturing within one year after the date of acquisition.
"Change of Control" means (i) any merger or consolidation of the
Company with or into any person or any sale, transfer or other conveyance,
whether direct or indirect, of all or substantially all of the assets of the
Company, on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction(s), any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable) (other than an Excluded
Person) is or becomes the "beneficial owner," directly or indirectly, of more
than 50% of the total voting power in the aggregate normally entitled to vote in
the election of directors, managers, or trustees, as applicable, of the
transferee(s) or surviving entity or entities, (ii) any "person" or "group" (as
such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act, whether or not applicable) (other than an Excluded Person) is or becomes
the "beneficial owner," directly or indirectly, of more than 50% of the total
voting power in the aggregate of all classes of Capital Stock of the Company
then outstanding normally entitled to vote in elections of directors,
<PAGE>
or (iii) during any period of 24 consecutive months after the Issue Date,
individuals who at the beginning of any such 24-month period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
"Change of Control Offer" shall have the meaning specified in Section
10.1.
"Change of Control Offer Period" shall have the meaning specified in
Section 10.1.
"Change of Control Purchase Date" shall have the meaning specified in
Section 10.1.
"Change of Control Purchase Price" shall have the meaning specified in
Section 10.1.
"Change of Control Redemption Event" means a Change of Control
pursuant to clause (i) or clause (ii) of the definition of "Change of Control"
that is approved by the Board of Directors of the Company, a majority of the
members of which are Continuing Directors.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture, and thereafter means such
successor.
"Consolidated Coverage Ratio" of any person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis, of
(a) the aggregate amount of Consolidated EBITDA of such person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses discontinued or disposed of) for the Reference Period
to (b) the aggregate Consolidated Fixed Charges of such person (exclusive of
amounts attributable to operations and businesses discontinued or disposed of,
but only to the extent that the obligations giving rise to such Consolidated
Fixed Charges would no longer be obligations contributing to such person's
Consolidated Fixed Charges subsequent to the Transaction Date) during the
Reference Period; provided, that for purposes of such calculation, (i)
Acquisitions which occurred during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date shall be assumed to
have occurred on the first day of the Reference Period, (ii) transactions giving
rise to the need to calculate the Consolidated Coverage Ratio shall be assumed
to have occurred on the first day of the Reference Period, (iii) the incurrence
of any Indebtedness or issuance of any Disqualified Capital Stock during the
Reference Period or subsequent to the Reference Period and on or prior to the
Transaction Date (and the application of the proceeds therefrom to the extent
used to refinance or retire other
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Indebtedness) shall be assumed to have occurred on the first day of such
Reference Period, and (iv) the Consolidated Fixed Charges of such person
attributable to interest on any Indebtedness or dividends on any Disqualified
Capital Stock bearing a floating interest (or dividend) rate shall be computed
on a pro forma basis as if the average rate in effect from the beginning of the
Reference Period to the Transaction Date had been the applicable rate for the
entire period, unless such Person or any of its Subsidiaries is a party to an
Interest Swap or Hedging Obligation (which by its terms will remain in effect
for the 12-month period immediately following the Transaction Date) that has the
effect of fixing the interest rate on the date of computation, in which case
such rate (whether higher or lower) shall be used. For purposes of this
definition whenever pro forma effect is to be given to a transaction, the pro
forma calculations of Consolidated EBITDA and Consolidated Fixed Charges shall
be made in accordance with Article 11 of Regulation S-X of the SEC and subject
to agreed-upon procedures to be performed by the Company's independent
accountants to determine whether the pro forma calculations are made in
accordance with Article 11 of Regulation S-X.
"Consolidated EBITDA" means, with respect to any person, for any
period, the Consolidated Net Income of such person for such period adjusted to
add thereto (to the extent deducted in determining Consolidated Net Income),
without duplication, the sum of (i) Consolidated income tax expense, (ii)
Consolidated depreciation and amortization expense, and other non-cash charges
required to be reflected as expenses for such period on the books and records of
such person, provided that consolidated depreciation and amortization and such
other non-cash charges of a Subsidiary that is a less than a wholly owned
Subsidiary shall only be added to the extent of the equity interest of the
Company in such Subsidiary, (iii) Consolidated Fixed Charges, less the amount of
all cash payments made by such person or any of its Subsidiaries during such
period to the extent such payments relate to non-cash charges that were added
back in determining Consolidated EBITDA for such period or any prior period,
(iv) amounts historically added back in order to calculate the Company's EBITDA
as described in the Offering Memorandum, and (v) costs relating to the
integration of the Company and Dogloo as described in the Offering Memorandum,
not to exceed $1 million.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid or accrued (including,
in accordance with the following sentence, interest attributable to Capitalized
Lease Obligations) of such person and its Consolidated Subsidiaries during such
period, including (i) original issue discount and non-cash interest payments or
accruals on any Indebtedness, (ii) the interest portion of all deferred payment
obligations, and (iii) all commissions, discounts and other fees and charges
owed with respect to bankers' acceptances and letters of credit financings and
currency and Interest Swap and Hedging Obligations, in each case to the extent
attributable to such period, and (b) the amount of dividends accrued or payable
(or guaranteed) by such person or any of its Consolidated Subsidiaries in
respect of Preferred Stock (other than by Subsidiaries of such person to such
person or such person's wholly owned Subsidiaries, and other than dividends paid
in shares of such Preferred Stock). For purposes of this definition, (x)
interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined in good
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faith by the Company to be the rate of interest implicit in such Capitalized
Lease Obligation in accordance with GAAP and (y) interest expense attributable
to any Indebtedness represented by the guaranty by such person or a Subsidiary
of such person of an obligation of another person shall be deemed to be the
interest expense attributable to the Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any person for any
period, the net income (or loss) of such person and its Consolidated
Subsidiaries (determined on a consolidated basis in accordance with GAAP) for
such period, adjusted to exclude (only to the extent included in computing such
net income (or loss) and without duplication): (a) all items which are either
extraordinary (as determined in accordance with GAAP) or are either unusual or
nonrecurring (including any gain from the sale or other disposition of assets
outside the ordinary course of business or from the issuance or sale of any
capital stock other than Disqualified Capital Stock), (b) the net income, if
positive, of any person, other than a Consolidated Subsidiary, in which such
person or any of its Consolidated Subsidiaries has an interest, except to the
extent of the amount of any dividends or distributions actually paid in cash to
such person or a Consolidated Subsidiary of such person during such period, but
in any case not in excess of such person's pro rata share of such person's net
income for such period, (c) the net income or loss of any person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition, (d) the net income, if positive, of any of such person's
Consolidated Subsidiaries to the extent that the declaration or payment of
dividends or similar distributions is not at the time permitted by operation of
the terms of its charter or bylaws or any other agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Consolidated Subsidiary and (e) without duplication, costs, fees and expenses
(including retention bonuses) actually incurred (or accrued on the Company's Pro
Forma condensed balance sheet as of June 30, 1997 contained in the Offering
Memorandum) in connection with the Transactions.
"Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
equity), (a) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such person and its Consolidated
Subsidiaries, (b) all write-ups in the book value of any asset of such person or
a Consolidated Subsidiary of such person subsequent to the Issue Date (other
than writeups resulting from foreign currency translations or of tangible assets
of a going concern business made within 12 months after the acquisition of such
business) and (c) all investments in Subsidiaries that are not Consolidated
Subsidiaries and in persons that are not Subsidiaries.
"Consolidated Subsidiary" means, for any person, each Subsidiary of
such person (whether now existing or hereafter created or acquired) the
financial statements of which are consolidated for financial statement reporting
purposes with the financial statements of such person in accordance with GAAP.
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"Continuing Director" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election.
"Corporate Trust Office" means the office of the Trustee in the
Borough of Manhattan, The City of New York.
"Covenant Defeasance" shall have the meaning specified in Section 8.3.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Defaulted Interest" shall have the meaning specified in Section 2.12.
"Definitive Securities" means Securities that are in the form of
Security attached hereto as Exhibit A that do not include the information called
for by footnotes 3 and 8 thereof.
"Depository" means, with respect to the Securities issuable or issued
in whole or in part in global form, the person specified in Section 2.3 as the
Depository with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"Designated Senior Debt" means, (a) so long as it is in effect and
there is at least $1 million of outstanding indebtedness thereunder, the New
Credit Facility and (b) any other Senior Debt designated by the Company to be
"Designated Senior Debt" that has an outstanding principal amount of at least
$25 million at the time of such designation.
"Disqualified Capital Stock" means (a) except as set forth in (b),
with respect to any person, Equity Interests of such person that, by its terms
or by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time would
be, required to be redeemed or repurchased (including at the option of the
holder thereof) by such person or any of its Subsidiaries, in whole or in part,
on or prior to the Stated Maturity of the Securities and (b) with respect to any
Subsidiary of such person (including with respect to any Subsidiary of the
Company), any Equity Interests other than any common equity with no preference,
privileges, or redemption or repayment provisions.
"Dogloo" means Dogloo, Inc., a California corporation.
7
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"Doskocil Series C Preferred Stock" means the Series C Preferred
Stock, no par value, of the Company.
"Enterprise" means Enterprise Partners II, L.P., a Delaware limited
partnership, Enterprise Partners III Associates, L.P., a Delaware limited
partnership, Enterprise Partners IV, L.P., a Delaware limited partnership, and
Enterprise Partners IV Associates, L.P., a Delaware limited partnership.
"Equity Interest" of any Person means any shares, interests,
participation or other equivalents (however designated) in such Person's equity,
and shall in any event include any Capital Stock issued by, or partnership or
membership interests in, such Person.
"Event of Default" shall have the meaning specified in Section 6.1.
"Event of Loss" means, with respect to any property or asset, any (i)
loss, destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Exchange Securities" means the 10% Series B Senior Subordinated
Notes due 2007, as supplemented from time to time in accordance with the terms
hereof, to be issued pursuant to this Indenture in connection with the offer to
exchange Securities for the Initial Securities that may be made by the Company
pursuant to the Registration Rights Agreement that contains the information
referred to in footnotes 1, 2 and 8 to the form of Security attached hereto as
Exhibit A.
"Excluded Person" means Westar, Enterprise, HBI and any of their
respective affiliates (as such term is defined in Rule 501(b) of Regulation D
under the Securities Act) and, in the event that any Excluded Person distributes
any Equity Interests of the Company to the limited partners or other equity
investors of such Excluded Person, such investors, and, including, in the case
of an individual, any spouse or immediate family member of such individual, the
estate or any heir of such individual or any trust established by such
individual for estate planning purposes.
"Exempted Affiliate Transaction" means, without duplication, (a)
reasonable fees and compensation paid to (including issuances and grants of
securities and stock options), employment agreements and stock option and
ownership plans for the benefit of, and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Subsidiary
of the Company approved by the Board of Directors or the senior management of
the Company, (b) any Restricted Payment permitted hereby, (c) transactions
solely between the Company and any of its Subsidiary Guarantors or solely among
Subsidiary Guarantors of the
8
<PAGE>
Company, (d) fees and expenses paid in connection with the Transactions,
including any such amounts paid to Westar or Enterprise, (e) payments for the
purpose of and in an amount equal to the amount required to permit the Company
to redeem or repurchase Capital Stock of the Company from certain shareholders
of the Company as required pursuant to the Second Securityholders Agreement in
an aggregate amount not to exceed $250,000, (f) any obligations of the Company
for management fees to Westar or other Excluded Persons in an amount not to
exceed $600,000 in any fiscal year and the reimbursement of Westar's reasonable
out-of-pocket expenses, provided that all such amounts shall be subordinate to
the obligations of the Company and the Guarantors with respect to the
Securities, and (g) Qualified Receivables Transactions.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of this Indenture.
"Foreign Subsidiary" means any Subsidiary of the Company which (i) is
not organized under the laws of the United States, any state thereof or the
District of Columbia and (ii) conducts substantially all of its business
operations outside of the United States of America.
"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
in the United States as in effect on the Issue Date.
"Global Security" means a Security that contains the information
referred to in footnotes 3 and 6 to the form of Security attached hereto as
Exhibit A.
"Guarantee" shall have the meaning provided in Section 11.1.
"Guarantors" means each of the Company's Subsidiaries other than (i)
any Receivables Subsidiaries or (ii) any Foreign Subsidiaries; provided that any
Foreign Subsidiary that, at the option and in the sole discretion of the
Company, guarantees the obligations of the Company under the Securities and this
Indenture pursuant to Section 11.1 hereof, shall be deemed to be a Guarantor.
"HBI" means HBI Financial Inc., a Washington corporation.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"Incur" or "incur" shall have the meaning specified in Section 4.11.
"Incurrence Date" shall have the meaning specified in Section 4.11.
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"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of such person, to the
extent that such liabilities and obligations would appear as a liability upon a
balance sheet of such person prepared in accordance with GAAP, (i) 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), (ii) evidenced by bonds,
notes, debentures or similar instruments, (iii) representing the balance
deferred and unpaid of the purchase price of any property or services, except
(other than accounts payable or other obligations to trade creditors which have
remained unpaid for greater than 90 days past their original due date, which
obligations are not being contested in good faith and for which appropriate
reserves have been established in accordance with GAAP) those incurred in the
ordinary course of its business that would constitute ordinarily a trade payable
to trade creditors; (b) all liabilities and obligations, contingent or
otherwise, of such person (i) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (ii) relating to any Capitalized Lease
Obligation, or (iii) evidenced by a letter of credit or a reimbursement
obligation of such person with respect to any letter of credit; (c) all net
obligations of such person under Interest Swap and Hedging Obligations; (d) all
liabilities and obligations of others of the kind described in the preceding
clause (a), (b) or (c) that such person has guaranteed or that is otherwise its
legal liability or which are secured by any assets or property of such person;
and (e) all Disqualified Capital Stock of such Person (measured at the greater
of its voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends). For purposes hereof, the "maximum fixed repurchase price" of
any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to this Indenture, and
if such price is based upon, or measured by, the Fair Market Value of such
Disqualified Capital Stock, such Fair Market Value to be determined in good
faith by the board of directors of the issuer (or managing general partner of
the issuer) of such Disqualified Capital Stock.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Initial Public Equity Offering" means an initial underwritten
offering of common stock of the Company for cash pursuant to an effective
registration statement under the Securities Act as a consequence of which the
common stock of the Company is listed on a national securities exchange or
quoted on the national market system of NASDAQ.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Capital Markets, Inc., severally, and not jointly.
"Initial Securities" means the 10% Series A Senior Subordinated Notes
due 2007, as supplemented from time to time in accordance with the terms hereof,
issued under this Indenture that contains the information referred to in
footnotes 4, 5 and 7 to the form of Security attached hereto as Exhibit A.
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"Interest Payment Date" means the stated due date of an installment of
interest on the Securities.
"Interest Swap and Hedging Obligation" means any obligation of any
person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without
duplication) (a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such person (whether for cash, property, services, securities or
otherwise) of capital stock, bonds, notes, debentures, partnership or other
ownership interests or other securities, including any options or warrants, of
such other person; (b) the making by such person of any deposit with, or
advance, loan or other extension of credit to, such other person (including the
purchase of property from another person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
person) (but excluding accounts receivable, endorsements for collection or
deposits arising in the ordinary course of business); (c) other than guarantees
of Indebtedness of the Company or any Guarantor to the extent permitted by
Section 4.11, the entering into by such person of any guarantee of, or other
credit support or contingent obligation with respect to, Indebtedness or other
liability of such other person; (d) the making of any capital contribution by
such person to such other person; and (e) the designation by the Board of
Directors of the Company of any person to be an Unrestricted Subsidiary. The
Company shall be deemed to make an Investment in an amount equal to the fair
market value of the net assets of any subsidiary (or, if neither the Company nor
any of its Subsidiaries has theretofore made an Investment in such subsidiary,
in an amount equal to the Investments being made), at the time that such
subsidiary is designated an Unrestricted Subsidiary, and any property
transferred to an Unrestricted Subsidiary from the Company or a Subsidiary shall
be deemed an Investment valued at its fair market value at the time of such
transfer; provided that if the Company designates a Foreign Subsidiary that is
not a Guarantor as an Unrestricted Subsidiary, any prior Investments in such
Foreign Subsidiary made as Permitted Investments or Restricted Investments in
accordance with this Indenture shall not be deemed to be additional Investments
at the time of such designation.
"Issue Date" means the date of the first issuance of the Securities
under this Indenture.
"Junior Securities" of any person means securities (including Capital
Stock but excluding Disqualified Capital Stock) issued by such person to a
Holder on account of the Securities that (a) has an Average Life and maturity or
mandatory redemption obligation, if any,
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longer than, or occurring after the final maturity date of, Designated Senior
Debt of such person, (b) by their terms or by law are subordinated to Senior
Debt of such person outstanding on the date of issuance of such Junior
Securities at least to the same extent as the Securities and (c) are not secured
by any assets or property of the Company or any of its Subsidiaries. As used
herein, "Senior Debt of such person outstanding on the date of issuance of such
Junior Securities" shall include securities issued in connection with a
reorganization pursuant to the bankruptcy laws of any jurisdiction to persons
which held "Senior Debt" in such reorganization proceeding.
"Legal Defeasance" shall have the meaning specified in Section
8.2.
"Legal Holiday" shall have the meaning specified in Section 13.7.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Liquidated Damages" shall have the meaning specified in the
Registration Rights Agreement.
"Material Facility" means each of the Company's facilities
located in Arlington or Mansfield, Texas and any other fixed asset of the
Company or its Subsidiaries; provided that the fair market value of such
facility or fixed asset exceeds $3 million.
"Maturity Date" means, when used with respect to any Security,
the date specified on such Security as the fixed date on which the final
installment of principal of such Security is due and payable (in the absence of
any acceleration thereof pursuant to the provisions of this Indenture regarding
acceleration of Indebtedness or any Change of Control Offer or Asset Sale
Offer).
"Merger" means the merger of Dogloo with and into the Company
pursuant to the Agreement and Plan of Merger, dated as of September 19, 1997, by
and between the Company and Dogloo.
"Moody's" means Moody's Investors Services, Inc. and its
successors.
"Net Cash Proceeds" means the aggregate amount of cash or Cash
Equivalents received by the Company in the case of a sale or equity contribution
in respect of Qualified Capital Stock and by the Company and its Subsidiaries in
respect of an Asset Sale plus, in the case of an issuance of Qualified Capital
Stock upon any exercise, exchange or conversion of securities (including
options, warrants, rights and convertible or exchangeable debt) of the Company
that were issued for cash on or after the Issue Date, the amount of cash
originally received by the Company upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt) less,
in each case, the sum of all payments, fees, commissions, and customary and
reasonable expenses (including, without limitation, the fees and
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<PAGE>
expenses of legal counsel and investment banking fees and expenses) incurred in
connection with such Asset Sale or sale or equity contribution in respect of
Qualified Capital Stock, and, in the case of an Asset Sale only, less the amount
(estimated reasonably and in good faith by the Company) of income, franchise,
sales and other applicable taxes required to be paid by the Company or any of
its respective Subsidiaries in connection with such Asset Sale and 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 such Asset Sale and
retained by the Company or any such Subsidiary after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification agreements associated with such Asset Sale.
"New Credit Facility" means the Credit Agreement dated as of the
date hereof by and among the Company, NationsBanc Capital Markets, Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation, as arrangers, certain
lending parties thereto and NationsBank of Texas, N.A., as administrative agent,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, as such credit agreement and/or
related documents may be amended, restated, supplemented, renewed, replaced or
otherwise modified from time to time whether or not with the same agent,
trustee, representative lenders or holders, and, subject to the proviso to the
next succeeding sentence, irrespective of any changes in the terms and
conditions thereof. Without limiting the generality of the foregoing, the term
"New Credit Facility" shall include any amendment, amendment and restatement,
renewal, extension, restructuring, supplement or modification to any New Credit
Facility and all refundings, refinancings and replacements of any New Credit
Facility, including any agreement (i) extending the maturity of any Indebtedness
incurred thereunder or contemplated thereby, (ii) adding or deleting borrowers
or guarantors thereunder, so long as borrowers and issuers include one or more
of the Company and its Subsidiaries and their respective successors and assigns,
or (iii) increasing the amount of Indebtedness incurred thereunder or available
to be borrowed thereunder, provided that if on the date any such Indebtedness is
incurred it would not be permitted under Section 4.11, such Indebtedness shall
not constitute Senior Debt.
"Offering Memorandum" means the final Offering Memorandum of the
Company dated September 12, 1997, relating to the offering of the Initial
Securities in a transaction exempt from the requirements of Section 5 of the
Securities Act.
"Officer" means, with respect to the Company or any Guarantor,
the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Treasurer, the Controller, or the Secretary of the
Company or such Guarantor.
"Officers' Certificate" means, with respect to the Company or any
Guarantor, a certificate signed by two Officers or by an Officer and an
Assistant Secretary of the Company or such Guarantor and otherwise complying
with the requirements of Sections 13.4 and 13.5.
"Opinion of Counsel" means a written opinion from legal counsel
who is reasonably acceptable to the Trustee complying with the requirements of
Sections 13.4 and 13.5.
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"Paying Agent" shall have the meaning specified in Section 2.3.
"Payment Default" shall have the meaning specified in Section
12.2.
"Payment Notice" shall have the meaning specified in Section
12.2.
"Permitted Indebtedness" means any of the following:
(a) the Company and the Guarantors may incur Indebtedness
evidenced by the Securities and represented by this Indenture up to the amounts
specified therein as of the date thereof;
(b) the Company and its Subsidiaries, as applicable, may
incur Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund, Indebtedness or
Disqualified Capital Stock that was permitted by this Indenture to be incurred;
(c) The Company and its Subsidiaries may incur Indebtedness
solely in respect of performance bonds, workers' compensation claims, payment
obligations in connection with self-insurance and other similar requirements (to
the extent that such incurrence does not result in the incurrence of any
obligation to repay any obligation relating to borrowed money of others) in the
ordinary course of business in accordance with customary industry practices, in
amounts and for the purposes customary in the Company's industry;
(d) The Company may incur Indebtedness to any Subsidiary
Guarantor, and any Subsidiary Guarantor may incur Indebtedness to any other
Subsidiary Guarantor or to the Company; provided, that, in the case of
Indebtedness of the Company, such obligations shall be unsecured and
subordinated in all respects to the Company's obligations pursuant to the
Securities and the date of any event that causes such Subsidiary Guarantor to no
longer be a Subsidiary Guarantor shall be an Incurrence Date;
(e) The Company and its Subsidiaries may incur Indebtedness
with respect to Interest Swap and Hedging Obligations; provided, however, that
such Interest Swap and Hedging Obligations are entered into to protect the
Company and its Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with this Indenture to the extent the notional principal
amount of such Interest Swap and Hedging Obligations does not exceed the
principal amount of the Indebtedness to which such Interest Swap and Hedging
Obligations relate or does not increase the Indebtedness of the Company and its
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of customary fees, indemnities and
compensation payable thereunder;
(f) The Company and its Subsidiaries may incur 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,
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however, that such Indebtedness is extinguished within five Business Days of
incurrence, or from endorsements of instruments for deposit in the ordinary
course of business;
(g) Other Indebtedness of the Company outstanding on the
Issue Date;
(h) The Company and its Subsidiaries may incur Indebtedness
arising from agreements providing for indemnification, adjustment of purchase
price or similar obligations, or from guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any such
Subsidiary pursuant to such agreements, in any case incurred in connection with
the disposition of any business, assets or Subsidiary of the Company to the
extent none of the foregoing results in Indebtedness required to be reflected as
indebtedness on the balance sheet of the Company or any such Subsidiary in
accordance with GAAP and are limited in aggregate amount to not more than 25% of
the fair market value of such business, assets or Subsidiary so disposed of; and
(i) A Receivables Subsidiary may incur Indebtedness in a
Qualified Receivables Transaction that is without recourse to the Company or to
any Subsidiary of the Company or their assets (other than such Receivables
Subsidiary and its assets), and is not guaranteed by any such person and is not
otherwise such person's legal liability.
"Permitted Investment" means (a) Investments by the Company or
any Guarantor in any person that is or immediately after such Investment becomes
a Guarantor, or immediately after such Investment merges or consolidates into
the Company or any Guarantor in compliance with the terms of this Indenture,
provided that such Person is engaged in all material respects in a Related
Business; (b) Investments in the Company by any Guarantor; provided that in the
case of Indebtedness constituting any such Investment, such Indebtedness shall
be unsecured and subordinated in all respects to the Company's obligations under
the Securities; (c) Interest Swap and Hedging Obligations entered into in the
ordinary course of the Company's or its Subsidiaries' businesses and otherwise
in compliance with this Indenture; (d) Investments in securities of trade
creditors or customers received in settlement of obligations that arose in the
ordinary course of business or pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (e) Investments made by the Company or any of its Subsidiaries as a
result of consideration received in connection with an Asset Sale in compliance
with clause (2) of the first paragraph of Section 4.14, or not constituting an
Asset Sale pursuant to clause (x) of the second paragraph of Section 4.14; (f)
Investments in the form of promissory notes of members of the Company's
management not to exceed $2 million in principal amount at any time outstanding
solely in consideration of the purchase by such persons of Qualified Capital
Stock of the Company; (g) any Investment by the Company or any Guarantor in a
Receivables Subsidiary or any Investment by a Receivables Subsidiary in any
other person in connection with a Qualified Receivables Transaction; provided,
that the foregoing Investment is in the form of a note that the Receivables
Subsidiary or other person is required to repay as soon as practicable from
available cash collections less amounts required to be established as reserves
pursuant to contractual arrangements with entities that are not Affiliates
entered into as part of a Qualified Receivables Transaction; (h) Investments by
the
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Company outstanding on the Issue Date; (i) agreements permitted pursuant to
clause (h) of the definition of "Permitted Indebtedness"; (j) guarantees of the
Company or any of its Subsidiaries entered into in the ordinary course of
business and otherwise in compliance with this Indenture, guarantying
obligations in an aggregate amount not in excess of $1 million at any time
outstanding; (k) acquisitions by the Company of assets, Equity Interests or
other securities for consideration consisting solely of Qualified Capital Stock
of the Company; and (l) additional Investments not to exceed $4 million at any
time outstanding.
"Permitted Lien" means (a) Liens existing on the Issue Date after
giving effect to the Transactions; (b) Liens securing the Securities; (c) Liens
securing Indebtedness of a Person existing at the time such Person becomes a
Subsidiary or is merged with or into the Company or a Subsidiary or Liens
securing Indebtedness incurred in connection with an Acquisition, provided that
such Liens were in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof, and do not extend to
any other assets; (d) Liens arising from Purchase Money Indebtedness permitted
to be incurred under clause (a) of the second paragraph of Section 4.11,
provided such Liens relate solely to the property which is subject to such
Purchase Money Indebtedness; (e) Liens securing Refinancing Indebtedness
incurred to refinance any Indebtedness permitted under this Indenture; (f) Liens
imposed by governmental authorities for taxes, assessments or other charges or
claims either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or any of its Subsidiaries shall have
set aside on its books such reserves as may be required pursuant to GAAP; (g)
statutory Liens of landlords, carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other like Liens arising by operation of law in the
ordinary course of business for sums not yet delinquent for a period of more
than 90 days or being contested in good faith, if such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made in respect thereof; (h) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security or similar obligations, including
any Lien securing letters of credit issued in the ordinary course of business in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money) incurred in the ordinary
course of business; (i) judgment Liens not giving rise to an Event of Default so
long as any such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceedings may be
initiated shall not have expired; (j) easements, rights-of-way, zoning
restrictions, minor defects or irregularities with title and other similar
charges or encumbrances in respect of real property not materially detracting
from the value of the property subject thereto and not interfering in any
material respect with the ordinary conduct of the business of the Company or any
of its Subsidiaries; (k) any interest or title of a lessor under any lease,
whether or not characterized as capital or operating; provided that such Liens
do not extend to any property or assets which is not leased property subject to
such lease; (l) Liens upon specific items of inventory or other goods and
proceeds of any person securing such person's obligations in respect of banker's
acceptances issued or created for the account of such
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<PAGE>
person to facilitate the purchase, shipment or storage of such inventory or
other goods in the ordinary course of business; (m) Liens in favor of the
Company; (n) Liens encumbering deposits made to secure obligations arising in
the ordinary course of business from statutory, regulatory, contractual, or
warranty requirements of the Company or any of its Subsidiaries, including
rights of offset and set-off; (o) leases or subleases granted to others not
interfering in any material respect with the business of the Company or its
Subsidiaries; (p) Liens arising out of consignment or similar arrangements for
the sale of goods entered into by the Company or any of its Subsidiaries in the
ordinary course of business; (q) Liens on assets of a Receivables Subsidiary
incurred in connection with a Qualified Receivables Transaction; and (r) Liens
solely on property of Subsidiaries that are not Guarantors arising from
Indebtedness permitted to be incurred pursuant to clause (B) of the first
paragraph of Section 4.11.
"Person" or "person" means any corporation, individual, limited
liability company, joint stock company, joint venture, partnership, limited
liability company, unincorporated association, governmental regulatory entity,
country, state or political subdivision thereof, trust, municipality or other
entity.
"Preferred Stock" means an Equity Interest of any class or
classes of a Person (however designated) which is preferred as to payments of
dividends, or as to distributions upon any liquidation or dissolution, over
Equity Interests of any other class of such Person.
"principal" of any Indebtedness means the principal of such
Indebtedness.
"property" means any right or interest in or to property or
assets of any kind whatsoever, whether real, personal or mixed and whether
tangible, intangible, contingent, direct or indirect.
"Purchase Agreement" means the Purchase Agreement dated September
11, 1997 by and between the Company and the Initial Purchasers, as such
agreement may be amended, modified or supplemented from time to time in
accordance with the terms thereof.
"Purchase Money Indebtedness" of any person means any
Indebtedness of such person to any seller or other person incurred to finance
the acquisition (including in the case of a Capitalized Lease Obligation, the
lease) of any real or personal tangible property acquired after the Issue Date
which, in the reasonable good faith judgment of the Board of Directors of the
Company, is directly related to a Related Business of the Company and which is
incurred within 180 days of such acquisition and is secured only by the assets
so financed.
"Qualified Capital Stock" means any Capital Stock of the Company
that is not Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption,
retirement, repurchase or other acquisition of Capital Stock or Indebtedness of
the Company with the Net Cash Proceeds received by the Company from the
substantially concurrent sale of Qualified
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Capital Stock (other than to a Subsidiary) or any exchange of Qualified Capital
Stock for any Capital Stock or Indebtedness of the Company.
"Qualified Receivables Transaction" means any transaction or
series of transactions that may be entered into by the Company, any Guarantor or
any Receivables Subsidiary pursuant to which the Company, any Guarantor or any
Receivables Subsidiary may sell, convey or otherwise transfer to, or grant a
security interest in for the benefit of, (a) a Receivables Subsidiary (in the
case of a transfer or encumbrancing by the Company or any Guarantor) and (b) any
other person (solely in the case of a transfer or encumbrancing by a Receivables
Subsidiary), solely accounts receivable (whether now existing or arising in the
future) of the Company or any Guarantor which arose in the ordinary course of
business of the Company or any Guarantor, and any assets related thereto,
including, without limitation, all collateral securing such accounts receivable,
all contracts and all guarantees or other obligations in respect of such
accounts receivable, proceeds of such accounts receivable and other assets which
are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Subsidiary of the
Company which engages in no activities other than in connection with the
financing of accounts receivable and which is designated by the Board of
Directors of the Company (as provided below) as a Receivables Subsidiary (a) no
portion of any Indebtedness or any other obligations (contingent or otherwise)
of which (i) is guaranteed by the Company or any other Subsidiary of the Company
(excluding guarantees of obligations (other than the principal of, and interest
on, Indebtedness) pursuant to representations, warranties, covenants and
indemnities entered into in the ordinary course of business in connection with a
Qualified Receivables Transaction), (ii) is recourse to or obligates the Company
or any other Subsidiary of the Company in any way other than pursuant to
representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction, or (iii) subjects any property or asset of the Company or any other
Subsidiary of the Company, directly or indirectly, contingently or otherwise, to
the satisfaction thereof, other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business in
connection with a Qualified Receivables Transaction, (b) with which neither the
Company nor any other Subsidiary of the Company has any material contract,
agreement, arrangement or understanding other than those customarily entered
into in connection with Qualified Receivables Transactions, and (c) with which
neither the Company nor any of its other Subsidiaries has any obligation to
maintain or preserve such Subsidiary's financial condition or cause such
Subsidiary to achieve certain levels of operating results. Any such designation
by the Board of Directors of the Company shall be evidenced to the Trustee by
the filing with the Trustee a certified copy of the resolution of the Board of
Directors of the Company giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"Record Date" means a Record Date specified in the Securities
whether or not such Record Date is a Business Day, or, if applicable, as
specified in Section 2.12.
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"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to Article III of
this Indenture and Paragraph 5 in the form of Security attached hereto as
Exhibit A.
"Redemption Price," when used with respect to any Security to be
redeemed, means the redemption price for such redemption pursuant to Paragraph 5
in the form of Security attached hereto as Exhibit A, which shall include,
without duplication, in each case, accrued and unpaid interest and Liquidated
Damages, if any, to the Redemption Date.
"Reference Period" with regard to any Person means the four full
fiscal quarters (or such lesser period during which such Person has been in
existence) ended immediately preceding any date upon which any determination is
to be made pursuant to the terms of the Securities or this Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified
Capital Stock (a) issued in exchange for, or the proceeds from the issuance and
sale of which are used substantially concurrently to repay, redeem, defease,
refund, refinance, discharge or otherwise retire for value, in whole or in part,
or (b) constituting an amendment, extension, modification or supplement to any
scheduled principal payment (or in the case of Disqualified Capital Stock, any
payment) of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of reasonable and customary fees and expenses incurred in connection
with the Refinancing) the lesser of (i) the principal amount or, in the case of
Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so Refinanced and (ii) if such Indebtedness being
Refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such Refinancing;
provided, that (A) such Refinancing Indebtedness of any Subsidiary of the
Company shall only be used to Refinance outstanding Indebtedness or Disqualified
Capital Stock of such Subsidiary, (B) such Refinancing Indebtedness shall (x)
not have an Average Life or final maturity shorter than the Indebtedness or
Disqualified Capital Stock to be so refinanced at the time of such Refinancing
and (y) in all respects, be no less subordinated or junior, if applicable, to
the rights of Holders of the Securities than was the Indebtedness or
Disqualified Capital Stock to be refinanced, and (C) except for Refinancing
Indebtedness incurred to refinance any Senior Debt incurred in accordance with
this Indenture (with respect to which this clause (C) shall be inapplicable),
such Refinancing Indebtedness shall be secured in a manner no more adverse to
the Holders of the Securities than the terms of the Liens securing such
refinanced Indebtedness, provided that the Indebtedness secured is not increased
and the Lien is not extended to any additional assets of property.
"Registrar" shall have the meaning specified in Section 2.3.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the date hereof by and between the Initial Purchasers and
the Company, as such agreement
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may be amended, modified or supplemented from time to time in accordance with
the terms thereof.
"Related Business" means the business conducted (or proposed to
be conducted) by the Company and its Subsidiaries as of the Issue Date and any
and all businesses that in the good faith judgment of the Board of Directors of
the Company are materially related businesses.
"Restricted Investment" means, in one or a series of related
transactions, any Investment, other than investments in Cash Equivalents and
other than Permitted Investments.
"Restricted Payment" means, with respect to any person, (a) the
declaration or payment of any dividend or other distribution in respect of
Equity Interests of such person or any parent or Subsidiary of such person, (b)
any payment on account of the purchase, redemption or other acquisition or
retirement for value of Equity Interests of such person or any Subsidiary or
parent of such person, (c) other than with the proceeds from the substantially
concurrent sale of, or in exchange for, Refinancing Indebtedness, any purchase,
redemption, or other acquisition or retirement for value of, or any payment in
respect of any amendment of the terms of or any defeasance of, any Subordinated
Indebtedness, directly or indirectly, by such person or a parent or Subsidiary
of such person prior to the scheduled maturity, any scheduled repayment of
principal, or scheduled sinking fund payment, as the case may be, of such
Indebtedness and (d) any Restricted Investment by such person; provided,
however, that the term "Restricted Payment" does not include (i) any dividend,
distribution or other payment on or with respect to or with Equity Interests of
an issuer to the extent payable solely in or exchanged solely for shares of
Qualified Capital Stock of such issuer; (ii) any dividend, distribution or other
payment to the Company, or to any of its Subsidiary Guarantors, by the Company
or any of its Subsidiaries; (iii) any dividend, distribution or other payment to
a Foreign Subsidiary by a Foreign Subsidiary that is not a Guarantor; (iv)
redemptions of Doskocil Series C Preferred Stock (or any Capital Stock of the
Company into or for which such Doskocil Series C Preferred Stock may be
converted or exchanged in compliance with this Indenture) in an aggregate amount
not to exceed $2.4 million; provided that, immediately after giving effect to
any such redemption on a pro forma basis, the Company could incur at least $1.00
of Indebtedness pursuant to the Debt Incurrence Ratio in Section 4.11; or (v)
payments made pursuant to the Transactions, including, without limitation,
payments made after consummation of the Merger to shareholders of the Company
pursuant to the Transactions.
"Restricted Security" means a Security, unless or until it has
been (i) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering it or (ii) distributed to
the public pursuant to Rule 144 (or any similar provision then in force) under
the Securities Act; provided, that in no case shall an Exchange Security issued
in accordance with this Indenture and the terms and provisions of the
Registration Rights Agreement be a Restricted Security.
"S&P" means Standard & Poor's, a division of The McGraw Hill
Companies, and its successors.
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"SEC" means the Securities and Exchange Commission.
"Second Securityholders Agreement" means the Amended and Restated
Securityholders Agreement, dated as of September 19, 1997, by and among
Enterprise, Westar, HBI, the Company and certain securityholders of the Company
named therein.
"Securities" means, collectively, the Initial Securities and,
when and if issued as provided in the Registration Rights Agreement, the
Exchange Securities.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with
respect to the Securities in global form, or any successor entity thereto.
"Securityholder" or "Holder" means the Person in whose name a
Security is registered on the Registrar's books.
"Senior Debt" means the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a
bankruptcy petition at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on parity with or
subordinated in right of payment to the Securities. Without limiting the
generality of the foregoing, "Senior Debt" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (y) all monetary
obligations (including guarantees thereof) of every nature of the Company under
the New Credit Facility, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities, and (z) all Interest Swap and Hedging Obligations
(including guarantees thereof), in each case whether outstanding on the Issue
Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall
not include (i) any Indebtedness of the Company to a Subsidiary of the Company,
(ii) Indebtedness of the Company or any of its Subsidiaries to any shareholder
(other than a parent corporation) of the Company, (iii) Indebtedness to, or
guaranteed by the Company or any of its Subsidiaries for the benefit of, any
director, officer or employee of the Company or any Subsidiary of the Company
(including, without limitation, amounts owed for compensation), (iv)
Indebtedness and other amounts incurred to trade creditors in connection with
obtaining goods, materials or services, (v) Indebtedness represented by
Disqualified Capital Stock, (vi) any liability for federal, state, local or
other taxes owed or owing by the Company, (vii) any Indebtedness incurred in
violation of this Indenture and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of the
Company. "Senior Debt," when used with respect to a Guarantor, shall have
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a meaning substantially identical to that applied to the Indebtedness of the
Company (including any guarantees issued by such Guarantor).
"Significant Subsidiary" shall have the meaning provided under
Regulation S-X of the Securities Act, as in effect on the Issue Date.
"Special Record Date" for payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 2.12.
"Stated Maturity" means September 15, 2007.
"Subordinated Indebtedness" means Indebtedness of the Company or
a Guarantor that is subordinated in right of payment by its terms or the terms
of any document or instrument relating thereto to the Securities or such
Guarantee, as applicable, in any respect or has a maturity after the Stated
Maturity.
"Subsidiary," with respect to any person, means (i) a corporation
a majority of whose Equity Interests with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such person, by such person and one or more Subsidiaries of such person or by
one or more Subsidiaries of such person, (ii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest,
or (iii) a partnership in which such person or a Subsidiary of such person is,
at the time, a general partner. Notwithstanding the foregoing, an Unrestricted
Subsidiary shall not be a Subsidiary of the Company or of any Subsidiary of the
Company. Unless the context requires otherwise, Subsidiary means each direct and
indirect Subsidiary of the Company.
"TIA" means the Trust Indenture Act of 1939, as amended, (15 U.S.
Code (S)(S) 77aaa-77bbbb) as in effect on the date of the execution of this
Indenture, except as provided in Section 9.3.
"Transactions" shall have the meaning ascribed thereto in the
Offering Memorandum.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.6.
"Treasury Rate" means the yield to maturity at the time of
computation of U.S. Treasury securities with a constant maturity (as complied
and published in the most recent Federal Reserve Release H.15 (519) which has
become publicly available at least two Business Days prior to the applicable
Redemption Date (or, if such statistical release is no longer published, any
publicly available source or similar market data)) closest to the period from
the applicable Redemption Date to September 15, 2002, provided, however, that if
the period from
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such Redemption Date to September 15, 2002, is not equal to the constant
maturity of a U.S. Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of one year) from the weekly average yields of U.S. Treasury
securities for which such yields are given, except that if the period from the
applicable Redemption Date to September 15, 2002, is less than one year, the
weekly average yield on actually traded U.S. Treasury securities adjusted to a
constant maturity of one year shall be used.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
division (or any successor group) of the Trustee or any other officer of the
Trustee customarily performing functions similar to those performed by the
Persons who at that time shall be such officers, and also means, with respect to
a particular corporate trust matter, any other officer of the Trustee to whom
such trust matter is referred because of his knowledge of and familiarity with
the particular subject.
"Unrestricted Subsidiary" means any subsidiary of the Company
that does not own any Capital Stock of, or own or hold any Lien on any property
of, the Company or any other Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided, that (i) such subsidiary shall not
engage, to any substantial extent, in any line or lines of business activity
other than a Related Business, (ii) neither immediately prior thereto nor after
giving pro forma effect to such designation would there exist a Default or Event
of Default and (iii) immediately after giving pro forma effect thereto, the
Company could incur at least $1.00 of Indebtedness pursuant to the Debt
Incurrence Ratio in Section 4.11. The Board of Directors of the Company may
designate any Unrestricted Subsidiary to be a Subsidiary, provided that (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
Debt Incurrence Ratio in Section 4.11. Each such designation shall be evidenced
by filing with the Trustee a certified copy of the resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"U.S. Government Obligations" means direct non-callable
obligations of, or noncallable obligations guaranteed by, the United States of
America for the payment of which obligation or guarantee the full faith and
credit of the United States of America is pledged.
"Westar" means Westar Capital, a California limited partnership,
HBI and their respective affiliates.
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"Wholly-owned Subsidiary" means a Subsidiary all the Equity Interests
of which are owned by the Company or one or more Wholly-owned Subsidiaries of
the Company, other than directors' qualifying shares or an immaterial amount of
shares to the extent required to be owned by other persons pursuant to
applicable law.
SECTION 1.2. Incorporation by Reference of TIA.
---------------------------------
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture securityholder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, each
Guarantor and any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them thereby.
SECTION 1.3. 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 words in
the plural include the singular;
(5) provisions apply to successive events and transactions;
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(6) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(7) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating.
---------------
The Securities and the Trustee's certificate of authentication, in
respect thereof, shall be substantially in the form of Exhibit A hereto, which
Exhibit is part of this Indenture. The Securities may have notations, legends
or endorsements required by law, stock exchange rule or usage. The Company
shall approve the form of the Securities and any notation, legend or endorsement
on them. Any such notations, legends or endorsements not contained in the form
of Security attached as Exhibit A hereto shall be delivered in writing to the
Trustee. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the forms of Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
SECTION 2.2. Execution and Authentication.
----------------------------
Two Officers shall sign, or one Officer shall sign and one Officer
shall attest to, the Security for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless and the
Company shall nevertheless be bound by the terms of the Securities and this
Indenture.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security but
such signature shall be conclusive evidence that the Security has been
authenticated pursuant to the terms of this Indenture.
The Trustee shall authenticate Initial Securities for original issue
in the aggregate principal amount of up to $85,000,000 and shall authenticate
Exchange Securities for original issue in the aggregate principal amount of up
to $85,000,000, in each case upon a written order of the Company in the form of
an Officers' Certificate; provided that such Exchange Securities
25
<PAGE>
shall be issuable only upon the valid surrender for cancellation of Initial
Securities of a like aggregate principal amount in accordance with the
Registration Rights Agreement. The Officers' Certificate shall specify the
amount of Securities to be authenticated and the date on which the Securities
are to be authenticated. The aggregate principal amount of Securities
outstanding at any time may not exceed $85,000,000, except as provided in
Section 2.7. Upon the written order of the Company in the form of an Officers'
Certificate, the Trustee shall authenticate Securities in substitution of
Securities originally issued to reflect any name change of the Company.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company, any Affiliate of the Company,
or any of their respective Subsidiaries.
Securities shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiples thereof.
SECTION 2.3. Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where Securities may be presented for
registration of transfer or for exchange ("Registrar"), and an office or agency
where Securities may be presented for payment ("Paying Agent"), and where
notices and demands to or upon the Company in respect of the Securities may be
served. The Company may act as Registrar or Paying Agent, except that, for the
purposes of Articles III, VIII, X, and Section 4.14 hereof and as otherwise
specified in this Indenture, neither the Company nor any Affiliate of the
Company shall act as Paying Agent. The Registrar shall keep a register of the
Securities and of their transfer and exchange. The Company may have 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 hereby initially appoints the Trustee as Registrar
and Paying Agent, and by its acknowledgement and acceptance on the signature
page hereto, the Trustee hereby initially agrees so to act.
The Company shall enter into an appropriate written agency agreement
with any Agent (including the Paying Agent) not a party to this Indenture, which
agreement shall implement the provisions of this Indenture that relate to such
Agent, and shall furnish a copy of each such agreement to the Trustee. The
Company shall promptly notify the Trustee in writing of the name and address of
any such Agent. If the Company fails to maintain a Registrar or Paying Agent,
the Trustee shall act as such.
The Company initially appoints The Depository Trust Company ("DTC"),
to act as Depositary with respect to the Global Securities.
26
<PAGE>
The Company initially appoints the Trustee to act as Securities
Custodian with respect to the Global Securities.
Upon the occurrence of an Event of Default described in Section
6.1(vi) or (vii) hereof, the Trustee shall, or upon the occurrence of any other
Event of Default by notice to the Company, the Registrar and the Paying Agent,
the Trustee may assume the duties and obligations of the Registrar and the
Paying Agent hereunder.
SECTION 2.4. Paying Agent to Hold Assets in Trust.
------------------------------------
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, premium, if any, or interest (or Liquidated Damages, if any) on,
the Securities (whether such assets have been distributed to it by the Company
or any other obligor on the Securities), and shall notify the Trustee in writing
of any Default in making any such payment. If either of the Company or a
Subsidiary of the Company acts as Paying Agent, it shall segregate such assets
and hold them as a separate trust fund for the benefit of the Holders or the
Trustee. The Company at any time may require a Paying Agent to distribute all
assets held by it to the Trustee and account for any assets disbursed and the
Trustee may at any time during the continuance of any payment Default or any
Event of Default, upon written request to a Paying Agent, require such Paying
Agent to distribute all assets held by it to the Trustee and to account for any
assets distributed. Upon distribution to the Trustee of all assets that shall
have been delivered by the Company to the Paying Agent, the Paying Agent (if
other than the Company) shall have no further liability for such assets.
SECTION 2.5. Securityholder Lists.
--------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA (S)312(a). If the Trustee or any
Paying Agent is not the Registrar, the Company shall furnish to the Trustee on
or before the third Business Day preceding each Interest Payment Date and at
such other times as the Trustee or any such Paying Agent may request in writing
a list in such form and as of such date as the Trustee or any such Paying Agent
reasonably may require of the names and addresses of Holders and the Company
shall otherwise comply with TIA (S)312(a).
SECTION 2.6. Transfer and Exchange.
---------------------
(a) Transfer and Exchange of Definitive Securities. When
----------------------------------------------
Definitive Securities are presented to the Registrar with a request:
(x) to register the transfer of such Definitive Securities;
or
27
<PAGE>
(y) to exchange such Definitive Securities for an equal
principal amount of Definitive Securities of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its reasonable requirements for such transaction are met; provided, however,
that the Definitive Securities surrendered for registration of transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company and
the Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing; and
(ii) in the case of Transfer Restricted Securities that are
Definitive Securities, shall be accompanied by the following additional
information and documents, as applicable:
(A) if such Transfer Restricted Security is being delivered
to the Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that
effect (in substantially the form set forth on the reverse of the
Security); or
(B) if such Transfer Restricted Security is being
transferred to a "qualified institutional buyer" (within the meaning
of Rule 144A promulgated under the Securities Act) that is aware that
any sale of Securities to it will be made in reliance on Rule 144A
under the Securities Act and that is acquiring such Transfer
Restricted Security for its own account or for the account of another
such "qualified institutional buyer," a certification from such Holder
to that effect (in substantially the form set forth on the reverse of
the Security); or
(C) if such Transfer Restricted Security is being
transferred pursuant to an exemption from registration in accordance
with Rule 144, or outside the United States in an offshore transaction
in compliance with Rule 904 under the Securities Act, or pursuant to
an effective registration statement under the Securities Act, a
certification from such Holder to that effect (in substantially the
form set forth on the reverse of the Security); or
(D) if such Transfer Restricted Security is being
transferred in reliance on another exemption from the registration
requirements of the Securities Act and with all applicable securities
laws of the States of the United States, a certification from such
Holder to that effect (in substantially the form set forth on the
reverse of the Security) and an Opinion of Counsel reasonably
acceptable to the Company and to the Registrar to the effect that such
transfer is in compliance with the Securities Act.
28
<PAGE>
(b) Restrictions on Transfer of a Definitive Security for a
-------------------------------------------------------
Beneficial Interest in a Global Security. A Definitive Security may not be
- ----------------------------------------
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Trustee, together with:
(i) if such Definitive Security is a Transfer Restricted
Security, certification, substantially in the form set forth on the reverse
of the Security, that such Definitive Security is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act; and
(ii) whether or not such Definitive Security is a Transfer
Restricted Security, written instructions directing the Trustee to make, or
to direct the Securities Custodian to make, an endorsement on the Global
Security to reflect an increase in the aggregate principal amount of the
Securities represented by the Global Security,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Securities are then outstanding, the
Company shall issue and the Trustee shall authenticate a new Global Security in
the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The
------------------------------------------
transfer and exchange of Global Securities or beneficial interests therein shall
be effected through the Depositary, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the procedures
of the Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global Security
------------------------------------------------------
for a Definitive Security.
- -------------------------
(i) Any Person having a beneficial interest in a Global
Security may upon request exchange such beneficial interest for a
Definitive Security. Upon receipt by the Trustee of written instructions or
such other form of instructions as is customary for the Depositary, from
the Depositary or its nominee on behalf of any Person having a beneficial
interest in a Global Security, and upon receipt by the Trustee of a written
instruction or such other form of instructions as is customary for the
Depositary or the Person designated by the Depositary as having such a
beneficial interest in a Transfer Restricted Security only, the following
additional information and documents (all of which may be submitted by
facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the beneficial owner, a
certification from
29
<PAGE>
the transferor to that effect (in substantially the form set forth on
the reverse of the Security); or
(B) if such beneficial interest is being transferred to a
"qualified institutional buyer" (within the meaning of Rule 144A
promulgated under the Securities Act), that is aware that any sale of
Securities to it will be made in reliance on Rule 144A under the
Securities Act and that is acquiring such beneficial interest in the
Transfer Restricted Security for its own account or the account of
another such "qualified institutional buyer", a certification to that
effect from the transferor (in substantially the form set forth on the
reverse of the Security); or
(C) if such beneficial interest is being transferred
pursuant to an exemption from registration in accordance with Rule
144, or outside the United States in an offshore transaction in
compliance with Rule 904 under the Securities Act, or pursuant to an
effective registration statement under the Securities Act, a
certification from the transferor to that effect (in substantially the
form set forth on the reverse of the Security); or
(D) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements of
the Securities Act and in accordance with all applicable securities
laws of the States of the United States, a certification to that
effect from the transferor (in substantially the form set forth on the
reverse of the Security) and an Opinion of Counsel from the transferee
or transferor reasonably acceptable to the Company and to the
Registrar to the effect that such transfer is in compliance with the
Securities Act,
then the Trustee or the Securities Custodian, at the direction of the
Trustee, will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian,
the aggregate principal amount of the Global Security to be reduced and,
following such reduction, the Company will execute and, upon receipt of an
authentication order in the form of an Officers' Certificate, the Trustee's
authenticating agent will authenticate and deliver to the transferee a
Definitive Security.
(ii) Definitive Securities issued in exchange for a
beneficial interest in a Global Security pursuant to this Section 2.6(d)
shall be registered in such names and in such authorized denominations as
the Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Definitive Securities to the persons in whose names such
Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global
-----------------------------------------------
Securities. Notwithstanding any other provisions of this Indenture (other than
- ----------
the provisions set forth in
30
<PAGE>
subsection (f) of this Section 2.6), a Global Security may not be transferred as
a whole except by the Depositary to a nominee of the Depositary or by a nominee
of the Depositary to the Depositary or another nominee of the Depositary or by
the Depositary or any such nominee to a successor Depositary or a nominee of
such successor Depositary.
(f) Authentication of Definitive Securities in Absence of
-----------------------------------------------------
Depositary. If at any time:
- ----------
(i) the Depositary for the Securities notifies the Company
that the Depositary is unwilling or unable to continue as Depositary for
the Global Securities and a successor Depositary for the Global Securities
is not appointed by the Company within ninety days after delivery of such
notice; or
(ii) the Company, in its sole discretion, notifies the
Trustee in writing that it elects to cause the issuance of Definitive
Securities under this Indenture,
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Securities,
will, or its authenticating agent will, authenticate and deliver Definitive
Securities, in an aggregate principal amount equal to the principal amount of
the Global Securities, in exchange for such Global Securities.
(g) Legends.
-------
(i) Except as permitted by the following paragraph (ii),
each Security certificate evidencing the Global Securities and the
Definitive Securities (and all Securities issued in exchange therefor or
substitution thereof) shall bear a legend in substantially the following
form:
"THE NOTES (OR THEIR PREDECESSORS) EVIDENCED HEREBY WERE
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THE NOTES EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THE NOTES EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
NOTES EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
SUCH NOTES MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN
31
<PAGE>
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES
ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, OR (d) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS),
(2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTES
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Act or an effective
registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security that
is a Definitive Security, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a Definitive
Security that does not bear the legend set forth above and rescind any
restriction on the transfer of such Transfer Restricted Security; and
(B) any such Transfer Restricted Security represented by a
Global Security shall not be subject to the provisions set forth in
(i) above (such sales or transfers being subject only to the
provisions of Section 2.6(c) hereof); provided, however, that with
respect to any request for an exchange of a Transfer Restricted
Security that is represented by a Global Security for a Definitive
Security that does not bear a legend, which request is made in
reliance upon Rule 144, the Holder thereof shall certify in writing to
the Registrar that such request is being made pursuant to Rule 144
(such certification to be substantially in the form set forth on the
reverse of the Security).
(h) Cancellation and/or Adjustment of Global Security. At
-------------------------------------------------
such time as all beneficial interests in a Global Security have either been
exchanged for Definitive Securities, redeemed, repurchased or cancelled, such
Global Security shall be returned to or retained and cancelled by the Trustee.
At any time prior to such cancellation, if any beneficial interest in a Global
Security is exchanged for Definitive Securities, redeemed, repurchased or
cancelled, the principal amount of Securities represented by such Global
Security shall be
32
<PAGE>
reduced and an endorsement shall be made on such Global Security, by the Trustee
or the Securities Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) Obligations with respect to Transfers and Exchanges of
------------------------------------------------------
Definitive Securities.
- ---------------------
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee or any authenticating agent of
the Trustee shall authenticate Definitive Securities and Global Securities
at the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith (other than any such
transfer taxes, assessments, or similar governmental charge payable upon
exchanges or transfers pursuant to Section 2.2 (fourth paragraph), 2.10,
3.7, 4.14 (clause 8 of the sixth paragraph), 9.5, or 10.1 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange of (a) any Definitive Security selected for
redemption in whole or in part pursuant to Article III, except the
unredeemed portion of any Definitive Security being redeemed in part, or
(b) any Security for a period beginning 15 Business Days before the mailing
of a notice of an offer to repurchase pursuant to Article X or Section 4.14
hereof or redemption of Securities pursuant to Article III hereof and
ending at the close of business on the day of such mailing.
(iv) The Trustee shall have no obligation or duty to
monitor, determine or inquire as to compliance with any restrictions on
transfer imposed under this Indenture or under applicable law with respect
to any transfer of any interest in any Security (including any transfers
between or among Depositary participants or beneficial owners of interests
in any Global Security) other than to require delivery of such certificates
and other documentation or evidence as are expressly required by, and to do
so if and when expressly required by the terms of, this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements thereof.
SECTION 2.7. Replacement Securities.
----------------------
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims and submits an affidavit or other evidence, satisfactory to
the Trustee, to the Trustee to the effect that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Company, such Holder must provide an indemnity
bond or other indemnity, sufficient in the judgment of both the Company and the
Trustee, to protect the Company, the Trustee or any Agent from any loss which
any of them may suffer if a Security
33
<PAGE>
is replaced. The Company may charge such Holder for its reasonable, out-of-
pocket expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.8. Outstanding Securities.
----------------------
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee (including any Security represented by a
Global Security) except those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Security effected by
the Trustee hereunder and those described in this Section 2.8 as not
outstanding. A Security does not cease to be outstanding because the Company or
an Affiliate of the Company holds the Security, except as provided in Section
2.9 hereof.
If a Security is replaced pursuant to Section 2.7 hereof (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section 2.7
hereof.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than the Company or an Affiliate of the Company) holds cash sufficient to pay
all of the principal and interest and premium, if any, due on the Securities
payable on that date and payment of the Securities called for redemption is not
otherwise prohibited, then on and after that date such Securities cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.9. Treasury Securities.
-------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, amendment, supplement, waiver or
consent, Securities owned by the Company or Affiliates of the Company shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, amendment, supplement,
waiver or consent, only Securities that a Trust Officer of the Trustee knows are
so owned shall be disregarded.
SECTION 2.10. Temporary Securities.
--------------------
Until Definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of Definitive Securities but may
have variations that the Company reasonably and in good faith consider
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall, upon receipt of a written order of the
Company in the form of an Officers' Certificate, authenticate Definitive
Securities in exchange for temporary Securities. Until so exchanged, the
temporary Securities shall in all respects be
34
<PAGE>
entitled to the same benefits under this Indenture as permanent Securities
authenticated and delivered hereunder.
SECTION 2.11. Cancellation.
------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration, transfer, exchange or
payment. The Trustee, or at the direction of the Trustee, the Registrar or the
Paying Agent (other than the Company or an Affiliate of the Company), and no one
else, shall cancel and, without the written direction of the Company to the
contrary, shall dispose of all Securities surrendered for transfer, exchange,
payment or cancellation. Subject to Section 2.7 hereof, the Company may not
issue new Securities to replace Securities that have been paid or delivered to
the Trustee for cancellation. No Securities shall be authenticated in lieu of
or in exchange for any Securities cancelled as provided in this Section 2.11
hereof, except as expressly permitted in the form of Securities and as permitted
by this Indenture.
SECTION 2.12. Defaulted Interest.
------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Security (or one or more predecessor Securities) is registered
at the close of business on the Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date plus any interest
payable on the defaulted interest at the rate and in the manner provided in
Section 4.1 hereof and the Security (herein called "Defaulted Interest"), shall
forthwith cease to be payable to the registered holder on the relevant Record
Date, or, as applicable, the Special Record Date (as defined below), and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the persons in whose names the Securities (or their respective
predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee and
the Paying Agent in writing of the amount of Defaulted Interest proposed to
be paid on each Security and the date of the proposed payment, and at the
same time the Company shall deposit with the Paying Agent an amount of cash
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Paying
Agent for such deposit prior to the date of the proposed payment, such cash
when deposited to be held in trust for the benefit of the persons entitled
to such Defaulted Interest as provided in this clause (1). Thereupon the
Paying Agent shall fix a special record date for the payment of such
35
<PAGE>
Defaulted Interest (a "Special Record Date"), which shall be not more than
15 days, and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Paying Agent of
the notice of the proposed payment. The Paying Agent shall promptly notify
the Company and the Trustee of such Special Record Date and, in the name
and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to
be mailed, first-class postage prepaid, to each Holder at his address as it
appears in the Security register not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been mailed as
aforesaid, such Defaulted Interest shall be paid to the persons in whose
names the Securities (or their respective predecessor Securities) are
registered on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee and the Paying Agent of the proposed payment
pursuant to this clause, such manner shall be deemed practicable by the
Trustee and the Paying Agent.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon the registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 2.13. CUSIP Numbers.
-------------
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the "CUSIP" numbers.
36
<PAGE>
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption.
-------------------
Redemption of Securities, as permitted by the provisions of this
Indenture, shall be made in accordance with such provisions and this Article
III. The Company shall not have the right to redeem any Securities prior to
September 15, 2002, other than as provided in the next two following paragraphs
and Paragraph 5 of the Securities. On or after September 15, 2002, the Company
shall have the right to redeem all or any part of the Securities for cash at the
Redemption Prices specified in the form of Security attached as Exhibit A set
forth therein in Paragraph 5 thereof, in each case (subject to the right of
Holders of record on a Record Date to receive interest due on an Interest
Payment Date that is on or prior to such Redemption Date, and subject to the
provisions set forth in Section 3.5), including accrued and unpaid interest and
Liquidated Damages, if any, thereon to the Redemption Date.
Notwithstanding the foregoing, until September 15, 2000, upon an
Initial Public Equity Offering of common stock for cash of the Company, up to
35% of the aggregate principal amount of the Securities originally outstanding
may be redeemed at the option of the Company within 90 days of such Initial
Public Equity Offering, on not less than 30 days, but not more than 60 days,
notice to each holder of the Securities to be redeemed, with cash from the Net
Cash Proceeds of such Initial Public Equity Offering, at a redemption price
equal to 1101/8% of principal, (subject to the right of Holders of record on a
Record Date to receive interest due on an Interest Payment Date that is on or
prior to such Redemption Date) together with accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption; provided, however, that
at least 65% of the aggregate principal amount of the Securities originally
outstanding remain outstanding immediately following such redemption.
At any time on or prior to September 15, 2002, the Securities may also
be redeemed in whole (but not in part) at the option of the Company upon the
occurrence of a Change of Control Redemption Event on not less than 15 days, but
not more than 30 days, notice (but in no event shall any such redemption occur
more than 45 Business Days after the occurrence of such Change of Control
Redemption Event) to each Holder of Securities, at a redemption price equal to
100% of the principal amount thereof, plus the Applicable Premium as of, and
accrued and unpaid interest and Liquidated Damages, if any, to the Redemption
Date (subject to the right of Holders of record on a Record Date to receive
interest due on an Interest Payment Date that is on or prior to such Redemption
Date).
Except as provided in this paragraph and Paragraph 5 of the
Securities, the Securities may not otherwise be redeemed at the option of the
Company.
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SECTION 3.2. Notices to Trustee.
------------------
If the Company elects to redeem Securities pursuant to Paragraph 5 of
the Securities, it shall notify the Trustee and the Paying Agent in writing of
the Redemption Date and the principal amount of Securities to be redeemed and
whether it wants the Paying Agent to give notice of redemption to the Holders.
If the Company elects to reduce the principal amount of Securities to
be redeemed pursuant to Paragraph 5 of the Securities by crediting against any
such redemption Securities it has not previously delivered to the Trustee and
the Paying Agent for cancellation, it shall so notify the Trustee, in the form
of an Officers' Certificate, and the Paying Agent of the amount of the reduction
and deliver such Securities with such notice.
The Company shall give each notice to the Trustee and the Paying Agent
provided for in this Section 3.2 at least 40 days before the Redemption Date
(unless a shorter notice shall be satisfactory to the Trustee and the Paying
Agent). Any such notice may be cancelled at any time prior to notice of such
redemption being mailed to any Holder and shall thereby be void and of no
effect.
SECTION 3.3. Selection of Securities to Be Redeemed.
--------------------------------------
If less than all of the Securities are to be redeemed pursuant to
Paragraph 5 thereof, the Trustee shall select the Securities to be redeemed on a
pro rata basis, by lot or by such other method as the Trustee shall determine to
be appropriate and fair and in such manner as complies with any applicable
Depositary, legal and stock exchange requirements.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
and the Paying Agent in writing of the Securities selected for redemption and,
in the case of any Security selected for partial redemption, the principal
amount thereof to be redeemed. Securities in denominations of $1,000 may be
redeemed only in whole. The Trustee may select for redemption portions (equal
to $1,000 or any integral multiple thereof) of the principal of Securities that
have denominations larger than $1,000. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities called
for redemption.
SECTION 3.4. Notice of Redemption.
--------------------
At least 30 days, but not more than 60 days prior to the Redemption
Date (except for a redemption of all outstanding Securities in connection with a
Change of Control Redemption Event as described in the third paragraph of
Section 3.1, in which case notice shall be sent within the applicable time
period referenced in such paragraph), the Company shall mail a notice of
redemption by first class mail, postage prepaid, to the Trustee, the Paying
Agent and each Holder whose Securities are to be redeemed. At the Company's
request, the Paying Agent
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shall give the notice of redemption in the Company's name and at the Company's
expense. Each notice for redemption shall identify the Securities to be
redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price, including accrued and unpaid interest
and Liquidated Damages, if any, to be paid upon such redemption;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to
the Paying Agent at the address specified in such notice to collect the
Redemption Price;
(5) that, unless (a) the Company defaults in its obligation to
deposit with the Paying Agent cash which through the scheduled payment of
principal and interest in respect thereof in accordance with their terms
shall provide the amount to fund the Redemption Price in accordance with
Section 3.6 hereof or (b) such redemption payment is prohibited, interest
on Securities called for redemption ceases to accrue on and after the
Redemption Date and the only remaining right of the Holders of such
Securities is to receive payment of the Redemption Price, including accrued
and unpaid interest (and Liquidated Damages, if any) to the Redemption
Date, upon surrender to the Paying Agent of the Securities called for
redemption and to be redeemed;
(6) if any Security is being redeemed in part, the portion of
the principal amount, equal to $1,000 or any integral multiple thereof, of
such Security to be redeemed and that, after the Redemption Date, and upon
surrender of such Security, a new Security or Securities in aggregate
principal amount equal to the unredeemed portion thereof shall be issued;
(7) if less than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of such Securities to
be redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption;
(8) the CUSIP number of the Securities to be redeemed; and
(9) that the notice is being sent pursuant to this Section 3.4
and pursuant to the optional redemption provisions of Paragraph 5 of the
Securities.
SECTION 3.5. Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed in accordance with Section 3.4
hereof, Securities called for redemption become due and payable on the
Redemption Date and at the Redemption Price, including accrued and unpaid
interest (and Liquidated Damages, if any) to
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the Redemption Date. Upon surrender to the Trustee or Paying Agent, such
Securities called for redemption shall be paid at the Redemption Price,
including interest and Liquidated Damages, if any, accrued and unpaid to the
Redemption Date; provided that if the Redemption Date is after a regular Record
Date and on or prior to the Interest Payment Date, to which such Record Date
relates, the accrued interest (and Liquidated Damages, if any) shall be payable
to the Holder of the redeemed Securities registered on the relevant Record Date;
and provided, further, that if a Redemption Date is a Legal Holiday, payment
shall be made on the next succeeding Business Day and no interest shall accrue
for the period from such Redemption Date to such succeeding Business Day.
SECTION 3.6. Deposit of Redemption Price.
---------------------------
On or prior to the Redemption Date, the Company shall deposit with the
Paying Agent (other than the Company or an Affiliate of the Company) cash
sufficient to pay the Redemption Price of all Securities to be redeemed on such
Redemption Date (other than Securities or portions thereof called for redemption
on that date that have been delivered by the Company to the Trustee for
cancellation). The Paying Agent shall promptly return to the Company any cash
so deposited which is not required for that purpose upon the written request of
the Company.
If the Company complies with the preceding paragraph and payment of
the Securities called for redemption is not prohibited for any reason, interest
on the Securities to be re deemed shall cease to accrue on the applicable
Redemption Date, whether or not such Securities are presented for payment.
Notwithstanding anything herein to the contrary, if any Security surrendered for
redemption in the manner provided in the Securities shall not be so paid upon
surrender for redemption because of the failure of the Company to comply with
the preceding paragraph, interest shall continue to accrue and be paid from the
Redemption Date until such payment is made on the unpaid principal, and, to the
extent lawful, on any interest not paid on such unpaid principal, in each case
at the rate and in the manner provided in Section 4.1 hereof and the Security.
SECTION 3.7. Securities Redeemed in Part.
---------------------------
Upon surrender of a Security that is to be redeemed in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder, without service charge to the Holder, a new Security or Securities equal
in principal amount to the unredeemed portion of the Security surrendered.
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ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities.
---------------------
The Company shall pay the principal of and interest (and Liquidated
Damages, if any) on the Securities on the dates and in the manner provided
herein and in the Securities. An installment of principal of or interest (or
Liquidated Damages, if any) on the Securities shall be considered paid on the
date it is due if the Trustee or Paying Agent (other than the Company or an
Affiliate of the Company) holds for the benefit of the Holders (on or before
10:00 a.m. New York City time to the extent necessary to provide the funds to
the Depository in accordance with the Depository's procedures) on that date cash
deposited and designated for and sufficient to pay the installment.
The Company shall pay interest on overdue principal and on overdue
installments of interest (and Liquidated Damages, if any) at the rate specified
in the Securities compounded semi-annually, to the extent lawful.
SECTION 4.2. Maintenance of Office or Agency.
-------------------------------
The Company and the Guarantors shall maintain in the Borough of
Manhattan, The City of New York, an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company and the Guarantors in respect of the Securities and this Indenture
may be served. The Company and the Guarantors shall give prompt written notice
to the Trustee and the Paying Agent of the location, and any change in the
location, of such office or agency. If at any time the Company and the
Guarantors shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee and the Paying Agent with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 13.2 hereof.
The Company and the Guarantors may also from time to time designate
one or more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company and the Guarantors of their obligation to
maintain an office or agency in the Borough of Manhattan, The City of New York,
for such purposes. The Company and the Guarantors shall give prompt written
notice to the Trustee and the Paying Agent of any such designation or rescission
and of any change in the location of any such other office or agency. The
Company hereby initially designates the Corporate Trust Office of the Trustee
as such office.
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SECTION 4.3. Limitation on Restricted Payments.
---------------------------------
The Company and the Guarantors shall not, and shall not permit any of
their Subsidiaries to, directly or indirectly, make any Restricted Payment if,
after giving effect to such Restricted Payment on a pro forma basis, (1) a
Default or an Event of Default shall have occurred and be continuing, (2) the
Company is not permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio in Section 4.11 or (3) the aggregate
amount of all Restricted Payments made by the Company and its Subsidiaries,
including after giving effect to such proposed Restricted Payment, from and
after the Issue Date, would exceed the sum of (a) 50% of the aggregate
Consolidated Net Income of the Company for the period (taken as one accounting
period), commencing on the day next following the Issue Date, to and including
the last day of the fiscal quarter ended immediately prior to the date of each
such calculation (or, in the event Consolidated Net Income for such period is a
deficit, then minus 100% of such deficit), plus (b) the aggregate Net Cash
Proceeds received by the Company from the sale (other than (i) to a Subsidiary
of the Company, (ii) to the extent applied in connection with a Qualified
Exchange and (iii) to the extent added to any amount available for repurchases,
loans and advances under clause (v) of the next following paragraph) after the
Issue Date of Qualified Capital Stock of the Company or debt securities of the
Company or any of its Subsidiaries that have been converted into or exchanged
for Qualified Capital Stock of the Company, plus (c) the amount of any
Restricted Investments made after the Issue Date (other than pursuant to clause
(t) of the next following paragraph) that are returned to the Company or the
Subsidiary Guarantor that made such prior Investment, without restriction, in
cash on or prior to the date of any such calculation.
The foregoing clauses (2) and (3) of the immediately preceding
paragraph, however, shall not prohibit (t) Restricted Payments, provided, that,
after giving pro forma effect to any such Restricted Payment, the aggregate
amount of all such Restricted Payments made on or after the Issue Date that are
outstanding at any time does not exceed $4 million, plus the amount of any
Restricted Investments made pursuant to this clause (t) that are returned to the
Company or the Subsidiary Guarantor that made such prior Investment, without
restriction, in cash on or prior to the date of any such calculation, (u) the
defeasance, redemption or repurchase of Subordinated Indebtedness issued after
the Issue Date with the Net Cash Proceeds from an incurrence of Refinancing
Indebtedness permitted under this Indenture, (v)(i) repurchases of Capital Stock
from departing or deceased directors, officers, employees or consultants
(provided that any such consultants are retained pursuant to written agreements)
(or their estates or authorized representatives) of the Company or any of the
Guarantors and (ii) loans and advances to employees and officers of the Company
or any Guarantors in the ordinary course of business for bona fide business
purposes, such (i) and (ii) in the aggregate not to exceed in any fiscal year
$1,000,000 (net of any repayments of principal during any such year in respect
of such loans and advances described in clause (ii)), plus (A) the cumulative
amount by which (1) the product of $1,000,000 times the number of preceding
fiscal years subsequent to the Issue Date exceeds (2) the amount of all such
payments, repurchases, loans or advances (in the case of such loans and
advances, net of principal repayments) made during such fiscal years, plus (B)
the aggregate Net Cash Proceeds received by the Company, after the Issue Date
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and on or prior to the date of such repurchase, from the sale or issuance of
Qualified Capital Stock of the Company to directors, officers, employees and
consultants (provided that any such consultants are retained pursuant to written
agreements) of the Company and the Guarantors (including, to the extent not
otherwise included in the amount of such cash consideration, cash repayments of
principal received by the Company on loans made to such persons to enable them
to purchase such stock) to the extent such Net Cash Proceeds were contributed,
or are concurrently with such dividend contributed to the capital surplus of the
Company (provided that the net amount of all such payments, repurchases, loans
and advances (in the case of such loans and advances, net of principal
repayments and, in the case of such repurchases, net of the Net Cash Proceeds
received in respect of the sale of Qualified Capital Stock of the Company) made
under this clause (v) shall not exceed $7.5 million), and (w) payments for the
purpose of and in an amount equal to the amount required to redeem or repurchase
Capital Stock of the Company from certain stockholders of the Company as
required pursuant to the Second Securityholders Agreement in an aggregate amount
not to exceed $250,000, and the provisions of the foregoing paragraph shall not
prohibit (x) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or other person
established by such Receivables Subsidiary to effect such Qualified Receivables
Transaction, (y) a Qualified Exchange, or (z) the payment of any dividend on
Qualified Capital Stock within 60 days after the date of its declaration if such
dividend could have been made on the date of such declaration in compliance with
the foregoing provisions. The full amount of any Restricted Payment made
pursuant to the foregoing clauses (v), (w) and (z) (but not pursuant to clause
(t), clause (u), clause (x) or clause (y)) of the immediately preceding
sentence, however, shall be deducted in the calculation of the aggregate amount
of Restricted Payments available to be made referred to in clause (3) of the
immediately preceding paragraph.
For purposes of this covenant, the amount of any Restricted Payment,
if other than in cash, shall be the fair market value thereof, as determined in
the good faith reasonable judgment of the Board of Directors of the Company.
Additionally, within 30 days of each Restricted Payment, the Company shall
deliver an Officers' Certificate to the Trustee describing in reasonable detail
the nature of such Restricted Payment, stating the amount of such Restricted
Payment, stating in reasonable detail the provisions of this Indenture pursuant
to which such Restricted Payment was made and certifying that such Restricted
Payment was made in compliance with this Indenture.
SECTION 4.4. Corporate and Partnership Existence.
-----------------------------------
Except as otherwise permitted by Article V, Section 4.14 or Section
11.4, the Company and the Guarantors shall do or cause to be done all things
necessary to preserve and keep in full force and effect their respective
corporate, partnership or other organizational existence, as the case may be,
and the corporate, partnership or other organizational existence, as the case
may be, of each of their Subsidiaries in accordance with the respective
organizational documents of each of them and the material rights (charter and
statutory) and material corporate franchises of the Company, the Guarantors and
each of their respective Subsidiaries; provided, however, that neither the
Company nor any Guarantor shall be required to preserve, with respect
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to themselves, any right or franchise, and with respect to any of their
respective Subsidiaries, any such existence, right or franchise, if (a) the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and (b) the loss thereof is not
adverse in any material respect to the Holders.
SECTION 4.5. Payment of Taxes and Other Claims.
---------------------------------
The Company and the Guarantors shall, and shall cause each of their
Subsidiaries to, pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (i) all material taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon the Company, any Guarantor or any
of their Subsidiaries or any of their respective properties and assets and (ii)
all lawful claims, whether for labor, materials, supplies or services, which
have become due and payable and which by law have or may become a Lien upon the
property and assets of the Company, any Guarantor or any of their Subsidiaries;
provided, however, that neither the Company nor any Guarantor shall be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which disputed amounts adequate
reserves have been established in accordance with GAAP.
SECTION 4.6. Maintenance of Properties and Insurance.
---------------------------------------
The Company and the Guarantors shall cause all material properties
used or useful to the conduct of their business and the business of each of
their Subsidiaries to be maintained and kept in good condition, repair and
working order (reasonable wear and tear excepted) and supplied with all
necessary equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in their reasonable
judgment may be necessary, so that the business carried on in connection
therewith may be properly conducted at all times; provided, however, that
nothing in this Section 4.6 shall prevent the Company or any Guarantor from
discontinuing any operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is (a)(i) in the
judgment of the Board of Directors of the Company, desirable in the conduct of
the business of the Company and (ii) not adverse in any material respect to the
Holders or (b) otherwise permitted under Section 4.14.
The Company and the Guarantors shall provide, or cause to be provided,
for themselves and each of their Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the reasonable,
good faith opinion of the Board of Directors of the Company is adequate and
appropriate for the conduct of the business of the Company, the Guarantors and
such Subsidiaries in a prudent manner, with (except for self-insurance)
reputable insurers or with the government of the United States of America or an
agency or instrumentality thereof, in such amounts, with such deductibles, and
by such methods as shall be customary, in the reasonable, good faith opinion of
the Company and adequate and appropriate for the conduct
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of the business of the Company, the Guarantors and such Subsidiaries in a
prudent manner for entities similarly situated in the industry.
SECTION 4.7. Compliance Certificate; Notice of Default.
-----------------------------------------
(a) The Company shall deliver to the Trustee within
120 days after the end of its fiscal year an Officers' Certificate, one of the
signers of which shall be the principal executive, principal financial or
principal accounting officer of the Company, complying with Section 314(a)(4) of
the TIA and stating that a review of its activities and the activities of its
Subsidiaries, if any, during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture (without regard to notice requirements or grace periods) and further
stating, as to each such Officer signing such certificate, whether or not the
signer knows of any failure by the Company, any Guarantor or any Subsidiary of
the Company to comply with any conditions or covenants in this Indenture and, if
such signer does know of such a failure to comply, the certificate shall
describe such failure with particularity. The Officers' Certificate shall also
notify the Trustee should the relevant fiscal year end on any date other than
the current fiscal year end date.
(b) The Company shall, so long as any of the
Securities are outstanding, deliver to the Trustee, promptly upon becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto. The Trustee shall not be deemed to have knowledge of
any Default, any Event of Default or any such fact unless one of its Trust
Officers receives written notice thereof from the Company or any of the Holders.
SECTION 4.8. Reports.
-------
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall furnish to the
Trustee, to each Holder and to prospective purchasers of Securities identified
to the Company by an Initial Purchaser, within 15 days after it is or would have
been (if it were subject to such reporting requirements) required to file such
with the Commission, annual and quarterly financial statements substantially
equivalent to financial statements that would have been included in reports
filed with the Commission, if such entity were subject to the requirements of
Section 13 or 15(d) of the Exchange Act, including, with respect to annual
information only, a report thereon by the Company's certified independent public
accountants as such would be required in such reports to the Commission, and, in
each case, together with a management's discussion and analysis of financial
condition and results of operations which would be so required; and, unless the
Commission shall not accept such reports, file with the Commission the annual,
quarterly and other reports which it is or (if it were subject to such reporting
requirements) would have been required to file with the Commission.
Notwithstanding anything contrary herein the Trustee shall have no duty to
review such documents for purposes of determining compliance with any provisions
of this Indenture.
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SECTION 4.9. Limitation on Status as Investment Company.
------------------------------------------
The Company and the Guarantors shall not and shall not permit any of
their Subsidiaries to become required to register as an "investment company" (as
that term is defined in the Investment Company Act of 1940, as amended), or
otherwise become subject to regulation under the Investment Company Act.
SECTION 4.10. Limitation on Transactions with Affiliates.
------------------------------------------
Neither the Company nor any of its Subsidiaries shall be permitted on
or after the Issue Date to enter into or suffer to exist any contract,
agreement, arrangement or transaction with any Affiliate (an "Affiliate
Transaction"), or any series of related Affiliate Transactions, other than
Exempted Affiliate Transactions, unless (i) it is determined that the terms of
each Affiliate Transaction are fair and reasonable to the Company, and no less
favorable to the Company, than could have been obtained in an arm's length
transaction with a non-Affiliate, and (ii) (a) if involving consideration to
either party in excess of $1 million, unless such Affiliate Transaction(s) is
evidenced by an Officers' Certificate addressed and delivered to the Trustee
certifying that such Affiliate Transaction (or Transactions) has been approved
by a majority of the members of the Board of Directors of the Company that are
disinterested in such transaction and (b) if involving consideration to either
party in excess of $5 million, unless in addition the Company, prior to the
consummation thereof, obtains a written favorable opinion as to the fairness of
such transaction to the Company from a financial point of view from an
independent investment banking firm of national reputation or, if pertaining to
a matter for which such investment banking firms do not customarily render such
opinions, an appraisal or valuation firm of national reputation.
SECTION 4.11. Limitation on Incurrence of Additional Indebtedness and
-------------------------------------------------------
and Disqualified Capital Stock.
- ------------------------------
Except as set forth in this covenant, the Company and the Guarantors
shall not, and shall not permit any of their Subsidiaries to, directly or
indirectly, issue, assume, guaranty, incur, become directly or indirectly liable
with respect to (including as a result of an Acquisition), or otherwise become
responsible for, contingently or otherwise (individually and collectively, to
"incur" or, as appropriate, an "incurrence"), any Indebtedness or any
Disqualified Capital Stock (including Acquired Indebtedness) other than
Permitted Indebtedness. Notwithstanding the foregoing, (A) the Company and the
Guarantors may incur Indebtedness, (B) Subsidiaries of the Company that are not
Guarantors may incur Indebtedness that is not subordinated in right of payment
to any other Indebtedness, and (C) the Company may issue Disqualified Capital
Stock if (i) 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 of Indebtedness or Disqualified Capital Stock and (ii)
on the date of such incurrence (the "Incurrence Date"), the Consolidated
Coverage Ratio of the Company for the Reference Period immediately preceding the
Incurrence Date, after giving effect on a pro forma basis to such incurrence of
Indebtedness or Disqualified Capital Stock and, to the extent set forth in the
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definition of Consolidated Coverage Ratio, the use of proceeds thereof, would be
at least 2.0 to l (the "Debt Incurrence Ratio").
In addition, the foregoing limitations will not apply to:
(a) the incurrence by the Company or any Guarantor of Purchase Money
Indebtedness on or after the Issue Date, provided, that (i) the aggregate
principal amount of such Indebtedness incurred on or after the Issue Date and
outstanding at any time pursuant to this paragraph (a) (including any
Indebtedness issued to refinance, replace or refund such Indebtedness) shall not
exceed $10 million, and (ii) in each case, such Indebtedness shall not
constitute more than 100% of the cost (determined in accordance with GAAP) to
the Company or such Guarantor, as applicable, of the property so purchased or
leased;
(b) if no Event of Default shall have occurred and be continuing, the
incurrence by the Company or any Guarantor of Indebtedness in an aggregate
principal amount outstanding at any time (including Indebtedness incurred to
refinance, replace or refund such Indebtedness) of up to $10 million; and
(c) the incurrence by the Company or any Guarantor of Indebtedness
pursuant to the New Credit Facility up to an aggregate principal amount
outstanding at any time (including any Indebtedness incurred to refinance,
replace or refund such Indebtedness) of $100 million, minus the amount of any
such Indebtedness (i) retired with the Net Cash Proceeds from any Asset Sale
applied to permanently reduce the outstanding amounts or the commitments with
respect to such Indebtedness pursuant to clause (1)(b)(ii) of the first
paragraph of Section 4.14 or (ii) assumed by a transferee in an Asset Sale.
Indebtedness or Disqualified Capital Stock of any Person which is
outstanding at the time such Person becomes a Subsidiary of the Company
(including upon designation of any subsidiary or other person as a Subsidiary)
or is merged with or into or consolidated with the Company or a Subsidiary of
the Company shall be deemed to have been incurred at the time such Person
becomes such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company, as applicable.
SECTION 4.12. Limitations on Dividends and Other Payment Restrictions
-------------------------------------------------------
Affecting Subsidiaries.
- ----------------------
The Company and the Guarantors shall not, and shall not permit any of
their Subsidiaries to, directly or indirectly, create, assume or suffer to exist
any consensual restriction on the ability of any Subsidiary of the Company to
pay dividends or make other distributions to or on behalf of, or to pay any
obligation to or on behalf of, or otherwise to transfer assets or property to or
on behalf of, or make or pay loans or advances to or on behalf of, the Company
or any Subsidiary of the Company, except (a) restrictions imposed by the
Securities or this Indenture, or by indentures governing other Indebtedness of
the Company (and if such Indebtedness is guaranteed, by the guarantors thereof)
ranking on a parity with the Securities (or
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the Guarantees, if applicable), provided that the restrictions imposed by such
indentures are no more restrictive than the restrictions imposed by this
Indenture, (b) restrictions imposed by applicable law, (c) existing restrictions
under Indebtedness outstanding on the Issue Date after giving effect to the
Transactions, including, without limitation, the New Credit Facility, to the
extent and in the manner such restrictions are in effect on the Issue Date, (d)
restrictions under any Acquired Indebtedness not incurred in violation of this
Indenture or any agreement relating to any property, asset, or business acquired
by the Company or any of its Subsidiaries, which restrictions in each case
existed at the time of acquisition, were not put in place in connection with or
in anticipation of such acquisition and are not applicable to any person, other
than the person acquired, or to any property, asset or business, other than the
property, assets and business so acquired, (e) any such restriction or
requirement imposed by Indebtedness incurred under clause (c) of the second
paragraph of Section 4.11, provided that such restriction or requirement is no
more restrictive than that imposed by the New Credit Facility as of the Issue
Date, (f) restrictions with respect solely to the Company or a Subsidiary of the
Company imposed pursuant to a binding agreement which has been entered into for
the sale or disposition of the Equity Interests or assets of such person
permitted pursuant to this Indenture, provided that such restrictions apply
solely to the Equity Interests or assets of such person which are being sold,
(g) restrictions on transfer contained in Purchase Money Indebtedness incurred
pursuant to clause (a) of the second paragraph of Section 4.11, provided that
such restrictions relate only to the transfer of the property acquired with the
proceeds of such Purchase Money Indebtedness, (h) restrictions on transfer
relating to the financing or acquisition of real property and related personal
property that relate only to such property, and arise pursuant to a transaction
otherwise permitted under this Indenture, (i) any restriction or requirement
imposed by Indebtedness incurred under clause (B) of the first paragraph of
Section 4.11, provided that such restrictions and requirements apply only to
Subsidiaries of the Company that are not Guarantors, (j) in connection with and
pursuant to permitted Refinancings of Indebtedness referred to in clauses (a),
(c), (d), (e), (g), (h) or (i) of this paragraph, replacements of restrictions
imposed pursuant to clauses (a), (c), (d), (e), (g), (h) or (i) of this
paragraph that are not more restrictive in any material respect than those being
replaced and do not apply to any other person or assets than those that would
have been covered by the restrictions in the Indebtedness so refinanced, and (k)
Indebtedness or other contractual requirements of a Receivables Subsidiary in
connection with a Qualified Receivables Transaction, provided that such
restrictions apply only to such Receivables Subsidiary. Notwithstanding the
foregoing, neither (a) customary provisions restricting subletting or assignment
of any lease or other contract entered into in the ordinary course of business,
consistent with industry practice, nor (b) Liens permitted under the terms of
this Indenture on assets securing Purchase Money Indebtedness incurred in
accordance with clause (b) of the second paragraph of Section 4.11 shall in and
of themselves be considered a restriction on the ability of the applicable
Subsidiary to transfer such agreement or assets, as the case may be.
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SECTION 4.13. Limitations on Layering Indebtedness.
------------------------------------
The Company and the Guarantors shall not, and shall not permit any of
their Subsidiaries to, directly or indirectly, incur, or suffer to exist any
Indebtedness (other than the Securities) that is subordinate in right of payment
to any other Indebtedness of the Company or a Guarantor unless, by its terms,
such Indebtedness is subordinate in right of payment to, or ranks pari passu
with, the Securities or the Guarantees, as applicable.
SECTION 4.14. Limitation on Sales of Assets and Subsidiary Stock.
--------------------------------------------------
The Company and the Guarantors shall not, and shall not permit any of
their Subsidiaries to, in one or a series of related transactions, convey, sell,
transfer, assign or otherwise dispose of, directly or indirectly, any of its
property, business or assets, including by merger or consolidation (in the case
of a Subsidiary of the Company), and including any sale or other transfer or
issuance of any Equity Interests of any Subsidiary of the Company, whether by
the Company or a Subsidiary of the Company, and including any sale and leaseback
transaction (any of the foregoing, an "Asset Sale"), unless (l)(a) within 365
days after the date of such Asset Sale, the Net Cash Proceeds therefrom (the
"Asset Sale Offer Amount") are applied to the optional redemption of the
Securities in accordance with the terms of this Indenture and other Indebtedness
of the Company ranking on a parity with the Securities from time to time
outstanding with similar provisions requiring the Company to make an offer to
purchase or to redeem such Indebtedness with the proceeds for asset sales, pro
rata in proportion to the respective principal amounts (or accreted values in
the case of Indebtedness issued with an original issue discount) of the
Securities and such other Indebtedness then outstanding or to the repurchase of
the Securities and such other Indebtedness pursuant to an irrevocable,
unconditional cash offer (pro rata in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an original
issue discount) of the Securities and such other Indebtedness then outstanding)
(the "Asset Sale Offer") to repurchase such Indebtedness at a purchase price of
100% of principal amount (or accreted amount in the case of Indebtedness issued
with an original issue discount) (the "Asset Sale Offer Price"), together with
accrued and unpaid interest and Liquidated Damages, if any, to the date of
payment, made within 335 days of such Asset Sale, or (b) within 365 days
following such Asset Sale, the Asset Sale Offer Amount is (i) used (x) to make
one or more Acquisitions, (y) to make capital expenditures or (z) to acquire
other tangible assets, in each case which in the good faith reasonable judgment
of the Board of Directors of the Company shall immediately constitute or be a
part of a Related Business of the Company or a Subsidiary Guarantor (or, if such
Asset Sale is by a Foreign Subsidiary, such Foreign Subsidiary) immediately
following such transaction or (ii) used to retire permanently Senior Debt
(including that in the case of a revolver or similar arrangement that makes
credit available, such commitment is so permanently reduced by such amount), or,
if such Asset Sale is by a Foreign Subsidiary, Indebtedness of Foreign
Subsidiaries or (c) any combination permitted by the foregoing clauses (a) and
(b), (2) at least 75% of the total consideration for such Asset Sale or series
of related Asset Sales consists of cash or Cash Equivalents, provided that (A)
the amount of any liabilities (as shown on the Company's or such Subsidiary's
most recent balance sheet) of the Company or any such Subsidiary (other than
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Subordinated Indebtedness) that are assumed by the transferee of any such assets
(provided that the Company and its Subsidiaries are released from all
obligations in respect thereof) shall be deemed to be cash for purposes of this
provision, (B) any notes or other obligations received by the Company or a
Subsidiary from such transferee in exchange for any such assets that are
promptly converted into cash (to the extent of cash received) shall be deemed to
be cash for purposes of this provision, and (C) in connection with any Asset
Sale or series of related Asset Sales involving exclusively assets and property
(including Equity Interests of any Subsidiary of the Company) comprising the
Company's business described under "Business--Products--Sporting Goods and
Other Products" in the Offering Memorandum, the total consideration for any such
Asset Sale that does not consist of cash or Cash Equivalents may be up to the
lesser of (x) 50% of the total consideration of such Asset Sale or (y)
$5,000,000, (3) no 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
Asset Sale, unless such Asset Sale is in consideration solely of cash or Cash
Equivalents and such consideration is applied immediately to the permanent
reduction of the principal amount of Indebtedness outstanding pursuant to the
New Credit Facility, and (4) the Board of Directors of the Company determines in
good faith that the Company or such Subsidiary, as applicable, receives fair
market value for such Asset Sale.
Notwithstanding the foregoing provisions of the prior paragraph, the
following transactions shall not constitute Asset Sales:
(i) the Company and each of its Subsidiaries may, in the ordinary
course of business, convey, sell, transfer, assign or otherwise dispose of
property in the ordinary course of business;
(ii) the Company and each of its Subsidiaries may convey, sell,
transfer, assign or otherwise dispose of assets pursuant to and in accordance
with (A) the mergers, sales and consolidation provisions in this Indenture and
(B) the provisions in Section 4.3 (including transactions constituting Permitted
Investments);
(iii) the Company and each of its Subsidiaries may sell or dispose of
damaged, worn out or other obsolete personal property in the ordinary course of
business so long as such property is no longer necessary for the proper conduct
of the business of the Company or such Subsidiary, as applicable;
(iv) the Company and each of the Guarantors may convey, sell,
transfer, assign or otherwise dispose of assets to the Company or any of the
Guarantors, any Subsidiary of the Company may issue or sell Equity Interests to
the Company or any Guarantor, and any Foreign Subsidiary that is not a Guarantor
may issue or sell Equity Interests to any Foreign Subsidiary;
(v) The Company and each of its Subsidiaries may grant in the
ordinary course of business non-exclusive licenses of patents, trademarks,
registrations therefore and other similar intellectual property;
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(vi) the Company and each of its Subsidiaries may enter into contracts
to provide manufacturing consideration for Asset Sales and other services in the
ordinary course of business, including in connection with Asset Sales;
(vii) the Company and each of its Subsidiaries may surrender or waive
contract rights or the settlement, release or surrender of contract, tort or
other claims of any kind;
(viii) the Company and each of its Subsidiaries may grant Liens not
prohibited by this Indenture;
(ix) (1) sales of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables Transaction" to a
Receivables Subsidiary for the fair market value thereof, including cash in an
amount at least equal to 75% of the book value thereof as determined in
accordance with GAAP, and (2) transfers of accounts receivable and related
assets of the type specified in the definition of "Qualified Receivables
Transaction" (or a fractional undivided interest therein) by a Receivables
Subsidiary in a Qualified Receivables Transaction; and
(x) the Company and its Subsidiaries may convey, sell, transfer,
assign or otherwise dispose of assets (in addition to assets transferred or
disposed of as described in clauses (i), (ii), (iii), (iv), (v), (vi), (vii),
(viii) and (ix) above) with an aggregate fair market value not to exceed $1
million during any fiscal year.
An acquisition of Securities pursuant to an Asset Sale Offer may be
deferred until the accumulated Net Cash Proceeds from Asset Sales not applied to
the uses set forth in (1)(b) above (the "Excess Proceeds") exceeds $5 million.
Each Asset Sale Offer shall remain open for 20 Business Days following its
commencement (the "Asset Sale Offer Period"). Upon expiration of the Asset Sale
Offer Period, the Company promptly shall apply the Asset Sale Offer Amount plus
an amount equal to accrued and unpaid interest and Liquidated Damages, if any,
to the purchase of all Indebtedness properly tendered (on a pro rata basis as
described above if the Asset Sale Offer Amount is insufficient to purchase all
Indebtedness so tendered) at the Asset Sale Offer Price (together with accrued
interest and Liquidated Damages, if any). To the extent that the aggregate
amount of Indebtedness tendered pursuant to an Asset Sale Offer is less than the
Asset Sale Offer Amount, the Company may use any remaining Net Cash Proceeds for
general corporate purposes as otherwise permitted by this Indenture and
following each Asset Sale Offer the Excess Proceeds amount shall be reset to
zero. For purposes of (2) above, total consideration received means the total
consideration received for such Asset Sales minus the amount of Purchase Money
Indebtedness secured solely by the assets sold and assumed by a transferee.
All Net Cash Proceeds from an Event of Loss relating to any Material
Facility (other than the proceeds of any business interruption insurance) shall
be invested, used for prepayment of Senior Debt or used to repurchase Securities
and other Indebtedness of the Company ranking on a parity with the Securities
from time to time outstanding of the type
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described in clause 1(a) of the first paragraph of this Section 4.14, all within
18 months from the occurrence of such Event of Loss and as otherwise provided
above in clause (1) of the first paragraph of this Section 4.14.
In addition, the Company shall not, and shall not permit any
Subsidiary to, directly or indirectly make any Asset Sale of any of the Equity
Interests of any Subsidiary except (i) pursuant to an Asset Sale of all the
Equity Interests of such Subsidiary or (ii) pursuant to an Asset Sale of common
stock of such Subsidiary with no preferences or special rights or privileges and
with no redemption or prepayment provisions.
Notice of an Asset Sale Offer shall be sent, on or prior to the
commencement of the Asset Sale Offer, by first-class mail, by the Company to
each Holder at its registered address, with a copy to the Trustee. The notice
to the Holders shall contain all information, instructions and materials
required by applicable law or otherwise material to such Holders' decision to
tender Securities pursuant to the Asset Sale Offer. The notice, which (to the
extent consistent with this Indenture) shall govern the terms of an Asset Sale
Offer, shall state:
(1) that the Asset Sale Offer is being made pursuant to
such notice and this Section 4.14;
(2) the Asset Sale Offer Amount, the Asset Sale Offer
Price (including the amount of accrued but unpaid interest (and
Liquidated Damages, if any)), and the date of purchase;
(3) that any Security or portion thereof not tendered
or accepted for payment will continue to accrue interest if
interest is then accruing;
(4) that, unless the Company defaults in depositing
cash with the Paying Agent (which may not for purposes of this
Section 4.14, notwithstanding anything in this Indenture to the
contrary, be the Company or any Affiliate of the Company) in
accordance with the last paragraph of this Section 4.14 any
Security, or portion thereof, accepted for payment pursuant to
the Asset Sale Offer shall cease to accrue interest after the
Asset Sale Purchase Date;
(5) that Holders electing to have a Security, or
portion thereof, purchased pursuant to an Asset Sale Offer will
be required to surrender their Security, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the
Security completed, to the Paying Agent (which may not for
purposes of this Section 4.14, notwithstanding any other
provision of this Indenture, be the Company or any Affiliate of
the Company) at the address specified in the notice;
(6) that Holders will be entitled to withdraw their
elections, in whole or in part, if the Paying Agent receives,
prior to the expiration of the
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Asset Sale Offer, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the
Securities the Holder is withdrawing and a statement containing a
facsimile signature and stating that such Holder is withdrawing
his election to have such principal amount of the Securities
purchased;
(7) that if Indebtedness in a principal amount in
excess of the principal amount of Securities to be acquired
pursuant to the Asset Sale Offer are tendered and not withdrawn,
the Company shall purchase Indebtedness on a pro rata basis in
proportion to the respective principal amounts (or accreted
values in the case of Indebtedness issued with an original issue
discount) thereof (with such adjustments as may be deemed
appropriate by the Company so that only Securities in
denominations of $1,000 or integral multiples of $1,000 shall be
acquired);
(8) that Holders whose Securities were purchased only
in part will be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered; and
(9) the circumstances and relevant facts regarding such
Asset Sales.
The Company shall 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 Securities pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of this 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 this Indenture by virtue
thereof.
On or before the date of purchase, the Company shall (i) accept for
payment Securities or portions thereof properly tendered pursuant to the Asset
Sale Offer (on a pro rata basis if required pursuant to paragraph (7) above),
(ii) deposit with the Paying Agent cash sufficient to pay the Asset Sale Offer
Price for all Securities or portions thereof so accepted and (iii) deliver to
the Trustee Securities so accepted together with an Officers' Certificate
setting forth the Securities or portions thereof being purchased by the Company.
The Paying Agent shall promptly mail or deliver to Holders of Securities so
accepted payment in an amount equal to the Asset Sale Offer Price for such
Securities, and the Trustee shall promptly authenticate and mail or deliver to
such Holders a new Security equal in principal amount to any unpurchased portion
of the Security surrendered. Any Securities not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof.
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SECTION 4.15. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
Each of the Company and the Guarantors covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law which would prohibit or forgive the
Company or any Guarantor from paying all or any portion of the principal of,
premium of, or interest (or Liquidated Damages, if any) on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) each of the Company and the Guarantors hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not 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 had been enacted.
SECTION 4.16. Limitation on Liens Securing Indebtedness.
-----------------------------------------
The Company and the Guarantors shall not, and shall not permit any of
their Subsidiaries to, create, incur, assume or suffer to exist any Lien of any
kind, other than Permitted Liens, upon any of their respective assets now owned
or acquired on or after the date of this Indenture or upon any income or profits
therefrom securing any Indebtedness of the Company or any Subsidiary other than
Senior Debt, unless the Company and each of the Guarantors provides, and causes
their Subsidiaries to provide, concurrently therewith, that the Securities are
equally and ratably so secured, provided that, if such Indebtedness is
Subordinated Indebtedness, the Lien securing such Subordinated Indebtedness
shall be subordinate and junior to the Lien securing the Securities with the
same relative priority as such Subordinated Indebtedness shall have with respect
to the Securities.
SECTION 4.17. Rule 144A Information Requirement.
---------------------------------
The Company shall furnish to the Holders of the Securities, securities
analysts, and prospective purchasers of Securities designated by the Holders of
Transfer Restricted Securities, upon their request, the information required to
be delivered pursuant to Rule 144A(d)(4) under the Securities Act until such
time as either the Company has concluded an offer to exchange the Exchange
Securities for the Initial Securities or a registration statement relating to
resales of the Securities has become effective under the Securities Act. The
Company shall also furnish such information during the pendency of any
suspension of effectiveness of such resale registration statement.
SECTION 4.18. Limitations on Lines of Business.
--------------------------------
Neither the Company nor any of its Subsidiaries (except for any
Receivables Subsidiaries) shall directly or indirectly engage to any substantial
extent in any line or lines of business activity other than that which, in the
reasonable good faith judgment of the Board of Directors of the Company, is a
Related Business.
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SECTION 4.19. Transactions Not Subject to Covenants.
-------------------------------------
Notwithstanding anything to the contrary in this Indenture, the
consummation of the Transactions shall not be prohibited by this Indenture. In
addition, the Merger shall not constitute a Change of Control, and none of the
Transactions shall be deemed to be a Restricted Payment or an Asset Sale, or
taken into account in any calculation under Section 4.3.
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation.
-------------------------------------------
The Company shall not consolidate with or merge with or into another
person or, directly or indirectly, sell, lease, convey or transfer all or
substantially all of its assets (computed on a consolidated basis), whether in a
single transaction or a series of related transactions, to another Person or
group of affiliated Persons or adopt a plan of liquidation, unless (i) either
(a) the Company is the continuing entity or (b) the resulting, surviving or
transferee entity or, in the case of a plan of liquidation, the entity which
receives the greatest value from such plan of liquidation is a corporation
organized under the laws of the United States, any state thereof or the District
of Columbia and expressly assumes by supplemental indenture all of the
obligations of the Company in connection with the Securities and this Indenture;
(ii) no Default or Event of Default shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction; (iii) immediately after
giving effect to such transaction on a pro forma basis, the Consolidated Net
Worth of the consolidated surviving or transferee entity or, in the case of a
plan of liquidation, the entity which receives the greatest value from such plan
of liquidation is at least equal to the Consolidated Net Worth of the Company
immediately prior to such transaction; and (iv) immediately after giving effect
to such transaction on a pro forma basis, the consolidated resulting, surviving
or transferee entity or, in the case of a plan of liquidation, the entity which
receives the greatest value from such plan of liquidation would immediately
thereafter be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio set forth in Section 4.11.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company or consummation of a plan of
liquidation in accordance with the foregoing, the successor corporation formed
by such consolidation or into which the Company is merged or to which such
transfer is made or, in the case of a plan of liquidation, the entity which
receives the greatest value from such plan of liquidation shall succeed to, and
(except in the case of a lease) be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor corporation had been named therein as the Company, and (except in the
case of a lease) the Company shall be released from the obligations under the
Securities and this Indenture except with respect to any obligations that arise
from, or are related to, such transaction.
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For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise) of all or substantially all of the properties and assets of
one or more Subsidiaries, the Company's interest in which constitutes 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 Corporation Substituted.
---------------------------------
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.1
hereof, the successor corporation formed by such consolidation or into which the
Company is merged or to which such transfer is made, or, in the case of a plan
of liquidation, the entity which receives the greatest value from such plan of
liquidation shall succeed to, and (except in the case of a lease) be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor corporation had been named herein as
the Company, and (except in the case of a lease) when a successor corporation
duly assumes all of the obligations of the Company pursuant hereto and pursuant
to the Securities, the Company shall be released from such obligations (except
with respect to any obligations that arise from, or are related to, such
transaction).
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) failure by the Company to pay any installment of interest
upon the Securities as and when the same becomes due and payable, and the
continuance of any such failure for a period of 30 days;
(ii) failure by the Company to pay all or any part of the
principal of or premium, if any, on the Securities when and as the same
becomes due and payable at maturity, upon redemption, by acceleration, or
otherwise, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price, or otherwise;
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(iii) failure by the Company or any Subsidiary otherwise to
comply with the provisions of Article V;
(iv) failure by the Company or any Subsidiary to observe or
perform any other covenant or agreement contained in Sections 4.3, 4.9,
4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.17 or 4.18 or Articles V, X or XI of
this Indenture (except as provided in clauses (i), (ii) or (iii) of this
Section 6.1) and the continuance of such failure for a period of 30 days
after written notice is 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 Securities outstanding;
(v) failure by the Company or any Subsidiary to observe or
perform any other covenant or agreement contained in the Securities or this
Indenture (except as provided in clauses (i), (ii), (iii) or (iv) of this
Section 6.1) and the continuance of such failure for a period of 60 days
after written notice is 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 Securities outstanding;
(vi) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudicating the Company or any of its
Significant Subsidiaries as bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization of the Company or any of
its Significant Subsidiaries under any bankruptcy or similar law, and such
decree or order shall have continued undischarged and unstayed for a period
of 60 days; or a decree, judgment or order of a court of competent
jurisdiction appointing a receiver, liquidator, trustee, or assignee in
bankruptcy or insolvency for the Company, any of its Significant
Subsidiaries, or any substantial part of the property of any such Person,
or for the winding up or liquidation of the affairs of any such Person,
shall have been entered, and such decree, judgment, or order shall have
remained in force undischarged and unstayed for a period of 60 days;
(vii) the Company or any of its Significant Subsidiaries shall
institute proceedings to be adjudicated a voluntary bankrupt, or shall
consent to the filing of a bankruptcy proceeding against it, or shall file
a petition or answer or consent seeking reorganization under any bankruptcy
or similar law or similar statute, or shall consent to the filing of any
such petition, or shall consent to the appointment of a Custodian,
receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of
it or any substantial part of its assets or property, or shall make a
general assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts generally as they become due, fail generally
to pay its debts as they become due, or take any corporate action in
furtherance of any of the foregoing;
(viii) the failure to pay at final stated maturity (giving
effect to any applicable grace periods) the principal amount of any
Indebtedness of the Company or any Subsidiary of the Company (other than a
Receivables Subsidiary) or the acceleration
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of the final stated maturity of any Indebtedness if the aggregate principal
amount of such Indebtedness, together with the principal amount of any such
Indebtedness in default for failure to pay principal at final maturity or
which has been accelerated, aggregates $5 million or more at any time; and
(ix) final unsatisfied judgments not covered by insurance for
the payment of money, or the issuance of any warrant of attachment against
any portion of the property or assets of the Company or any of its
Subsidiaries, aggregating in excess of $5 million, at any one time shall be
rendered against the Company or any of its Subsidiaries and not be stayed,
bonded or discharged for a period (during which execution shall not be
effectively stayed) of 60 days.
SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment.
-------------------------------------------------------
If an Event of Default occurs and is continuing (other than an Event
of Default specified in Section 6.1(vi) or Section 6.1(vii) above relating to
the Company or any Significant Subsidiary), then, and in every such case, unless
the principal of all of the Securities shall have already become due and
payable, either the Trustee or the Holders of 25% in aggregate principal amount
of then outstanding Securities, by notice in writing to the Company (and to the
Trustee if given by Holders) (an "Acceleration Notice"), may declare all
principal, determined as set forth below, and accrued interest (and Liquidated
Damages, if any) thereon to be due and payable and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the New Credit Facility, shall become immediately due and payable upon the first
to occur of an acceleration under the New Credit Facility or five business days
after receipt by the Company and the representative of the holders of the
Indebtedness under the New Credit Facility of the notice of such an
acceleration, but only if such Event of Default is then continuing. In the
event a declaration of acceleration resulting from an Event of Default described
in Section 6.1(viii) above has occurred and is continuing, such declaration of
acceleration shall be automatically annulled if such default is cured or waived
or the holders of the Indebtedness which is the subject of such default have
rescinded their declaration of acceleration in respect of such Indebtedness
within 30 days thereof and the Trustee has received written notice of such cure,
waiver or rescission and no other Event of Default described in Section
6.1(viii) above has occurred that has not been cured or waived within 30 days of
the declaration of such acceleration in respect of such Indebtedness. If an
Event of Default specified in Section 6.1(vi) or (vii) above relating to the
Company or any Significant Subsidiary occurs, all principal and accrued interest
thereon will be immediately due and payable on all outstanding Securities
without any declaration or other act on the part of Trustee or the Holders.
At any time after such a declaration of acceleration being made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of not less
than a majority in aggregate principal amount of then outstanding Securities, by
written notice to the Company and the Trustee, may rescind, on behalf of all
Holders, any such declaration of acceleration if:
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(1) the Company has paid or deposited with the Trustee cash
sufficient to pay:
(A) all overdue interest and Liquidated Damages, if any, on
all Securities,
(B) the principal of (and premium, if any, applicable to)
any Securities which would become due other than by reason of such
declaration of acceleration, and interest thereon at the rate borne by
the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities,
(D) all sums paid or advanced by the Trustee hereunder and
the compensation, expenses, disbursements and advances of the Trustee
and its agents and counsel, and all other amounts due the Trustee
under Section 7.7 and
(2) all Events of Default, other than the non-payment of the
principal of, premium, if any, and interest on Securities which have become
due solely by such declaration of acceleration, have been cured or waived
as provided in Section 6.12.
Notwithstanding the previous sentence of this Section 6.2, no waiver shall be
effective against any Holder for any Event of Default or event which with notice
or lapse of time or both would be an Event of Default with respect to (i) any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Security affected thereby, unless all such
affected Holders agree, in writing, to waive such Event of Default or other
event and (ii) any provision requiring supermajority approval to amend, unless
such default has been waived by such a supermajority. No such waiver shall cure
or waive any subsequent default or impair any right consequent thereon.
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement
----------------------------------------------------
by Trustee.
- ----------
The Company covenants that if an Event of Default in payment of
principal, premium or interest specified in clause (i) or (ii) of Section 6.1
hereof occurs and is continuing, the Company shall, upon demand of the Trustee,
pay to it, for the benefit of the Holders of such Securities, the whole amount
then due and payable on such Securities for principal, premium (if any), and
interest (and Liquidated Damages, if any), and, to the extent that payment of
such interest shall be legally enforceable, interest on any overdue principal
(and premium, if any), and on any overdue interest (and Liquidated Damages, if
any), at the rate borne by the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including compensation to, and expenses, disbursements and advances
of the Trustee and its agents and counsel and all other amounts due the Trustee
under Section 7.7.
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If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 6.4. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any (and
Liquidated Damages, if any), or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise to take any and all actions under
the TIA, including
(1) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (and Liquidated Damages, if any) owing and
unpaid in respect of the Securities and to file such other papers or
documents as may be necessary or advisable in order to have the claims of
the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agent and counsel and all
other amounts due the Trustee under Section 7.7) and of the Holders allowed
in such judicial proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official 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 it for the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel, and any
other amounts due the Trustee under Section 7.7 hereof.
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Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
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 6.5. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities.
- ----------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust in favor of the Holders, and any recovery of
judgment shall, after provision for the payment of compensation to, and
expenses, disbursements and advances of the Trustee and its agents and counsel
and all other amounts due the Trustee under Section 7.7, be for the ratable
benefit of the Holders of the Securities in respect of which such judgment has
been recovered.
SECTION 6.6. Priorities.
----------
Any money collected by the Trustee pursuant to this Article VI shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal, premium
(if any), or interest (or Liquidated Damages, if any), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7 hereof;
SECOND: To the Holders in payment of the amounts then due and unpaid
for principal of, premium (if any), and interest (and Liquidated Damages, if
any) on, the Securities in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for principal,
premium (if any), and interest (and Liquidated Damages, if any), respectively;
and
THIRD: To the Company, the Guarantors or such other Person as may be
lawfully entitled thereto, the remainder, if any, each as their respective
interests may appear.
The Trustee may, but shall not be obligated to, fix a record date and
payment date for any payment to the Holders under this Section 6.6.
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SECTION 6.7. Limitation on Suits.
-------------------
No Holder of any Security shall have any right to order or direct the
Trustee to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(A) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(B) the Holders of not less than 25% in aggregate principal
amount of then outstanding Securities shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(C) such Holder or Holders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities to be incurred or reasonably probable to be incurred in
compliance with such request;
(D) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and
(E) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in aggregate principal amount of the outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 6.8. Unconditional Right of Holders to Receive Principal
---------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision of this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, and premium (if any), and interest (and
Liquidated Damages, if any) on, such Security on the Maturity Dates of such
payments as expressed in such Security (in the case of redemption, the
Redemption Price on the applicable Redemption Date, in the case of a Change of
Control, the Change of Control Purchase Price on the Change of Control Purchase
Date, and in the case of an Asset Sale, the Asset Sale Offer Price on the
relevant purchase date) and to institute suit for the enforcement of any such
payment after such respective dates, and such rights shall not be impaired
without the consent of such Holder.
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SECTION 6.9. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 2.7
hereof, no right or remedy herein conferred upon or reserved to the Trustee or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 6.10. Delay or Omission Not Waiver.
----------------------------
No delay or omission by the Trustee or by any Holder of any Security
to exercise any right or remedy arising upon any Event of Default shall impair
the exercise of any such right or remedy or constitute a waiver of any such
Event of Default. Every right and remedy given by this Article VI or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 6.11. Control by Holders.
------------------
The Holder or Holders of a majority in aggregate principal amount of
then outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred upon the Trustee, provided, that
(1) such direction shall not be in conflict with any rule of law
or with this Indenture,
(2) the Trustee shall not determine that the action so directed
would be unjustly prejudicial to the Holders not taking part in such
direction, and
(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.12. Waiver of Existing or Past Default.
----------------------------------
Subject to Section 6.8, the Holder or Holders of not less than a
majority in aggregate principal amount of the outstanding Securities may, on
behalf of all Holders, waive any existing or past Default or Event of Default
hereunder and its consequences under this Indenture, except a default
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(A) in the payment of the principal of, premium, if any, or
interest (or Liquidated Damages, if any) on, any Security as specified in
clauses (i) and (ii) of Section 6.1 hereof and not yet cured, or
(B) in respect of a covenant or provision hereof which, under
Article IX, cannot be modified or amended without the consent of the Holder
of each outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair the exercise of any right arising therefrom.
SECTION 6.13. Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that in any suit for
the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted to be taken by it
as Trustee, any court may in its discretion require the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses made by such
party litigant; but the provisions of this Section 6.13 shall not apply to any
suit instituted by the Company, to any suit instituted by the Trustee, to any
suit instituted by any Holder, or group of Holders, holding in the aggregate
more than 10% in aggregate principal amount of the outstanding Securities, or to
any suit instituted by any Holder for enforcement of the payment of principal
of, or premium (if any), or interest (or Liquidated Damages, if any) on, any
Security on or after the respective Maturity Date expressed in such Security
(including, in the case of redemption, on or after the Redemption Date).
SECTION 6.14. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Guarantors, the Trustee and
the Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
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ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed, subject to
the terms hereof.
SECTION 7.1. Duties of Trustee.
-----------------
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent Person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) Except during the continuance of a Default or an Event
of Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no covenants or
obligations shall be implied in or read into this Indenture which are
adverse to the Trustee, and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
in the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.1,
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts, and
(3) 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 6.11 hereof.
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(d) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or to take or omit
to take any action under this Indenture or at the request, order or direction
of the Holders or in the exercise of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of
this Section 7.1.
(f) The Trustee shall not be liable for interest on any
assets received by it except as the Trustee may agree in writing with the
Company (including without limitation to the extent the Trustee receives funds
prior to the interest payment date in order to comply with the provisions of
Section 4.1). Assets held in trust by the Trustee need not be segregated from
other assets except to the extent required by law.
SECTION 7.2. Rights of Trustee.
-----------------
Subject to Section 7.1 hereof:
(a) The Trustee may rely on 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 such document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 13.4 and 13.5 hereof. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on such certificate or advice of counsel.
(c) The Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it or
its agent takes or omits to take in good faith which it believes to be
authorized or within its rights or powers conferred upon it by this Indenture.
(e) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice, request, direction, consent, order,
bond, debenture 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.
(f) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request, order
or direction of any of the
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Holders, pursuant to the provisions of this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
(g) Unless otherwise specifically provided for in this
Indenture, any demand, request, direction or notice from the Company or any
Guarantor shall be sufficient if signed by an Officer of the Company or such
Guarantor, as applicable.
(h) The Trustee shall have no duty to inquire as to the
performance of the Company's or any Guarantor's covenants in Article IV hereof
or as to the performance by any Agent of its duties hereunder. In addition, the
Trustee shall not be deemed to have knowledge of any Default or Event of Default
except (i) any Event of Default occurring pursuant to Sections 6.1(i), 6.1(ii)
and 4.1 hereof, or (ii) any Default or Event of Default of which the Trustee
shall have received written notification or obtained actual knowledge.
(i) Whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate.
SECTION 7.3. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, any
Guarantor, any of their Subsidiaries, or their respective Affiliates with the
same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. However, the Trustee must comply with Sections 7.10 and 7.11
hereof.
SECTION 7.4. Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities and it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities, other than the Trustee's
certificate of authentication, or the use or application of any funds received
by a Paying Agent other than the Trustee.
SECTION 7.5. Notice of Default.
-----------------
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice of
the uncured Default or Event of Default within 90 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal (or premium, if any), of, or interest (or Liquidated
Damages, if any) on, any Security (including the payment of the Change of
Control Purchase Price on the Change of Control Payment Date, the payment of the
Redemption
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Price on the Redemption Date and the payment of the Asset Sale Offer Price on
the relevant purchase date), the Trustee may withhold the notice if and so long
as a Trust Officer in good faith determines that withholding the notice is in
the interest of the Securityholders.
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, if required by law, mail to each
Securityholder a brief report dated as of such May 15 that complies with TIA (S)
313(a). The Trustee also shall comply with TIA (S)(S) 313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed.
SECTION 7.7. Compensation and Indemnity.
--------------------------
The Company and the Guarantors jointly and severally agree to pay to
the Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company and the Guarantors shall reimburse the
Trustee upon request for all reasonable disbursements, expenses and advances
incurred or made by it in accordance with this Indenture. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents, accountants, experts and counsel.
The Company and the Guarantors jointly and severally agree to
indemnify the Trustee (in its capacity as Trustee) and each of its officers,
directors, attorneys-in-fact and agents for, and hold it harmless against, any
claim, demand, expense (including but not limited to reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel), loss or
liability incurred by it without negligence or bad faith on the part of the
Trustee, arising out of or in connection with the administration of this trust
and its rights or duties hereunder, including the reasonable costs and expenses
of defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The Trustee
shall notify the Company promptly of any claim asserted against the Trustee for
which it may seek indemnity. The Company and the Guarantors shall defend the
claim and the Trustee shall provide reasonable cooperation at the Company's and
the Guarantors' expense in the defense. The Trustee may have separate counsel
and the Company and the Guarantors shall pay the reasonable fees and expenses of
such counsel; provided, that the Company and the Guarantors will not be required
to pay such fees and expenses if they assume the Trustee's defense and there is
no conflict of interest between the Company and the Guarantors and the Trustee
in connection with such defense. The Company and the Guarantors need not pay
for any
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settlement made without their written consent. The Company and the Guarantors
need not reimburse any expense or indemnify against any loss or liability to
the extent incurred by the Trustee through its negligence, bad faith or willful
misconduct.
To secure the Company's and the Guarantors' payment obligations in
this Section 7.7, the Trustee shall have a lien prior to the Securities on all
assets held or collected by the Trustee, in its capacity as Trustee, except
assets held in trust to pay principal and premium, if any, of or interest on
particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(vi) or (vii) of this Indenture occurs, the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
The Company's and the Guarantors' obligations under this Section 7.7
and any lien arising hereunder shall survive the resignation or removal of the
Trustee, the discharge of the Company's and the Guarantors' obligations pursuant
to Article VIII of this Indenture and any rejection or termination of this
Indenture under any Bankruptcy Law.
SECTION 7.8. Replacement of Trustee.
----------------------
The Trustee may resign by so notifying the Company in writing. The
Holder or Holders of a majority in aggregate principal amount of the outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian or other public officer takes
charge of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder
or Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that
and provided that all sums owing to the retiring Trustee provided for in Section
7.7 hereof have been paid, the retiring Trustee shall transfer all property held
by it as trustee to the successor Trustee, subject to the lien pro-
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vided in Section 7.7 hereof, the resignation or removal of the retiring Trustee
shall become effective, and the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture. A successor Trustee
shall mail notice of its succession to each Holder.
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
Holder or Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's and the Guarantors' obligations under Section 7.7 hereof
shall continue for the benefit of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger, Etc.
---------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
-----------------------------
The Trustee shall at all times satisfy the requirements of TIA (S)
310(a)(1), (2) and (5). The Trustee shall have a combined capital and surplus
of at least $25,000,000 as set forth in its most recent published annual report
of condition. The Trustee shall comply with TIA (S) 310(b).
SECTION 7.11. Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated.
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ARTICLE VIII
DISCHARGE; LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Discharge; Option to Effect Legal Defeasance or Covenant
--------------------------------------------------------
Defeasance.
- -----------
This Indenture shall cease to be of further effect (except that the
Company's and the Guarantors' obligations under Section 7.7 and the Trustee's
and the Paying Agent's obligations under Sections 8.6 and 8.7 shall survive)
when all outstanding Securities theretofore authenticated and issued have been
delivered (other than destroyed, lost or stolen Securities that have been
replaced or paid) to the Trustee for cancellation and the Company or the
Guarantors have paid all sums payable hereunder. In addition, the Company may
elect to have Section 8.2, at the Company's option and at any time within one
year of the Maturity Date of the Securities, or Section 8.3, at the Company's
option at any time, of this Indenture applied to all outstanding Securities upon
compliance with the conditions set forth below in this Article VIII.
SECTION 8.2. Legal Defeasance and Discharge.
------------------------------
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company and the Guarantors shall be deemed
to have been discharged from their respective obligations with respect to all
outstanding Securities on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented and this Indenture shall cease to be of further effect
as to all outstanding Securities and Guarantees, except as to be deemed to be
"outstanding" only for the purposes of Section 8.5 hereof and the other Sections
of this Indenture referred to in (a) and (b) below, and the Company and the
Guarantors shall be deemed to have satisfied all other of their respective
obligations under such Securities and this Indenture (and the Trustee, on demand
of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Securities to receive payments in respect of the principal of,
premium, if any, and interest (and Liquidated Damages, if any) on such
Securities when such payments are due from the trust described in Section 8.5,
(b) the Company's obligations with respect to such Securities under Sections
2.4, 2.6, 2.7, 2.10, 4.2, 8.5, 8.6 and 8.7 hereof and (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Company's and the
Guarantors' obligations in connection therewith. Subject to compliance with
this Article VIII, the Company may exercise its option under this Section 8.2
notwithstanding the prior exercise of its option under Section 8.3 hereof with
respect to the Securities.
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SECTION 8.3. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, the Company and the Guarantors shall be released
from their respective obligations under the covenants contained in Sections
4.3, 4.6, 4.7, 4.8, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.17 and 4.18, Article V
and Article X hereof with respect to the outstanding Securities on and after
the date the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Securities shall thereafter be deemed not "outstanding"
for the purposes of any direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder.
For this purpose, such Covenant Defeasance means that, with respect to the
outstanding Securities, neither the Company nor any Guarantor need comply with
and shall have any liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document, but,
except as specified above, the remainder of this Indenture and such Securities
shall be unaffected thereby. In addition, upon the Company's exercise under
Section 8.1 hereof of the option applicable to this Section 8.3, Sections
6.1(iii) through 6.1(ix) hereof shall not constitute Events of Default with
respect to the Securities.
SECTION 8.4. Conditions to Legal or Covenant Defeasance.
------------------------------------------
The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Securities:
(a) (1) The Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or another trustee satisfying the
requirements of Section 7.10 hereof who shall agree to comply with the
provisions of this Article VIII applicable to it), in trust, for the benefit of
the Holders of the Securities, cash, U.S. Government Obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest (and Liquidated Damages, if any) on
such outstanding Securities on the stated date for payment thereof or on the
redemption date of such principal or installment of principal of, premium, if
any, or interest on such Securities, and the holders of Securities must have a
valid, perfected, exclusive security interest in such trust, (ii) in the case of
Legal Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of this Indenture, there
has been a change in the applicable Federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of such outstanding Securities will not recognize income, gain or
loss for Federal income tax purposes as a result of such Legal Defeasance and
will be subject to Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal
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Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to such Trustee confirming that the Holders of such
outstanding Securities will not recognize income, gain or loss for Federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by the Company with the intent of preferring the
Holders of such Securities over the other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding other creditors of the
Company; and (vii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that the conditions
precedent provided for in, in the case of the Officers' Certificate, (i) through
(vi) and, in the case of the opinion of counsel, clauses (i), (with respect to
the validity and perfection of the security interest) (ii), (iii) and (v) of
this paragraph, have been complied with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest (and Liquidated Damages, if any) on the Securities when due, then
the obligations of the Company and the Guarantors under this Indenture, the
Securities and the Guarantees will be revived and no such defeasance will be
deemed to have occurred.
SECTION 8.5. Deposited Cash and U.S. Government Obligations to be
----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
- ---------------------------------------------
Subject to Section 8.6 hereof, all cash and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.5, the
"Paying Agent") pursuant to Section 8.4 hereof in respect of the outstanding
Securities shall be held in trust and applied by the Paying Agent, in accordance
with the provisions of such Securities and this Indenture, to the payment,
either directly or through any other Paying Agent as the Trustee may determine,
to the Holders of such Securities of all sums due and to become due thereon in
respect of principal, premium, if any, and interest (and Liquidated Damages, if
any), but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 8.4 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of Outstanding Securities.
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SECTION 8.6. Repayment to the Company.
------------------------
(a) Anything in this Article VIII to the contrary
notwithstanding, the Trustee or the Paying Agent shall deliver or pay to the
Company from time to time upon the request of the Company any cash or U.S.
Government Obligations held by it as provided in Section 8.4 hereof which in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.4(a) hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
(b) Any cash and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest (and Liquidated Damages, if any) on any Security and remaining
unclaimed for two years after such principal, and premium, if any, or interest
has become due and payable shall be paid to the Company on its request; and the
Holder of such Security shall thereafter look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 8.7. Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any cash or U.S.
Government Obligations in accordance with Section 8.2 or 8.3 hereof, as the case
may be, of this Indenture by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and the Guarantors' obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as
the Trustee or Paying Agent is permitted to apply such money in accordance with
Sections 8.2 and 8.3 hereof, as the case may be; provided, however, that, if the
Company makes any payment of principal of, premium, if any, or interest (and
Liquidated Damages, if any) on any Security following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the cash or U.S. Government
Obligations held by the Trustee or Paying Agent.
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ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holder, the Company or any Guarantor, when
authorized by Board Resolutions, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency, or make any
other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this Indenture,
provided such action pursuant to this clause (1) shall not adversely affect the
interests of any Holder in any respect;
(2) to add to the covenants of the Company or the Guarantors for
the benefit of the Holders, or to surrender any right or power herein conferred
upon the Company or the Guarantors or make any other change that does not
adversely affect the rights of any Holder;
(3) to provide for collateral for or additional Guarantors
of the Securities;
(4) to evidence the succession of another Person to the Company,
and the assumption by any such successor of the obligations of the Company,
herein and in the Securities in accordance with Article V;
(5) to comply with the TIA;
(6) to evidence the succession of another corporation to any
Guarantor and assumption by any such successor of the Guarantee of such
Guarantor (as set forth in Section 11.4) in accordance with Article XI;
(7) to evidence the release of any Guarantor in accordance
with Article XI;
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities;
(9) in any other case where a supplemental indenture is required
or permitted to be entered into pursuant to the provisions of this Indenture
without the consent of any Holder; or
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(10) to provide for the issuance and authorization of the
Exchange Securities.
SECTION 9.2. Amendments, Supplemental Indentures and Waivers
-----------------------------------------------
with Consent of Holders.
- -----------------------
Subject to Section 6.8 hereof, with the consent of the Holders of at
least a majority in principal amount of the Securities then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for such Securities), by written act of said Holders delivered to the Company
and the Trustee, the Company or any Guarantor, when authorized by Board
Resolutions, and the Trustee may amend or supplement this Indenture or the
Securities or enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or the Securities or of modifying in any
manner the rights of the Holders under this Indenture or the Securities;
provided that no such modification may, without the consent of holders of at
least 66 2/3% in aggregate principal amount of Securities at the time
outstanding, modify the provisions (including the defined terms therein) of
Article X in a manner adverse to the holders. Subject to Section 6.8, the Holder
or Holders of not less than a majority in aggregate principal amount of then
outstanding Securities may waive compliance by the Company or any Guarantor with
any provision of this Indenture or the Securities. Notwithstanding any of the
above, however, no such amendment, supplemental indenture or waiver shall,
without the consent of the Holder of each outstanding Security affected thereby:
(1) change the Maturity Date on any Security, or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest thereon
or any premium payable upon the redemption thereof, or change the place of
payment where, or the coin or currency in which, any Security or any premium or
the interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Maturity Date thereof (or in the
case of redemption, on or after the Redemption Date), or reduce the Change of
Control Purchase Price or the Asset Sale Offer Price or alter the provisions
(including the defined terms used herein) of Article III of this Indenture or
Paragraph 5 of the Securities regarding the right of the Company to redeem the
Securities in a manner adverse to the Holders; or
(2) reduce the percentage in principal amount of the outstanding
Securities, the consent of whose Holders is required for any such amendment,
supplemental indenture or wavier provided for in this Indenture; or
(3) modify any of the waiver provisions, except to increase any
required percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
outstanding Security affected thereby.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
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After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or waiver.
After an amendment, supplement or waiver under this Section 9.2 or
under Section 9.4 hereof becomes effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
SECTION 9.3. Compliance with TIA.
-------------------
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents.
---------------------------------
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by written notice to the
Company or the Person designated by the Company as the Person to whom consents
should be sent if such revocation is received by the Company or such Person
before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (4) of Section 9.2 hereof, in which case, the amendment, supplement
or waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of
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a Security that evidences the same debt as the consenting Holder's Security;
provided, that any such waiver shall not impair or affect the right of any
Holder to receive payment of principal and premium of and interest (and
Liquidated Damages, if any) on a Security, on or after the respective dates set
for such amounts to become due and payable expressed in such Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates.
SECTION 9.5. Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee
or require the Holder to put an appropriate notation on the Security. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms. Any
failure to make the appropriate notation or to issue a new Security shall not
affect the validity of such amendment, supplement or waiver.
SECTION 9.6. Trustee to Sign Amendments, Etc.
--------------------------------
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; provided, that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article IX is
authorized or permitted by this Indenture.
ARTICLE X
RIGHT TO REQUIRE REPURCHASE
SECTION 10.1. Repurchase of Securities at Option of the Holder
------------------------------------------------
Upon a Change of Control.
- ------------------------
(a) In the event that a Change of Control has occurred, if the
Company has not first redeemed all of such holder's Securities in connection
with a Change of Control Redemption Event as provided in Article III, each
holder of Securities shall have the right, at such holder's option, pursuant to
an irrevocable and unconditional offer by the Company (the "Change of Control
Offer"), to require the Company to repurchase all or any part of such holder's
Securities (provided, that the principal amount of such Securities must be
$1,000 or an integral multiple thereof) on a date (the "Change of Control
Purchase Date") that is no later than 45 Business Days after the occurrence of
such Change of Control, at a cash price equal to 101% of the principal amount
thereof (the "Change of Control Purchase Price"),
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together with accrued and unpaid interest and Liquidated Damages, if any, to the
Change of Control Purchase Date.
Notwithstanding anything in this Article X to the contrary, prior to
the commencement of a Change of Control Offer, but in any event within 30 days
following any Change of Control, the Company shall (i)(a) repay in full and
terminate all commitments under Indebtedness under the New Credit Facility and
all other Senior Debt the terms of which require repayment upon a Change of
Control or (b) offer to repay in full and terminate all commitments under all
Indebtedness under the New Credit Facility and all such other Senior Debt and
repay the Indebtedness owed to each lender which has accepted such offer in full
or (ii) obtain the requisite consents under the New Credit Facility and all such
other Senior Debt to permit the repurchase of the Securities as provided herein.
The Company's failure to comply with the preceding sentence shall constitute an
Event of Default described in Section 6.1(iv) and not in Section 6.1(ii).
(b) In the event that, pursuant to this Section 10.1, the Company
shall be required to commence a Change of Control Offer, the Company shall
follow the procedures set forth in this Section 10.1 as follows:
(i) the Change of Control Offer shall commence within 20
Business Days following the occurrence of a Change of Control;
(ii) the Change of Control Offer shall remain open for at least
20 Business Days following its commencement (the "Change of Control Offer
Period");
(iii) upon the expiration of the Change of Control Offer Period,
the Company promptly shall purchase all of the tendered Securities at the
Change of Control Purchase Price;
(iv) if the Change of Control is on or after an interest
payment record date and on or before the related interest payment date, any
accrued interest (and Liquidated Damages, if any) will be paid to the
Person in whose name a Security is registered at the close of business on
such record date, and no additional interest will be payable to
Securityholders who tender Securities pursuant to the Change of Control
Offer;
(v) the Company shall provide the Trustee and the Paying Agent
with written notice of the Change of Control Offer at least three Business
Days before the commencement of any Change of Control Offer; and
(vi) on or before the commencement of any Change of Control
Offer, the Company or the Trustee (upon the request and at the expense of
the Company) shall send, by first-class mail, a notice to each of the
Securityholders, which (to the
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extent consistent with this Indenture) shall govern the terms of the Change
of Control Offer and shall state:
(A) that the Change of Control
Offer is being made pursuant to this Section 10.1 and
that all Securities, or portions thereof, tendered will
be accepted for payment;
(B) the Change of Control Purchase
Price (including the amount of accrued but unpaid
interest (and Liquidated Damages, if any)) and the
Change of Control Purchase Date;
(C) that any Security, or portion
thereof, not tendered or accepted for payment will
continue to accrue interest;
(D) that, unless the Company
defaults in depositing cash with the Paying Agent in
accordance with the last paragraph of this Section
10.1, or such payment is prevented for any reason, any
Security, or portion thereof, accepted for payment
pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase
Date;
(E) that Holders electing to have a
Security, or portion thereof, purchased pursuant to a
Change of Control Offer will be required to surrender
the Security, with the form entitled "Option of Holder
to Elect Purchase" on the reverse of the Security
completed, to the Paying Agent (which may not for
purposes of this Section 10.1, notwithstanding anything
in this Indenture to the contrary, be the Company or
any Affiliate of the Company) at the address specified
in the notice prior to the expiration of the Change of
Control Offer;
(F) that Holders will be entitled to
withdraw their election, in whole or in part, if the Paying
Agent receives, prior to the expiration of the Change of
Control Offer, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the
Securities the Holder is withdrawing and a statement
containing a facsimile signature and stating that such
Holder is withdrawing his election to have such principal
amount of Securities purchased;
(G) that Holders whose Securities
are purchased only in part will be issued new
Securities equal in
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principal amount to the unpurchased portion of the
Securities surrendered; and
(H) a brief description of the events
resulting in such Change of Control.
Any such Change of Control Offer shall 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 Securities pursuant to a Change of Control Offer. To
the extent that the provisions of any securities laws or regulations conflict
with provisions of this Indenture relating to a Change of Control, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under such provisions of this
Indenture by virtue thereof.
On or before the Change of Control Purchase Date, the Company shall
(i) accept for payment Securities or portions thereof properly tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent cash
sufficient to pay the Change of Control Purchase Price (together with accrued
and unpaid interest and Liquidated Damages, if any) of all Securities so
tendered and (iii) deliver to the Trustee Securities so accepted together with
an Officers' Certificate listing the Securities or portions thereof being
purchased by the Company. The Paying Agent promptly will pay the Holders of
Securities so accepted an amount equal to the Change of Control Purchase Price
(together with accrued and unpaid interest and Liquidated Damages, if any), and
the Trustee promptly will authenticate and deliver to such Holders a new
Security equal in principal amount to any unpurchased portion of the Security
surrendered. Any Securities not so accepted will be delivered promptly by the
Company to the Holder thereof. The Company publicly will announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Purchase Date.
ARTICLE XI
GUARANTEE
SECTION 11.1. Guarantee.
---------
(a) If any Person becomes a Subsidiary of the Company (other than
a Receivables Subsidiary or a Foreign Subsidiary), whether pursuant to the
acquisition by the Company or any Guarantor of Equity Interests of such Person,
or otherwise, such Subsidiary (in each case, a "Guarantor") shall, to the
fullest extent permitted by applicable law, irrevocably and unconditionally
guarantee (the "Guarantee") to each Holder of a Security authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability against the Company and any
other Guarantors of this Indenture, the Securities or the obligations of the
Company under this Indenture or the Securities, that: (x) the
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principal of and premium (if any), and interest (and Liquidated Damages, if any)
on the Securities will be paid in full when due, whether at the Maturity
Date or Interest Payment Date, by acceleration, call for redemption, upon a
Change of Control, an Asset Sale Offer or otherwise; (y) all other obligations
of the Company to the Holders or the Trustee under this Indenture or the
Securities will be promptly paid in full or performed, all in accordance with
the terms of this Indenture and the Securities; and (z) in case of any extension
of time of payment or renewal of any Securities or any of such other
obligations, they will be paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at maturity, by acceleration,
call for redemption, upon a Change of Control, an Asset Sale Offer or otherwise.
Failing payment when due of any amount so guaranteed for whatever reason,
each Guarantor shall be obligated to pay the same before failure so to pay
becomes an Event of Default.
If the Company or a Guarantor defaults in the payment of the principal
of, premium, if any, or interest (or Liquidated Damages, if any) on, the
Securities when and as the same shall become due, whether upon maturity,
acceleration, call for redemption, upon a Change of Control Offer, upon an Asset
Sale Offer or otherwise, without the necessity of action by the Trustee or any
Holder, each Guarantor shall be required, jointly and severally, to promptly
make such payment in full.
Each Guarantor shall, within five Business Days after becoming a
Subsidiary of the Company (other than a Receivables Subsidiary or a Foreign
Subsidiary), execute and deliver to the Trustee a supplemental indenture, which
shall be in a form satisfactory to the Trustee, making such Guarantor a party to
this Indenture.
(b) Each Guarantor hereby agrees to the fullest extent permitted
by applicable law, that its obligations with regard to this Guarantee shall be
unconditional, irrespective of the validity, regularity or enforceability
of the Securities or this Indenture, the absence of any action to enforce
the same, any delays in obtaining or realizing upon or failures to obtain or
realize upon collateral, the recovery of any judgment against the Company, any
action to enforce the same or any other circumstances that might otherwise
constitute a legal or equitable discharge or defense of a Guarantor. Each
Guarantor hereby waives to the fullest extent permitted by applicable law
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company or right to require the prior disposition
of the assets of the Company to meet its obligations, protest, notice and all
demands whatsoever and covenants that this Guarantee will not be discharged
except by complete performance of the obligations contained in the Securities
and this Indenture.
(c) If any Holder or the Trustee is required by any court or
otherwise to return to either the Company or any Guarantor, or any Custodian or
similar official acting in relation to either the Company or such Guarantor, any
amount paid by either the Company or such Guarantor to the Trustee or such
Holder, this Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor agrees that it will not be
entitled to any right of subrogation in relation to the Holders in respect of
any obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Guarantor
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further agrees that, as between such Guarantor, 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 hereof for the
purposes of this Guarantee, 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 hereof, those obligations (whether
or not due and payable) will forthwith become due and payable by each of the
Guarantors for the purpose of this Guarantee.
(d) It is the intention of each Guarantor and the Company that
the obligations of each Guarantor hereunder shall be in, but not in excess of,
the maximum amount permitted by applicable law. Accordingly, if the obligations
in respect of the Guarantee would be annulled, avoided or subordinated to the
creditors of any Guarantor by a court of competent jurisdiction in a proceeding
actually pending before such court as a result of a determination both that such
Guarantee was made by such Guarantor without fair consideration and, immediately
after giving effect thereto, such Guarantor was insolvent or unable to pay its
debts as they mature or left with an unreasonably small capital, then the
obligations of such Guarantor under such Guarantee shall be reduced by such
court if and to the extent such reduction would result in the avoidance of such
annulment, avoidance or subordination; provided, however, that any reduction
pursuant to this paragraph shall be made in the smallest amount as is strictly
necessary to reach such result. For purposes of this paragraph, "fair
consideration", "insolvency", "unable to pay its debts as they mature",
"unreasonably small capital" and the effective times of reductions, if any,
required by this paragraph shall be determined in accordance with applicable
law.
SECTION 11.2. Execution and Delivery of Guarantee.
-----------------------------------
Each Guarantor shall, by virtue of such Guarantor's execution and
delivery of an indenture supplement pursuant to Section 11.1 hereof, be deemed
to have signed on each Security issued hereunder the notation of guarantee set
forth on the form of the Securities attached hereto as Exhibit A to the same
extent as if the signature of such Guarantor appeared on such Security.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the guarantee set forth in
Section 11.1 on behalf of each Guarantor. The notation of a guarantee set forth
on any Security shall be null and void and of no further effect with respect to
the guarantee of any Guarantor which, pursuant to Section 11.4, is released from
such Guarantee.
SECTION 11.3. Certain Bankruptcy Events.
-------------------------
Each Guarantor hereby covenants and agrees, to the fullest extent that
it may do so under applicable law, that in the event of the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company, such
Guarantor shall not file (or join in any filing of), or
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otherwise seek to participate in the filing of, any motion or request seeking to
stay or to prohibit (even temporarily) execution on the Guarantee and hereby
waives and agrees not to take the benefit of any such stay of execution, whether
under Section 362 or 105 of the United States Bankruptcy Code or otherwise.
SECTION 11.4. Limitation on Merger of Subsidiaries and Release
------------------------------------------------
of Guarantors.
- -------------
No Guarantor shall consolidate or merge with or into (whether or not
such Guarantor is the surviving person) another person unless (i) subject to the
provisions of the following paragraph and certain other provisions of this
Indenture, the person formed by or surviving any such consolidation or merger
(if other than such Guarantor) assumes all the obligations of such Guarantor
pursuant to a supplemental indenture in form reasonably satisfactory to the
Trustee, pursuant to which such person shall unconditionally guarantee, on a
senior subordinated basis, all of such Guarantor's obligations under such
Guarantor's guarantee and this Indenture on the terms set forth in this
Indenture; and (ii) immediately before and immediately after giving effect to
such transaction on a pro forma basis, no Default or Event of Default shall have
occurred or be continuing.
Upon the sale or disposition (whether by merger, stock purchase, asset
sale or otherwise) of a Subsidiary Guarantor (or all of its assets) to an entity
which is not a Subsidiary Guarantor (including the designation of a Subsidiary
to become an Unrestricted Subsidiary), which transaction is otherwise in
compliance with this Indenture (including, without limitation, the provisions of
Section 4.14), such Subsidiary Guarantor will be deemed released from its
obligations under its Guarantee of the Securities; provided, however, that any
such termination shall occur only to the extent that all obligations of such
Subsidiary Guarantor under all of its guarantees of, and under all of its
pledges of assets or other security interests which secure, any Indebtedness of
the Company or any other Subsidiary shall also terminate upon such release, sale
or transfer.
ARTICLE XII
SUBORDINATION
SECTION 12.1. Securities Subordinated to Senior Debt.
--------------------------------------
The Company and the Guarantors and each Holder, by its acceptance of
Securities, agree that (a) the payment of the principal of and interest on the
Securities and (b) any other payment in respect of the Securities, including on
account of the acquisition or redemption of the Securities by the Company and
the Guarantors (including, without limitation, pursuant to Section 4.14, Article
X or Article XI) is subordinated, to the extent and in the manner provided in
this Article XII, to the prior payment in full in cash or Cash Equivalents of
all Senior Debt of the Company and the Guarantors and that these subordination
provisions are for the benefit of the holders of Senior Debt.
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This Article XII shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Debt, and such provisions are made for the benefit of the holders of
Senior Debt and such holders are made obligees hereunder and any one or more of
them may enforce such provisions.
SECTION 12.2. No Payment on Securities in Certain Circumstances.
-------------------------------------------------
(a) No payment (by set-off or otherwise) shall be made by or on
behalf of the Company or a Guarantor, as applicable, on account of the principal
of, premium, if any, or interest or Liquidated Damages on the Securities
(including any repurchases of Securities), or on account of any other obligation
for the payment of money due in respect of the Securities, or on account of the
redemption provisions of the Securities, for cash or property (other than Junior
Securities issued in connection with a reorganization pursuant to the bankruptcy
laws of any jurisdiction), (i) upon the maturity of any Senior Debt of the
Company or such Guarantor by lapse of time, acceleration (unless waived) or
otherwise, unless and until all principal of, premium, if any, and the interest
(and with respect to the New Credit Facility, any other obligations) on such
Senior Debt are first paid in full in cash or Cash Equivalents (or, with respect
to Senior Debt other than the New Credit Facility, such payment is duly provided
for) or otherwise to the extent holders accept satisfaction of amounts due by
settlement in other than cash or Cash Equivalents, or (ii) in the event of
default in the payment of any principal of, premium, if any, or interest on
Senior Debt of the Company or such Guarantor when it becomes due and payable,
whether at maturity, a scheduled payment date, or at a date fixed for prepayment
or by declaration or otherwise (a "Payment Default"), unless and until such
Payment Default has been cured or waived or otherwise has ceased to exist.
(b) Upon (i) the happening of an event of default (other than a
Payment Default) that permits the holders of Senior Debt (or a trustee or agent
on behalf of such holders) to declare such Senior Debt to be due and payable and
(ii) written notice of such event of default given to the Trustee by the holders
(or a trustee, agent or other representative of such holders) of Designated
Senior Debt (a "Payment Notice"), then, unless and until such event of default
has been cured or waived or otherwise has ceased to exist, no payment (by set-
off or otherwise) may be made by or on behalf of the Company or any Guarantor
which is an obligor under such Senior Debt on account of the principal of,
premium, if any, or interest or Liquidated Damages on the Securities (including
any repurchases of any of the Securities), or on account of any other obligation
for the payment of money due in respect of the Securities, or on account of the
redemption provisions of the Securities, in any such case, other than payments
made with Junior Securities issued in connection with a reorganization pursuant
to the bankruptcy laws of any jurisdiction. Notwithstanding the foregoing,
unless the Senior Debt in respect of which such event of default exists has been
declared due and payable in its entirety within 179 days after the Payment
Notice is delivered as set forth above (the "Payment Blockage Period") (and such
declaration has not been rescinded or waived), at the end of the Payment
Blockage Period, the Company and the Guarantors shall be required, unless the
provisions described in Section 12.2(a) are then applicable, to pay all sums not
paid to the Holders of the Securities during the Payment Blockage Period due to
the foregoing prohibitions and to resume
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all other payments as and when due on the Securities. Any number of Payment
Notices may be given; provided, however, that (i) not more than one Payment
Notice shall be given within a period of any 360 consecutive days, and (ii) no
default that existed upon the date of such Payment Notice or the
commencement of such Payment Blockage Period (whether or not such event of
default relates to the same issue of Senior Debt) shall be made the basis for
the commencement of any other Payment Blockage Period (it being
acknowledged that any subsequent action, or any breach of any financial covenant
for a period commencing after the expiration of such Payment Blockage Period
that, in either case, would give rise to a new event of default, even though it
is a breach pursuant to any provision under which a prior event of default
previously existed, shall constitute a new event of default for this purpose).
(c) In furtherance of the provisions of Section 12.1, in the
event that, notwithstanding the foregoing provisions of this Section 12.2, any
payment or distribution of assets of the Company or any Guarantor (other than
Junior Securities issued in connection with a reorganization pursuant to the
bankruptcy laws of any jurisdiction) shall be received by the Trustee or the
Holders at a time when such payment or distribution is prohibited by the
foregoing provisions of this Section 12.2, such payment or distribution shall be
held in trust for the benefit of the holders of such Senior Debt, and shall be
paid or delivered by the Trustee or such Holders, as the case may be, to the
holders of such Senior Debt remaining unpaid (or, with respect to Senior Debt
other than the New Credit Facility, unprovided for) or to their representative
or representatives, or to the trustee or trustees under any indenture
pursuant to which any instruments evidencing any of such Senior Debt may have
been issued, ratably according to the aggregate principal amounts remaining
unpaid on account of such Senior Debt held or represented by each, for
application to the payment of all such Senior Debt remaining unpaid, to the
extent necessary to pay (or, with respect to Senior Debt other than the New
Credit Facility, to provide for the payment) of all such Senior Debt in full, or
otherwise to the extent holders expressly acknowledge satisfaction of amounts
due after giving effect to any concurrent payment or distribution to the holders
of such Senior Debt.
SECTION 12.3. Securities Subordinated to Prior Payment of All Senior
------------------------------------------------------
Debt on Dissolution, Liquidation or Reorganization.
- --------------------------------------------------
Upon any distribution of assets of the Company or any Guarantor or
upon any dissolution, winding up, total or partial liquidation or reorganization
of the Company or a Guarantor, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or a similar proceeding or upon assignment for the
benefit of creditors or any marshalling of assets or liabilities:
(a) the holders of all Senior Debt of the Company or such
Guarantor, as applicable, will first be entitled to receive payment in full in
cash or Cash Equivalents (or, with respect to Senior Debt other than the New
Credit Facility, have such payment duly provided for) or, with respect to any
holder, otherwise to the extent such holder expressly acknowledges amounts due
by settlement in other than cash or Cash Equivalents (it being acknowledged that
approval of a plan of reorganization in a bankruptcy proceeding shall
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not constitute satisfaction of amounts due in settlement) before the Holders are
entitled to receive any payment on account of principal of, premium, if any, and
interest and Liquidated Damages on the Securities or on account of any other
obligation for the payment of money due in respect of the notes (other than
Junior Securities issued in connection with a reorganization pursuant to the
bankruptcy laws of any jurisdiction); and
(b) any payment or distribution of assets of the Company or such
Guarantor of any kind or character from any source, whether in cash, property or
securities (other than Junior Securities issued in connection with a
reorganization pursuant to the bankruptcy laws of any jurisdiction) to which the
Holders or the Trustee on behalf of the Holders would be entitled (by set-off or
otherwise), except for the subordination provisions contained in this Indenture,
will be paid by the liquidating trustee or agent or other person making such a
payment or distribution directly to the holders of such Senior Debt or their
representative to the extent necessary to make payment in full on all such
Senior Debt remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
SECTION 12.4. Securityholders to Be Subrogated to Rights of Holders
-----------------------------------------------------
of Senior Debt.
- --------------
Subject to the payment in full in cash or Cash Equivalents of all
Senior Debt of the Company or any Guarantor as provided herein, the Holders of
Securities shall be subrogated to the rights of the holders of such Senior Debt
to receive payments or distributions of assets of the Company applicable to the
Senior Debt until all amounts owing on the Securities shall be paid in full, and
for the purpose of such subrogation no such payments or distributions to the
holders of such Senior Debt by or on behalf of the Company or any Guarantor, or
by or on behalf of the Holders by virtue of this Article XII, which otherwise
would have been made to the Holders shall, as between the Company or any
Guarantor and the Holders, be deemed to be payment by the Company or any
Guarantor or on account of such Senior Debt, it being understood that the
provisions of this Article XII are and are intended solely for the purpose of
defining the relative rights of the Holders, on the one hand, and the holders of
such Senior Debt, on the other hand.
SECTION 12.5. Obligations of the Company and the Guarantors
---------------------------------------------
Unconditional.
- -------------
Nothing contained in this Article XII or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as between the Company and
any Guarantors and the Holders, the obligation of each such Person, which is
absolute and unconditional, to pay to the Holders the principal of, premium, if
any, and interest and Liquidated Damages on the Securities as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the Holders and creditors of the Company
and the Guarantors other than the holders of the Senior Debt, nor shall anything
herein or therein prevent the Trustee or any Holder from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article
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XII, of the holders of Senior Debt in respect of cash, property or securities of
the Company and the Guarantors received upon the exercise of any such remedy.
Notwithstanding anything to the contrary in this Article XII or elsewhere in
this Indenture or in the Securities, upon any distribution of assets of the
Company and the Guarantors referred to in this Article XII, the Trustee, subject
to the provisions of Sections 7.1 and 7.2, and the Holders shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which such dissolution, winding up, liquidation or reorganization proceedings
are pending, or a certificate of the liquidating Trustee or agent or other
Person making any distribution to the Trustee or to the Holders for the purpose
of ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Debt and other Indebtedness of the Company or any
Guarantor, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article XII
so long as such court has been apprised of the provisions of, or the order,
decree or certificate makes reference to, the provisions of this Article XII.
Nothing in this Section 12.5 shall apply to the claims of, or payments to, the
Trustee under or pursuant to Section 7.7.
SECTION 12.6. Trustee Entitled to Assume Payments Not Prohibited
--------------------------------------------------
in Absence of Notice.
- --------------------
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee unless and until a Trust Officer of the Trustee or any Paying Agent
shall have received, no later than one Business Day prior to such payment
written notice thereof from the Company or from one or more holders of Senior
Debt or from any representative therefor and, prior to the receipt of any such
written notice, the Trustee, subject to the provisions of Sections 7.1 and 7.2,
shall be entitled in all respects conclusively to assume that no such fact
exists.
SECTION 12.7. Application by Trustee of Assets Deposited with It.
--------------------------------------------------
Amounts deposited in trust with the Trustee pursuant to and in
accordance with Article VIII shall be for the sole benefit of Securityholders
and, to the extent (i) the making of such deposit by the Company shall not be in
contravention of any term or provision of the New Credit Facility or other
Designated Senior Debt and (ii) allocated for the payment of Securities, shall
not be subject to the subordination provisions of this Article XII. Otherwise,
any deposit of assets with the Trustee or the Agent (whether or not in trust)
for the payment of principal of or interest on any Securities shall be subject
to the provisions of Sections 12.1, 12.2, 12.3 and 12.4; provided that, if prior
to one Business Day preceding the date on which by the terms of this Indenture
any such assets may become distributable for any purpose (including without
limitation, the payment of either principal of or interest on any Security) the
Trustee or such Paying Agent shall not have received with respect to such assets
the written notice provided for in Section 12.6, then the Trustee or such Paying
Agent shall have full power and authority to receive such assets and to apply
the same to the purpose for which they were received, and shall not be affected
by any notice to the contrary which may be received by it on or after such date.
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SECTION 12.8. Subordination Rights Not Impaired by Acts or Omissions
------------------------------------------------------
of the Company, the Guarantors or Holders of Senior Debt.
- --------------------------------------------------------
No right of any present or future holders of any Senior Debt to
enforce subordination provisions contained in this Article XII shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part of
the Company or any Guarantor or by any act or failure to act, in good faith, by
any such holder, or by any noncompliance by the Company or any Guarantor with
the terms of this Indenture, regardless of any knowledge thereof which any such
holder may have or be otherwise charged with. The holders of Senior Debt may
extend, renew, modify or amend the terms of the Senior Debt or any security
therefor and release, sell or exchange such security and otherwise deal freely
with the Company and the Guarantors, all without affecting the liabilities and
obligations of the parties to this Indenture or the Holders. The subordination
provisions contained in this Indenture are for the benefit of the holders from
time to time of Senior Debt and may not be rescinded, cancelled, amended or
modified in any way other than any amendment or modification that would not
adversely affect the rights of any holder of Senior Debt or any amendment or
modification that is consented to by each holder of Senior Debt that would be
adversely affected thereby. The subordination provisions hereof shall continue
to be effective or be reinstated, as the case may be, if at any time any payment
of any of the Senior Debt is rescinded or must otherwise be returned by any
holder of the Senior Debt upon the insolvency, bankruptcy, or reorganization of
the Company, any Guarantor, or otherwise, all as though such payment has not
been made.
SECTION 12.9. Securityholders Authorize Trustee to Effectuate
-----------------------------------------------
Subordination of Securities.
- ---------------------------
Each Holder of the Securities by his acceptance thereof authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provisions contained in
this Article XII and to protect the rights of the Holders pursuant to this
Indenture, and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company or any Guarantor (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or any other marshalling of assets and liabilities of the Company or
any Guarantor), the immediate filing of a claim for the unpaid balance of his
Securities in the form required in said proceedings and cause said claim to be
approved. In the event of any liquidation or reorganization of the Company or
any Guarantor in bankruptcy, insolvency, receivership or similar proceeding, if
the Holders of the Securities (or the Trustee on their behalf) have not filed
any claim, proof of claim, or other instrument of similar character necessary to
enforce the obligations of the Company or any Guarantor in respect of the
Securities at least thirty (30) days before the expiration of the time to file
the same, then in such event, but only in such event, the holders of the
Designated Senior Debt or a representative on their behalf may, as an attorney-
in-fact for such Holders, file any claim, proof of claim, or other instrument of
similar character on behalf of such Holders. Nothing herein contained shall be
deemed to authorize the Trustee or the holders of Senior Debt or their
representative to authorize or consent to or accept or adopt on behalf of any
Securityholder any
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plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee or
the holders of Senior Debt or their representative to vote in respect of the
claim of any Securityholder in any such proceeding.
SECTION 12.10. Right of Trustee to Hold Senior Debt.
------------------------------------
The Trustee shall be entitled to all of the rights set forth in this
Article XII in respect of any Senior Debt at any time held by it to the same
extent as any other holder of Senior Debt, and nothing in this Indenture shall
be construed to deprive the Trustee of any of its rights as such holder.
SECTION 12.11. Article XII Not to Prevent Events of Default.
--------------------------------------------
The failure to make a payment on account of principal of, premium, if
any, or interest (or Liquidated Damages, if any) on the Securities by reason of
any provision of this Article XII shall not be construed as preventing the
occurrence of a Default or an Event of Default under Section 6.1 or in any way
limit the rights of the Trustee or any Holder to pursue any other rights or
remedies with respect to the Securities.
SECTION 12.12. No Fiduciary Duty of Trustee to Holders of Senior
-------------------------------------------------
Debt.
- ----
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders (other than
for its willful misconduct or negligence) if it shall in good faith mistakenly
pay over or distribute to the Holders of Securities or the Company, any
Guarantor or any other Person, cash, property or securities to which any holders
of Senior Debt shall be entitled by virtue of this Article XII or otherwise.
Nothing in this Section 12.12 shall affect the obligation of any other such
Person to hold such payment for the benefit of, and to pay such payment over to,
the holders of Senior Debt or their representative. In the event of any conflict
between the fiduciary duty of the Trustee to the Holders of Securities and to
the holders of Senior Debt, the Trustee is expressly authorized to resolve such
conflict in favor of the Holders.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. TIA Controls.
------------
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of the TIA, the imposed duties, upon
qualification of this Indenture under the TIA, shall control.
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SECTION 13.2. Notices.
-------
Any notices or other communications to the Company or any Guarantor or
the Trustee required or permitted hereunder shall be in writing, and shall be
sufficiently given if made by hand delivery, by telex, by telecopier or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
if to the Company or any Guarantor:
Doskocil Manufacturing Company, Inc.
4209 Barnett
Arlington, Texas 76017
Attention: Chief Financial Officer
Telecopy: (817) 465-2948
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive
Suite 1700
Newport Beach, California 92660
Attention: Joseph J. Herron, Esq.
Telecopy: (714) 669-6994
if to the Trustee:
First Trust National Association
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Corporate Trust Department
Telecopy: (612) 244-0711
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; when answered back, if telexed;
when receipt is acknowledged, if telecopied; and five Business Days after
mailing if sent by registered or certified mail, postage prepaid (except that a
notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
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Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.3. Communications by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) 312(c).
SECTION 13.4. Certificate and Opinion as to Conditions
----------------------------------------
Precedent.
Upon any request or application by the Company or any Guarantor to the
Trustee to take any action under this Indenture, such Person shall furnish to
the Trustee:
(1) an Officers' Certificate (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been met; and
(2) an Opinion of Counsel (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of such counsel,
all such conditions precedent have been met.
SECTION 13.5. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been met; and
(4) a statement as to whether or not, in the opinion of
each such Person, such condition or covenant has been met; provided,
however, that
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with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 13.6. Rules by Trustee, Paying Agent, Registrar.
-----------------------------------------
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 13.7. Legal Holidays.
--------------
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York, New York are authorized or obligated by law or
executive order to close. If a payment date is a Legal Holiday at such place,
payment may be made at such place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
SECTION 13.8. Governing Law.
-------------
THIS INDENTURE, THE GUARANTEES AND THE SECURITIES SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. EACH OF THE
COMPANY AND THE GUARANTORS 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
INDENTURE AND THE SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID
COURTS. EACH OF THE COMPANY AND THE GUARANTORS IRREVO CABLY WAIVES, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY
SECURITYHOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY AND THE
GUARANTORS IN ANY OTHER JURISDICTION.
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SECTION 13.9. 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 Guarantor or any of their respective
Subsidiaries. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 13.10. No Recourse Against Others.
--------------------------
No partner, incorporator, direct or indirect stockholder, director,
officer or employee, as such, past, present or future, of the Company or any
Guarantor, or any successor entity, shall have any personal liability in respect
of the obligations of the Company and the Guarantors under the Securities, this
Indenture or for any claim based on, in respect of, or by reason of such
obligations or their creation by reason of his, her or its status as such
partner, incorporator, stockholder, director, officer or employee. Each
Securityholder by accepting a Security waives and releases all such liability.
The waiver and release are part of the consideration for the issuance of the
Securities.
SECTION 13.11. Successors.
----------
All agreements of the Company and the Guarantors in this Indenture and
the Securities shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 13.12. Duplicate Originals.
-------------------
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
SECTION 13.13. Severability.
------------
In case any one or more of the provisions in this Indenture or in the
Securities or in the Guarantees shall be held invalid, illegal or unenforceable,
in any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and of the remaining provisions shall not
in any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
SECTION 13.14. Table of Contents, Headings, Etc.
---------------------------------
The Table of Contents, Cross-Reference Table and headings of the
Articles and the 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.
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SECTION 13.15. Qualification of Indenture.
--------------------------
The Company shall qualify this Indenture under the TIA in accordance
with the terms and conditions of the Registration Rights Agreement and shall pay
all costs and expenses (including attorneys' fees for the Company and the
Trustee) incurred in connection therewith, including, but not limited to, costs
and expenses of qualification of this Indenture and the Securities and printing
this Indenture and the Securities. The Trustee shall be entitled to receive
from the Company any such Officers' Certificates, Opinions of Counsel or other
documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
SECTION 13.16. Registration Rights.
-------------------
Certain Holders of the Securities may be entitled to certain
registration rights with respect to such Securities pursuant to, and subject to
the terms of, the Registration Rights Agreement.
95
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
DOSKOCIL MANUFACTURING COMPANY,
INC., a Texas corporation
By: /s/ LARRY E. REMBOLD
---------------------------
Name: Larry E. Rembold
Title: President and Chief
Executive Officer
Attest: /s/ DONALD J. FRITSCHEN
--------------------------
Name: Donald J. Fritschen
Title: Chief Financial Officer
and Secretary
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By: /s/ RICHARD H. PROKOSCH
--------------------------
Name: Richard H. Prokosch
Title: Trust Officer
96
<PAGE>
EXHIBIT A
[FORM OF SECURITY]
DOSKOCIL MANUFACTURING COMPANY, INC.
10 1/0% SERIES A/1/ SENIOR SUBORDINATED NOTE DUE 2007
CUSIP No. ______________
No. $
Doskocil Manufacturing Company, Inc., a Texas corporation (hereinafter
called the "Company", which term includes any successors under the Indenture
hereinafter referred to), for value received, hereby promises to pay to _____,
or registered assigns, the principal sum of _____, Dollars, on September 15,
2007.
Interest Payment Dates: March 15 and September 15.
Record Dates: March 1 and September 1.
Reference is made to the further provisions of this Security on the
reverse side, which will, for all purposes, have the same effect as if set forth
at this place.
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed.
Dated:
DOSKOCIL MANUFACTURING
COMPANY, INC.
a Texas corporation
By:________________________________
Name:
Title:
Attest:____________________
Name:
Title:
____________________
\1\ Series A should be replace with Series B in the Exchange
Securities.
A-1
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned
Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By___________________________________
Authorized Signatory
Dated:
A-2
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC.
10 1/8% SERIES A/2/ Senior Subordinated Note due 2007
Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized representative
of The Depositary Trust Company (55 Water Street, New York, New York) ("DTC"),
to the Company or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein./3/
THE NOTES (OR THEIR PREDECESSORS) EVIDENCED HEREBY WERE ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THE NOTES EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE NOTES EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE
HOLDER OF THE NOTES EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY
THAT (A) SUCH NOTES MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(b) IN A TRANSACTION MEETING THE REQUIREMENTS
_________________________
/2/ Series A should be replaced with Series B in the Exchange Securities.
/3/ This paragraph should only be added if the Security is issued in global
form.
A-3
<PAGE>
OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A
FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR
RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (d) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2)
TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND,
IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE NOTES EVIDENCED HEREBY OF THE RESALE RESTRICTIONS
SET FORTH IN (A) ABOVE./4/
1. Interest.
--------
Doskocil Manufacturing Company, Inc., a Texas corporation (hereinafter
called the "Company," which term includes any successors under the Indenture
hereinafter referred to), promises to pay interest on the principal amount of
this Security at the rate of 10 1/8% per annum. To the extent it is lawful, the
Company promises to pay interest on any interest payment due but unpaid on such
principal amount at a rate of 10 1/8% per annum compounded semi-annually.
The Company will pay interest semi-annually on March 15 and September
15 of each year (each, an "Interest Payment Date"), commencing March 15, 1998.
Inter est on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid on the Securities, from
the date of the original issuance. Interest will be computed on the basis of a
360-day year consisting of twelve 30-day months.
2. Method of Payment.
-----------------
The Company shall pay interest (and Liquidated Damages, if any) on the
Securities (except defaulted interest) to the Persons who are the registered
Holders at the close of business on the Record Date immediately preceding the
Interest Payment Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. Except as provided below, the Company shall pay
principal and interest (and Liquidated Damages, if any) in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for payment of public and private debts ("Cash"). The Securities will be payable
as to principal, premium and interest (and Liquidated Damages, if any) at the
office or agency of the Company maintained for such purpose within the Borough
of Manhattan, the City and State of New York or, at the option of the Company,
payment of principal, premium and interest (and Liquidated Damages, if any) may
be
__________________________
/4/ This paragraph should be included only for the Transfer Restricted
Securities.
A-4
<PAGE>
made by check mailed to the Holders at their addresses set forth in the register
of Holders, and provided that payment by wire transfer of immediately available
funds will be required with respect to principal of and interest (and Liquidated
Damages, if any) and premium on all Global Securities and all other Securities
the Holders of which shall have provided wire transfer instructions to the
Company or the Paying Agent at least 5 Business Days prior to the relevant
record date.
3. Paying Agent and Registrar.
--------------------------
Initially, First Trust National Association (the "Trustee"), will
act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of
September 19, 1997 (the "Indenture"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act, as in effect on the date of the Indenture. The Securities are
subject to all such terms, and Holders of Securities are referred to the
Indenture and said Act for a statement of them. The Securities are senior
subordinated obligations of the Company limited in aggregate principal amount to
$85,000,000. The Securities are, to the extent and in the manner provided in the
Indenture, subordinate and subject in right of payment to the prior payment in
full of all Senior Debt of the Company, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder of
this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be provided in the Indenture and (c) appoints the Trustee his
attorney-in-fact for such purpose.
5. Redemption.
----------
Except as provided in this Paragraph 5 or in Article III of the
Indenture, the Company shall not have the right to redeem any Securities. The
Securities may be redeemed in whole or from time to time in part at any time on
and after September 15, 2002, at the option of the Company, at the Redemption
Price (expressed as a percentage of principal amount) set forth below with
respect to the indicated Redemption Date, in each case (subject to the right of
Holders of record on a Record Date that is on or prior to such Redemption Date
to receive interest due on the Interest Payment Date to which such Record Date
relates), plus any accrued but unpaid interest (and Liquidated Damages, if any)
to the Redemption Date.
A-5
<PAGE>
<TABLE>
<CAPTION>
If redeemed during
the 12-month period
commencing September 15, Redemption Price
------------------------------ ---------------------
<S> <C>
2002 . . . . . . . . . 105.063%
2003 . . . . . . . . . 103.375%
2004 . . . . . . . . . 101.688%
2005 and thereafter. . 100.000%
</TABLE>
Notwithstanding the foregoing, until September 15, 2000, upon an
Initial Public Equity Offering of common stock for cash of the Company, up to
35% of the aggregate principal amount of the Securities originally outstanding
may be redeemed at the option of the Company within 90 days of such Initial
Public Equity Offering, on not less than 30 days, but not more than 60 days,
notice to each holder of the Securities to be redeemed, with cash from the Net
Cash Proceeds of such Initial Public Equity Offering, at a redemption price
equal to 110 1/8% of principal, (subject to the right of Holders of record on a
Record Date to receive interest due on an Interest Payment Date that is on or
prior to such Redemption Date) together with accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption; provided, however, that
at least 65% of the aggregate principal amount of the Securities originally
outstanding remain outstanding immediately following such redemption.
Notwithstanding the foregoing, at any time on or prior to
September 15, 2002, the Securities may also be redeemed in whole (but not in
part) at the option of the Company upon the occurrence of a Change of Control
Redemption Event on not less than 15 days, but not more than 30 days, notice
(but in no event shall any such redemption occur more than 45 Business Days
after the occurrence of such Change of Control Redemption Event) to each Holder
of Securities, at a redemption price equal to 100% of the principal amount
thereof, plus the Applicable Premium as of, and accrued and unpaid interest and
Liquidated Damages, if any, to the Redemption Date (subject to the right of
Holders of record on a Record Date to receive interest due on an Interest
Payment Date that is on or prior to such Redemption Date).
Any such redemption will comply with Article III of the
Indenture.
6. Notice of Redemption.
--------------------
Notice of redemption will be sent by first class mail, at least
30 days and not more than 60 days prior to the Redemption Date (except for a
redemption in connection with a Change of Control Redemption Event as described
in the third paragraph of Paragraph 5 above, in which case notice shall be sent
within the applicable time period referenced therein) to the Holder of each
Security to be redeemed at such Holder's last address as then shown upon the
registry books of the Registrar. Securities may be redeemed in part in multiples
of $1,000 only.
A-6
<PAGE>
Except as set forth in the Indenture, from and after any
Redemption Date, if monies for the redemption of the Securities called for
redemption shall have been deposited with the Paying Agent on such Redemption
Date, the Securities called for redemption will cease to bear interest and the
only right of the Holders of such Securities will be to receive payment of the
Redemption Price, plus any accrued and unpaid interest (and Liquidated Damages,
if any) to the Redemption Date.
7. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may register
the transfer of, or exchange Securities in accordance with, the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
of or exchange any Securities (a) selected for redemption except the unredeemed
portion of any Security being redeemed in part or (b) for a period beginning 15
Business Days before the mailing of a notice of an offer to repurchase or
redemption and ending at the close of business on the day of such mailing.
8. Persons Deemed Owners.
---------------------
The registered Holder of a Security may be treated as the owner
of it for all purposes.
9. Unclaimed Money.
---------------
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee and the Paying Agent(s) will pay the money
back to the Company at its written request. After that, all liability of the
Trustee and such Paying Agent(s) with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
-----------------------------------------
Except as set forth in the Indenture, if the Company irrevocably
deposits with the Trustee, in trust, for the benefit of the Holders, cash, U.S.
Government Obligations or a combination thereof, in such amounts as will be
sufficient in the opinion of a nationally recognized firm of independent public
accountants selected by the Trustee, to pay the principal of, premium, if any,
and interest (and Liquidated Damages, if any) on the Securities to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Securities (including the financial covenants, but excluding its
obligation to pay the principal of, premium, if any, and interest (and
Liquidated Damages, if any) on the Securities). Upon satisfaction of certain
additional conditions set forth in the
A-7
<PAGE>
Indenture, the Company may elect to have its obligations discharged with respect
to outstanding Securities.
11. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture or the Securities
may be amended or supplemented with the written consent of the Holders of at
least a majority in aggregate principal amount of the Securities then
outstanding, and any existing Default or Event of Default or compliance with any
provision may be waived with the consent of the Holders of a majority in
aggregate principal amount of the Securities then outstanding. Without notice to
or consent of any Holder, the parties thereto may under certain circumstances
amend or supplement the Indenture or the Securities to, among other things, cure
any ambiguity, defect or inconsistency, or make any other change that does not
adversely affect the rights of any Holder of a Security.
12. Restrictive Covenants.
---------------------
The Indenture imposes certain limitations on the ability of the
Company and any Guarantors to, among other things, Incur additional Indebtedness
and issue Preferred Stock, pay dividends or make certain other Restricted
Payments, enter into certain transactions with Affiliates, incur Liens, sell
assets and subsidiary stock, merge or consolidate with any other Person or
transfer (by lease, assignment or otherwise) substantially all of the properties
and assets of the Company. The limitations are subject to a number of important
qualifications and exceptions. The Company must periodically report to the
Trustee on compliance with such limitations.
13. Ranking.
-------
Payment of principal, premium, if any, and interest (and
Liquidated Damages, if any) on the Securities is subordinated, in the manner and
to the extent set forth in the Indenture, to the prior payment in full of all
Senior Debt.
14. Repurchase at Option of Holder.
------------------------------
(a) If there is a Change of Control, the Company shall be
required (except to the extent that it has previously redeemed Securities in
connection with a Change of Control Redemption Event) to offer to purchase on
the Change of Control Purchase Date all outstanding Securities at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest (and Liquidated Damages, if any), if any, to the Change of Control
Purchase Date. Holders of Securities will receive a Change of Control Offer from
the Company prior to any related Change of Control Purchase Date and may elect
to have such Securities purchased by completing the form entitled "Option of
Holder to Elect Purchase" appearing below.
A-8
<PAGE>
(b) The Indenture imposes certain limitations on the ability of
the Company, the Guarantors or any of their respective Subsidiaries to sell
assets and subsidiary stock. In the event the proceeds from a permitted Asset
Sale exceed certain amounts, as specified in the Indenture, the Company will be
required either to reinvest the proceeds of such Asset Sale in a Related
Business, repay certain Indebtedness or to make an offer to purchase each
Holder's Securities at 100% of the principal amount thereof, plus accrued
interest (and Liquidated Damages, if any), if any, to the purchase date.
15. Notation of Guarantee.
---------------------
As set forth more fully in the Indenture, the Persons
constituting Guarantors from time to time, in accordance with the provisions of
the Indenture, unconditionally and jointly and severally guarantee, in
accordance with Section 11.1 of the Indenture, to the Holder and to the Trustee
and its successors and assigns, that (i) the principal of and interest on the
Security will be paid, whether at the Maturity Date or Interest Payment Dates,
by acceleration, call for redemption upon a Change of Control Offer, upon an
Asset Sale Offer or otherwise, and all other obligations of the Company to the
Holder or the Trustee under the Indenture or this Security will be promptly paid
in full or performed, all in accordance with the terms of the Indenture and this
Security, and (ii) in the case of any extension of payment or renewal of this
Security or any of such other obligations, they will be paid in full when due or
performed in accordance with the terms of such extension or renewal, whether at
the Maturity Date, as so extended, by acceleration, call for redemption, upon a
Change of Control Offer, upon an Asset Sale Offer or otherwise. Such guarantees
shall cease to apply, and shall be null and void, with respect to any Guarantor
who, pursuant to Article XI of the Indenture, is released from its guarantees,
or whose guarantees otherwise cease to be applicable pursuant to the terms of
the Indenture.
When a successor assumes all the obligations of its predecessor
under the Securities and the Indenture, the predecessor will be released from
those obligations.
16. Defaults and Remedies.
---------------------
If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of the then
outstanding Securities may declare all the Securities to be due and payable
immediately, or if there are any amounts outstanding under the New Credit
Facility shall become immediately due and payable upon the first to occur of an
acceleration under the New Credit Facility or five Business Days after receipt
by the Company and the representative of the holders of the Indebtedness under
the New Credit Facility of the notice of such an acceleration but only if such
Event of Default is then continuing. Notwithstanding the foregoing, in the case
of an Event of Default arising from certain events of bankruptcy or insolvency
with respect to the Company or any of its Significant Subsidiaries, all
outstanding Securities will become
A-9
<PAGE>
due and payable without further action or notice. Securityholders may not
enforce the Indenture, the Securities or the Guarantees except as provided in
the Indenture. Subject to certain limitations, Holders of a majority in
aggregate principal amount of the then outstanding Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
17. 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, any Guarantor, any of their Subsidiaries or any of their respective
Affiliates, and may otherwise deal with such Persons as if it were not the
Trustee.
18. No Recourse Against Others.
--------------------------
No partner, incorporator, direct or indirect stockholder,
partner, director, officer or employee, as such, past, present or future, of the
Company or any Guarantor, or any successor entity, shall have any personal
liability in respect of the obligations of the Company and the Guarantors under
the Securities or the Indenture by reason of his, her or its status as such
partner, incorporator, stockholder, director, officer or employee. Each Holder
of a Security by accepting a Security waives and releases all such liability.
The waiver and release are part of the consideration for the issuance of the
Securities.
19. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this
Security.
20. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
A-10
<PAGE>
22. Additional Rights of Holders of Transfer Restricted Securities./5/
--------------------------------------------------------------
In addition to the rights provided to Holders of Securities under the
Indenture, Holders of Securities shall have all the rights set forth in the
Registration Rights Agreement.
23. Governing Law.
-------------
The Indenture and the Securities shall be governed by and construed in
accordance with the internal laws of the State of New York.
___________________
/5/ This paragraph should be included only for the Initial Securities.
A-11
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign this Security to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of
assignee
_______________________________
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Dated: _______________ Signed: _______________________________________________
________________________________________________________________________________
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee/*/
______________
/*/ NOTICE: The Signature must be guaranteed by an Institution which is a
member of one of the following recognized signature Guarantee Programs: (i)
The Securities Transfer Agent Medallion Program (STAMP); (ii) The New York
Stock Exchange Medallion Program (MNSP); (iii) The Stock Exchange Medallion
Program (SEMP); or (iv) in such other guarantee program acceptable to the
Trustee.
A-12
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.14 or Article X of the Indenture, check the appropriate
box: [_] Section 4.14 [_] Article X.
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.14 or Article X of the Indenture, as the case
may be, state the amount you want to be purchased: $________.
Date: ________________ Signature:_______________________________________
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee/**/
__________________
/**/ NOTICE: The Signature must be guaranteed by an Institution which is a
member of one of the following recognized signature Guarantee Programs: (i)
The Securities Transfer Agent Medallion Program (STAMP); (ii) The New York
Stock Exchange Medallion Program (MNSP); (iii) The Stock Exchange Medallion
Program (SEMP); or (iv) in such other guarantee program acceptable to the
Trustee.
A-13
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES/6/
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
<TABLE>
<CAPTION>
Amount of
Amount of increase in Principal Amount Signature of
decrease in Principal of this Global authorized officer of
Principal Amount Amount Security following Trustee or
Date of of this Global of this Global such decrease (or Securities
Exchange Security Security increase) Custodian
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
_________________________
/6/ This schedule should only be added if the Security is issued in global
form.
A-14
<PAGE>
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
TRANSFER RESTRICTED SECURITIES/7/
Re: 101/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2007 OF DOSKOCIL
MANUFACTURING COMPANY, INC.
This Certificate relates to $______ principal amount of Securities held in
(check applicable space) _____ book-entry or ______ definitive form by
_________________ (the "Transferor").
The Transferor (check applicable box):
[_] has requested the Trustee by written order to deliver in exchange
for its beneficial interest in the Global Security held by the Depository a
Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial interest
in such Global Security (or the portion thereof indicated above); or
[_] has requested the Trustee by written order to exchange or
register the transfer of a Security or Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that Transferor is familiar with
the Indenture relating to the above-captioned Securities and as provided in
Section 2.6 of such Indenture, the transfer of this Security does not require
registration under the Securities Act (as defined below) because:
[_] Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.6(a)(ii)(A) or Section
2.6(d)(i)(A) of the Indenture).
[_] Such Security is being transferred to a "qualified institutional
buyer" (within the meaning of Rule 144A promulgated under the Securities Act),
that is aware that any sale of Securities to it will be made in reliance on Rule
144A under the Securities Act and that is acquiring such Transfer Restricted
Security for its own account, or for the account of another such "qualified
institutional buyer" (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of the Indenture).
[_] Such Security is being transferred pursuant to an exemption from
registration in accordance with Rule 144, or outside the United States in an
Offshore Transaction in compliance with Rule 904 under the Securities Act, or
pursuant to an effec-
_______________________
/7/ This Certificate shall be included only for Initial Securities.
A-15
<PAGE>
tive registration statement under the Securities Act (in satisfaction of Section
2.6(a)(ii)(C) or Section 2.6(d)(i)(C) of the Indenture).
[_] Such Security is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the
Securities Act and in accordance with applicable securities laws of the states
of the United States, other than as provided in the immediately preceding
paragraph. An Opinion of Counsel to the effect that such transfer does not
require registration under the Securities Act accompanies this Certificate (in
satisfaction of Section 2.6(a)(ii)(D) or Section 2.6(d)(i)(D) of the Indenture).
_______________________________________________
[INSERT NAME OF TRANSFEROR]
By:____________________________________________
Date:____________________
A-16
<PAGE>
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
SECURITIES/8/
Re: 101/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007 OF DOSKOCIL
MANUFACTURING COMPANY, INC.
This Certificate relates to $______ principal amount of Securities
held in (check applicable box) _____ book-entry or ______ definitive form by
_____ (the "Transferor").
The Transferor (check applicable box):
[_] has requested the Trustee by written order to deliver in exchange
for its beneficial interest in the Global Security held by the Depositary a
Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial interest
in such Global Security (or the portion thereof indicated above); or
[_] has requested the Registrar by written order to exchange or
register the transfer of a Security or Securities.
________________
/8/ This certificate shall be included only for the Exchange Securities.
A-17
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF O'MELVENY & MYERS LLP]
October
2nd
1997
Doskocil Manufacturing Company, Inc.
4209 Barnett
Arlington, Texas 76017
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as securities counsel to Doskocil Manufacturing Company,
Inc., a Texas corporation ("the Company"), in connection with the exchange of
the Company's outstanding 10 1/8% Senior Subordinated Notes Due 2007 (the "Old
Notes") for newly issued 10 1/8% Senior Subordinated Notes Due 2007 (the "New
Notes") which are being registered under the Securities Act of 1933, as amended,
by means of a Registration Statement on Form S-4 (the "Registration Statement"),
as filed with the Securities and Exchange Commission (the "Commission").
We have examined such documents and records, and other certificates,
opinions and instruments and have conducted such investigation as we have deemed
necessary as a basis for the opinion expressed below. As to factual matters
relevant to our opinion expressed below, we have relied, without independent
investigation, upon all of the foregoing, upon certificates of the officers of
the Company and of public officials, and upon public records.
<PAGE>
Doskocil Manufacturing Company, Inc.
Page 2
We are opining herein only as to United States federal law and the
laws of the State of New York. On the basis of the foregoing, and in reliance
thereon, and subject to the limitations, qualifications and exceptions set forth
below, we are of the opinion that:
Assuming the due authorization of the New Notes by the Company, when
executed and authenticated in accordance with their terms and the terms of the
indenture, dated September 19, 1997, between the Company and First Trust
National Association, and delivered in exchange for the Old Notes pursuant to
the Indenture and the exchange offer, 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 (i) as
may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or other similar laws affecting the rights of creditors generally,
(ii) for the effect of general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair dealing
and the possible unavailability of specific performance or injunctive relief
regardless of whether enforcement is brought in a proceeding at law or in equity
and (iii) the waiver as to stay, extension or usury laws may not be enforceable.
Our opinion with respect to the validity, binding effect and
enforceability of the New Notes is subject to (a) the unenforceability under
certain circumstances of provisions to the effect that rights or remedies are
not exclusive, that rights or remedies may be exercised in addition to or with
any other right or remedy, that election of a particular remedy or remedies does
not preclude recourse to one or more other remedies, or that failure to exercise
or delay in exercising rights or remedies will not operate as a waiver of any
such right or remedy, (b) the unenforceability under certain circumstances of
provisions expressly or by implication waiving broadly or vaguely stated rights,
unknown future rights, defenses to obligations, rights granted by law or
objections to the bringing of an action or proceeding in a particular
jurisdiction, where such waivers are against public policy or prohibited by law,
and (c) the unenforceability under certain circumstances of any provisions which
impose penalties or forfeitures.
We express no opinion regarding the statutes, administrative
decisions, rules, regulations or requirements of any county, municipality,
subdivision or local authority of any jurisdiction. We express no opinion
regarding any bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or other similar laws affecting the rights of creditors generally.
Respectfully submitted,
/s/ O'MELVENY & MYERS LLP
O'Melveny & Myers LLP
<PAGE>
EXHIBIT 5.2
[Letterhead of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.]
October 2, 1997
Doskocil Manufacturing Company
4209 Barnett
Arlington, Texas 76017
Re: Registration Statement on Form S-4
Gentlemen:
We have acted as securities counsel to Doskocil Manufacturing Company,
Inc., a Texas corporation (the "Company"), in connection with the exchange of
$85,000,000 of 10 1/8% Senior Subordinated Notes Due 2007 (the "Old Notes") for
$85,000,000 of newly issued 10 1/8% Senior Subordinated Notes Due 2007 (the "New
Notes") which are being registered under the Securities Act of 1933, as amended,
by means of a Registration Statement on Form S-4 (the "Registration Statement"),
as filed with the Securities and Exchange Commission (the "Commission").
We have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary or advisable in connection with this opinion, including (a) the
Amended and Restated Articles of Incorporation of the Company and the Bylaws of
the Company, as amended to date, (b) minutes of the proceedings of the Board of
Directors of the Company, (c) the Registration Rights Agreement dated September
19, 1997, by and among the Company, Nationsbanc Capital Markets, Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation, (d) the Indenture dated as
of September 19, 1997, by and between the Company and First Trust National
Associates, as trustee, and (e) the Registration Statement. In our examination,
we have assumed the genuineness of all signatures, the legal capacity of natural
persons, 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, the authenticity of the originals of such copies and the
authenticity of telegraphic or telephonic confirmations of public officials and
others. As to facts material to our opinion, we have relied upon certificates
or telegraphic or telephonic confirmations of public officials and certificates,
documents, statements and other information of the Trust or representatives or
officers thereof.
1
<PAGE>
Doskocil Manufacturing Company
September 15, 1997
Page 2
The opinions set forth herein are subject to the qualification that we are
admitted to practice law in the State of Texas and we express no opinion as to
laws other than the law of the State of Texas and the federal law of the United
States of America.
Based upon the foregoing, and subject to the assumption, qualifications and
limitations hereinabove and hereinafter stated, it is our opinion that:
1. The Company is duly organized and validly existing as corporation in
good standing under the laws of the State of Texas and full corporate power and
authority to carry on its business and to own, lease and operate its properties
as described in the Registration Statement.
2. The issuance of the New Notes has been duly authorized by the Company.
This opinion is rendered as of the date hereof, and we undertake no, and
disclaim any, obligation to advise you of any change in or any new development
that might affect any matters or opinions set forth herein.
We consent to the reference to our Firm under the heading "Legal Matters"
in the Prospectus included in the Registration Statement, and to the filing of
this opinion as an Exhibit to the Registration Statement.
Very truly yours,
/s/ LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P.
LIDDELL, SAPP, ZIVLEY, HILL & LaBOON, L.L.P.
2
<PAGE>
EXHIBIT 10.1
RECAPITALIZATION AGREEMENT
BY AND AMONG
ENTERPRISE PARTNERS III, L.P.,
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
ENTERPRISE PARTNERS IV, L.P.
ENTERPRISE PARTNERS IV ASSOCIATES, L.P.
ENTERPRISE MANAGEMENT PARTNERS CORPORATION
ENTERPRISE PARTNERS TEXAS COMPANY, L.L.C.
BENJAMIN L. DOSKOCIL, SR.,
MARY FRANCES DOSKOCIL,
BED ROCK INTERNATIONAL, INC.,
DOSKOCIL MANUFACTURING COMPANY, INC.
AND
SPECTRUM POLYMERS, LTD.
DATED JULY 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS
SECTION 1.1. Definitions......................................... 2
ARTICLE II THE RECAPITALIZATION
SECTION 2.1. Recapitalization Events............................. 6
SECTION 2.2. Purchase Amount Adjustment.......................... 8
SECTION 2.3. Procedures for Determination of the Closing
Balance Sheet....................................... 8
SECTION 2.4. Delivery of the Closing Balance Sheet;
Dispute Resolution.................................. 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE DOSKOCILS
SECTION 3.1. Organization and Qualification...................... 10
SECTION 3.2. Authorization....................................... 10
SECTION 3.3. No Violation........................................ 11
SECTION 3.4. Capitalization of DMC and Spectrum.................. 11
SECTION 3.5. Subsidiaries and Equity Investments................. 11
SECTION 3.6. Consents and Approvals.............................. 11
SECTION 3.7. Financial Statements................................ 12
SECTION 3.8. Absence of Undisclosed Liabilities.................. 12
SECTION 3.9. Absence of Certain Changes.......................... 12
SECTION 3.10. Litigation.......................................... 14
SECTION 3.11. Real Property; Liens and Encumbrances............... 14
SECTION 3.12. Certain Agreements.................................. 15
SECTION 3.13. Employee Benefit Plans.............................. 15
SECTION 3.14. Taxes............................................... 17
SECTION 3.15. Compliance with Applicable Law...................... 18
SECTION 3.16. Brokers' Fees and Commissions....................... 18
SECTION 3.17. Proprietary Rights.................................. 18
SECTION 3.18. Labor and Employment................................ 18
SECTION 3.19. Insurance........................................... 19
SECTION 3.20. Environmental Matters............................... 19
SECTION 3.21. Ownership of Securities............................. 20
SECTION 3.22. Title to Common Stock............................... 20
SECTION 3.23. Inventories......................................... 20
SECTION 3.24. Receivables......................................... 20
SECTION 3.25. Suppliers........................................... 20
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 3.26. Tangible Property.................................... 20
SECTION 3.27. Powers of Attorney................................... 21
SECTION 3.28. Permits.............................................. 21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYERS
SECTION 4.1. Organization and Qualification....................... 21
SECTION 4.2. Authorization........................................ 22
SECTION 4.3. No Violation......................................... 22
SECTION 4.4. Consents and Approvals............................... 22
SECTION 4.5. Brokers' Fees and Commissions........................ 22
SECTION 4.6. Purchase for Investment.............................. 23
SECTION 4.7. Relationships........................................ 23
ARTICLE V COVENANTS
SECTION 5.1. All Reasonable Efforts............................... 23
SECTION 5.2. Public Announcements................................. 23
SECTION 5.3. No Implied Representations or Warranties............. 24
SECTION 5.4. Employee Benefit Matters............................. 24
SECTION 5.5. Solvency At the Closing.............................. 25
SECTION 5.6. Allocation of Partnership Purchase Price............. 25
SECTION 5.7. Relationships........................................ 25
ARTICLE VI CLOSING
SECTION 6.1. Closing.............................................. 26
ARTICLE VII SURVIVAL AND INDEMNIFICATION
SECTION 7.1. Survival of Representations and Warranties........... 27
SECTION 7.2. Indemnification..................................... 28
ARTICLE VIII MISCELLANEOUS PROVISIONS
SECTION 8.1. Amendment and Modification........................... 30
SECTION 8.2. Waiver of Compliance; Consents....................... 30
SECTION 8.3. Validity............................................. 30
SECTION 8.4. Expenses and Obligations............................. 30
SECTION 8.5. Parties in Interest.................................. 30
SECTION 8.6. Notices.............................................. 30
SECTION 8.7. Governing Law........................................ 32
SECTION 8.8. Counterparts......................................... 32
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8.9. Headings............................................ 32
SECTION 8.10. Entire Agreement.................................... 32
SECTION 8.11. Assignment.......................................... 32
SECTION 8.12. Certain Tax Audits.................................. 32
SECTION 8.13. Transfer Taxes...................................... 33
SECTION 8.14. Certain Tax Returns................................. 33
SECTION 8.15. Certain Refunds and Tax Benefits.................... 33
SECTION 8.16. Exclusive Remedy.................................... 34
</TABLE>
iii
<PAGE>
RECAPITALIZATION AGREEMENT
RECAPITALIZATION AGREEMENT (this "Agreement"), dated July 1, 1997, by and
among Enterprise Partners III, L.P., a Delaware limited partnership ("EPIII"),
Enterprise Partners III Associates, L.P., a Delaware limited partnership
("EPIIIA"), Enterprise Partners IV, L.P., a Delaware limited partnership
("EPIV"), Enterprise Partners IV Associates, L.P., a Delaware limited
partnership ("EPIVA," together with EPIII, EPIIIA and EPIV, the "EP Funds"),
Enterprise Management Partners Corporation, a California corporation ("EMPC"),
Enterprise Partners Texas Company, LLC, a Texas limited liability company and
wholly-owned subsidiary of EMPC ("EP Texas," together with EMPC and EP Funds,
the "Buyers"), Benjamin L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock
International, Inc., a Texas corporation ("BRI," together with Benjamin L.
Doskocil, Sr. and Mary Frances Doskocil, the "Sellers"), Doskocil Manufacturing
Company, Inc., a Texas corporation ("DMC"), and Spectrum Polymers, Ltd., a Texas
limited partnership ("Spectrum," together with DMC, the "Company").
RECITALS:
--------
WHEREAS, Sellers are the record and beneficial owners of 5,998,900 shares
(the "Shares") of common stock, no par value, of DMC (the "Common Stock"),
representing all of the issued and outstanding shares of capital stock of DMC,
and 100% of the general and limited partnership interests of Spectrum (such
general partnership interest is referred to herein as the "GP Interest" and such
limited partnership interests are referred to herein as the "LP Interests" and
the GP Interest and the LP Interests are collectively referred to herein as the
"Interests");
WHEREAS, Sellers and Buyers desire to recapitalize the Company (the
"Recapitalization"), all in accordance with the provisions of this Agreement;
WHEREAS, on May 14, 1997, the United States Federal Trade Commission (the
"FTC") issued a notice of early termination of the waiting period for the
Recapitalization;
WHEREAS, each of the Buyers has approved the Recapitalization in accordance
with the terms and subject to the conditions of this Agreement;
WHEREAS, the general and limited partners of Spectrum and the Boards of
Directors of DMC and BRI have approved the Recapitalization in accordance with
the terms and subject to the conditions of this Agreement; and
WHEREAS, Buyers and Sellers desire to make certain representations,
warranties and agreements in connection with the Recapitalization.
1
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1. Definitions. For purposes of this Agreement, the term:
-----------
(a) "ACMs" has the meaning set forth in Section 3.20(e).
(b) "Adjusted Allowance" has the meaning set forth in Section 7.2(a).
(c) "affiliate" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, another person.
(d) "Allocation" has the meaning set forth in Section 5.6.
(e) "Allowance" has the meaning set forth in Section 7.2(a).
(f) "BRI" has the meaning set forth in the introduction.
(g) "Buyers" has the meaning set forth in the introduction.
(h) "CERCLIS" has the meaning set forth in Section 3.20(d).
(i) "Closing" has the meaning set forth in Section 6.1.
(j) "Closing Balance Sheet" has the meaning set forth in Section 2.3.
(k) "Closing Date" has the meaning set forth in Section 6.1.
(l) "Code" means the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
(m) "Common Stock" has the meaning set forth in the recitals.
(n) "Company" has the meaning set forth in the introduction.
(o) "Company Indemnified Parties" has the meaning set forth in Section
5.4(b).
2
<PAGE>
(p) "contract" means any contract, agreement, indenture, note, bond,
loan, instrument, lease, conditional sales contract, mortgage, license,
franchise, insurance policy, commitment or other arrangement or agreement.
(q) "Definitive Closing Balance Sheet" has the meaning set forth in
Section 2.4.
(r) "Doskocils" means Benjamin L. Doskocil, Sr. and Mary Frances
Doskocil.
(s) "DMC" has the meaning set forth in the introduction.
(t) "DOJ" means the United States Department of Justice.
(u) "Employee Benefit Plans" has the meaning set forth in Section
3.13(a).
(v) "Environmental Claims" has the meaning set forth in Section
3.20(c).
(w) "Environmental Condition" means the presence or release of
Hazardous Materials in or into the environment at concentrations requiring
investigation or remediation under Environmental Laws.
(x) "Environmental Laws" means all applicable federal, state or local
statutes, codes, rules or regulations relating to the protection of the
environment, natural resources and/or the use, storage, treatment or disposal of
Hazardous Materials.
(y) "Environmental Permits" has the meaning set forth in Section
3.20(b).
(z) "Environmental Reports" means the environmental assessments
listed in Section 3.20 of the Disclosure Schedule.
(aa) "ERISA" has the meaning set forth in Section 3.13(a).
(ab) "Escrow Agent" has the meaning set forth in Section 2.1(g).
(ac) "Escrow Amount" has the meaning set forth in Section 2.1(g).
(ad) "Financial Statements" has the meaning set forth in Section
3.7(a).
(ae) "FTC" has the meaning set forth in the recitals.
(af) "GAAP" has the meaning set forth in Section 3.7(a).
3
<PAGE>
(ag) "Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
(ah) "GP Interests" has the meaning set forth in the recitals.
(ai) "Hazardous Materials" means any material or substance regulated
or controlled by any Environmental Law, including, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act and the
Resource Conservation Recovery Act and similar federal and analogous state laws.
(aj) "HSR Act" has the meaning set forth in Section 3.6.
(ak) "Indemnification Agreements" has the meaning set forth in Section
5.4(b).
(al) "Indemnified Party" has the meaning set forth in Section 7.2(c).
(am) "Indemnifying Party" has the meaning set forth in Section 7.2(c).
(an) "Insurance Policies" has the meaning set forth in Section 3.19.
(ao) "Interests" has the meaning set forth in the recitals.
(ap) "Interim Financial Statements" has the meaning set forth in
Section 3.7(b).
(aq) "knowledge" of the Company (or any similar phrase) means the
actual knowledge of Benjamin L. Doskocil, Sr., Mary Frances Doskocil, Garland
Strong, Donald J. Fritschen, Edward J. Doskocil, William C. Bowie, Jr. or James
T. Lee.
(ar) "Liabilities" has the meaning set forth in Section 7.2(b).
(as) "Lenders" mean the lenders which are parties to the Loan
Agreements.
(at) "Liens" has the meaning set forth in Section 3.11(b).
(au) "Loan Agreements" mean (i) that certain Credit Agreement dated
July 1, 1997, among DMC, certain lenders named therein, NationsBank Capital
Markets, Inc., as arranger, and Donaldson, Lufkin & Jenrette Securities
Corporation, as arranger, in the original principal amount of $80,000,000 and
(ii) that certain Securities Purchase Agreement dated as of July 1, 1997 among
DMC, Doskocil Funding, Inc. and NationsBridge, L.L.C.
(av) "Losses" has the meaning set forth in Section 7.2(b).
4
<PAGE>
(aw) "LP Interests" has the meaning set forth in the recitals.
(ax) "Material Adverse Effect" means a material adverse effect on the
business, operations, liabilities, properties, assets or financial condition of,
in the case of the Company, DMC or Spectrum, Spectrum, and DMC taken as a whole,
and in the case of Buyers, Buyers and their Subsidiaries taken as a whole.
(ay) "Neutral Auditors" has the meaning set forth in Section 2.4.
(az) "New Real Property Lease Agreements" has the meaning set forth in
Section 6.1(a).
(ba) "Newly Issued Shares" has the meaning set forth in Section
2.1(d).
(bb) "Non-Competition Agreement" has the meaning set forth in Section
6.1(a).
(bc) "Partnership Purchase Price" has the meaning set forth in Section
2.1(b).
(bd) "Pass Through Taxes" has the meaning set forth in Section 8.12.
(be) "Patent and Trademark Rights" has the meaning set forth in
Section 3.17(b).
(bf) "PCBs" has the meaning set forth in Section 3.20(e).
(bg) "Permit" means any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be issued by
any Governmental Authority, or any filing or registration with or notice to any
Governmental Authority.
(bh) "Permitted Liens" has the meaning set forth in Section 3.11(b).
(bi) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or, as applicable, any
other entity.
(bj) "Preferred Stock" has the meaning set forth in Section 2.1(c).
(bk) "Purchase Amount" shall mean the sum of the Partnership Purchase
Price and the Redemption Amount, as such amount may be adjusted by Section 2.2.
(bl) "Redeemed Shares" has the meaning set forth in Section 2.1(g).
(bm) "Redemption Amount" has the meaning set forth in Section 2.1(g).
5
<PAGE>
(bn) "Resolution Period" has the meaning set forth in Section 2.4.
(bo) "Seller Returns" has the meaning set forth in Section 8.14.
(bp) "Sellers" has the meaning set forth in the introduction.
(bq) "Shares" has the meaning set forth in the recitals.
(br) "Six-Year Look Back Date" has the meaning set forth in Section
3.13(b).
(bs) "Spectrum" has the meaning set forth in the introduction.
(bt) "Subsidiary" means any person of which at least a majority of the
outstanding shares or other equity interests having ordinary voting power for
the election of directors or comparable managers of such person are owned,
directly or indirectly, by another person.
(bu) "Taxes" means all taxes, including income, gross receipts, ad
valorem, excise, sales, use, withholding, payroll and franchise taxes imposed by
the United States of America, or by any foreign, state or local government.
(bv) "Tax Returns" means any report, return or statement required to
be supplied to a taxing authority in connection with Taxes.
(bw) "USTs" has the meaning set forth in Section 3.20(e).
(bx) "Westar Capital" means Westar Capital, L.P., a California limited
partnership.
ARTICLE II
THE RECAPITALIZATION
--------------------
SECTION 2.1. Recapitalization Events.
-----------------------
(a) Timing of Recapitalization Events. Each of the following
---------------------------------
transactions and events contemplated by this Section 2.1 shall occur
sequentially in the order that such transactions and events are set forth in
this Section 2.1; provided, however, that all events shall be rescinded and the
status quo ante restored if all such events shall not occur at the Closing.
(b) Purchase and Sale of Interests. BRI hereby sells, assigns,
------------------------------
transfers and conveys to EP Texas, and EP Texas hereby purchases and acquires
from BRI all right, title
6
<PAGE>
and interest of BRI in and to the GP Interest, free and clear of all Liens, and
Doskocils hereby sell, assign, transfer and convey to the EP Funds and EMPC, and
the EP Funds and EMPC hereby purchase from Doskocils all right, title and
interest of Doskocils in and to 100% of the LP Interests, free and clear of all
Liens. The aggregate purchase price for the Interests is $11,004,754 (the
"Partnership Purchase Price"). The Partnership Purchase Price is being paid by
the EP Funds and EMPC in cash, allocable as set forth in Exhibit A hereto, by
---------
wire transfer of immediately available funds to the account or accounts
designated on Exhibit B hereto.
---------
(c) Contribution of Interests to DMC. EMPC hereby contributes its
--------------------------------
membership interest in EP Texas to DMC, and EP Funds and EMPC hereby contribute
the LP Interests to DMC in exchange for EMPC receiving 532,408 shares of Common
Stock, EPIII receiving 128,896 shares of Common Stock, EPIIIA receiving 11,207
shares of Common Stock, EPIV receiving 119,792 shares of Common Stock, and EPIVA
receiving 6,309 shares of Common Stock (together with the shares of Common Stock
and DMC's preferred stock, no par value per share ("Preferred Stock"), to be
issued pursuant to Section 2.1(e), the "Newly Issued Shares").
(d) Filing of Amended and Restated Articles of Incorporation. DMC
--------------------------------------------------------
files or causes to be filed with the Secretary of State of the State of Texas
the Amended and Restated Articles of Incorporation, a copy of which is attached
hereto as Exhibit C.
---------
(e) Issuance of Common Stock and Preferred Stock. EMPC hereby
--------------------------------------------
contributes (i) $1,000,000 in cash to DMC in exchange for 66,551 shares of
Common Stock, and (ii) $21,400,000 in cash to DMC in exchange for 1,424,192
shares of Preferred Stock; EPIII hereby contributes (i) $968,400 in cash to DMC
in exchange for 64,448 shares of Common Stock and (ii) $774,720 in cash to DMC
in exchange for 51,558 shares of Preferred Stock; EPIIIA hereby contributes (i)
$84,200 in cash to DMC in exchange for 5,604 shares of Common Stock and (ii)
$67,360 in cash to DMC for 4,483 shares of Preferred Stock; EPIV hereby
contributes (i) $900,000 in cash to DMC in exchange for 59,896 shares of Common
Stock and (ii) $720,000 in cash to DMC in exchange for 47,917 shares of
Preferred Stock; and EPIVA hereby contributes (i) $47,400 in cash to DMC in
exchange for 3,155 shares of Common Stock and (ii) $37,920 in cash to DMC in
exchange for 2,524 shares of Preferred Stock.
(f) Repayment of Existing Indebtedness of the Company and Refinancing
-----------------------------------------------------------------
of Certain Operating Leases. DMC hereby repays certain indebtedness of DMC and
- ---------------------------
Spectrum outstanding immediately prior to the Closing other than trade payables
and other indebtedness. A funds flow memorandum identifying the lenders being
repaid, and the amounts being paid to such lenders, is set forth on Exhibit D
---------
hereto.
(g) Redemption of Shares. DMC hereby redeems 5,666,145 shares of
--------------------
Common Stock from the Doskocils (the "Redeemed Shares") for $86,125,129 (the
"Redemption Amount"), with (i) $81,125,129 of the Redemption Amount hereby being
paid by DMC by wire transfer of immediately available funds to the account or
accounts
7
<PAGE>
designated on Exhibit E hereto, and (ii) $5,000,000 of the Redemption Amount
---------
(the "Escrow Amount") hereby being deposited with Texas Commerce Bank National
Association (the "Escrow Agent") and to be distributed in accordance with the
terms of the Escrow Agreement, a copy of which is attached hereto as Exhibit F
---------
(the "Escrow Agreement"). The Redemption Amount is subject to adjustment in
accordance with the provisions of Section 2.2 through 2.4 of this Agreement.
SECTION 2.2. Purchase Amount Adjustment. The Purchase Amount shall be
--------------------------
increased or decreased dollar for dollar in the amount by which the net worth of
the Company reflected in the Definitive Closing Balance Sheet is more or less
than $33,738,000. In the event the Purchase Amount is increased pursuant to
this Article II, the Escrow Agent shall pay to the Doskocils in accordance with
Section 5 of the Escrow Agreement the entire Escrow Amount, together with any
interest and earnings accrued thereon. Further, DMC shall, in such event, pay
to the Doskocils the amount by which the Purchase Amount is increased pursuant
to this Article II by wire transfer in immediately available funds to an account
in the United States specified by the Doskocils within ten (10) business days
after the day the Definitive Closing Balance Sheet is agreed to by Sellers or
any remaining disputed items are resolved by the Neutral Auditors.
In the event the Purchase Amount is decreased pursuant to this Article II,
the Escrow Agent shall in accordance with Section 5 of the Escrow Agreement pay
to DMC as an adjustment to the Redemption Amount that portion of the Escrow
Amount equal to the amount by which the Purchase Amount is decreased (the "DMC
Adjustment Amount"), together with any interest and earnings accrued on such DMC
Adjustment Amount. The Escrow Agent shall in accordance with Section 5 of the
Escrow Agreement pay any remaining amount in the Escrow Account to the
Doskocils, including any interest and earnings accrued on such amount. In the
event the DMC Adjustment Amount exceeds the Escrow Amount, Sellers shall pay to
DMC as an adjustment to the Redemption Amount such excess by wire transfer in
immediately available funds to an account in the United States specified by DMC
within ten (10) business days after the day the Definitive Closing Balance Sheet
is agreed to by Sellers or any remaining disputed items are resolved by the
Neutral Auditors.
SECTION 2.3. Procedures for Determination of the Closing Balance Sheet.
---------------------------------------------------------
As soon as practicable, but in no event later than 60 days following the Closing
Date, Buyers shall prepare a balance sheet of the Company as of 7:00 a.m. on the
Closing Date which shall be audited by independent auditors selected by Buyers
(the "Closing Balance Sheet"). The Closing Balance Sheet shall fairly present
in all material respects the financial position of the Company prepared in
accordance with GAAP, consistently applied. Notwithstanding the foregoing,
Sellers and Buyers agree that the adjustments set forth on Section 2.3 of the
Disclosure Schedule shall be used in the preparation of the Closing Balance
Sheet and no further adjustments or reserves of the nature identified on Section
2.3 of the Disclosure Schedule shall be made or taken, except provided, however,
that worker's compensation reserves with respect to claims arising from the
period commencing with June 17, 1997 and ending with Closing Date may, if
appropriate, be made, and quantity and pricing tests of the
8
<PAGE>
inventory, raw materials, and work-in-process may be done and adjustments, if
appropriate, made with respect thereto. In addition, for purposes of the
Purchase Price Adjustment set forth in Section 2.2, any positive cash balance of
the Company on the Closing Date will be treated as an increase in the net worth
of the Company and any negative cash balance of the Company on the Closing Date
will be treated as a decrease in the net worth of the Company.
During the preparation and audit of the Closing Balance Sheet and the
period of any dispute within the contemplation of Section 2.4, (i) each party
shall allow the other party and its authorized representatives full access
during normal business hours to the books, records (including work papers,
schedules, memoranda and other documents), facilities and employees of the
Company; (ii) Buyers shall provide Sellers as promptly as practicable after the
Closing Date (but in no event later than 20 business days after the Closing
Date) with normal month-end closing financial information for the Company for
the period ending on the Closing Date; and (iii) each party shall cooperate
fully with the other party and its authorized representatives, including the
provision on a timely basis of all information reasonably necessary or useful in
preparing the Closing Balance Sheet.
SECTION 2.4. Delivery of the Closing Balance Sheet; Dispute Resolution. A
---------------------------------------------------------
copy of the Closing Balance Sheet shall be delivered to Sellers promptly after
it has been prepared. After receipt of the Closing Balance Sheet, Sellers shall
have 30 days to review the Closing Balance Sheet. Unless Sellers deliver
written notice to Buyers on or prior to the 30th day after Sellers' receipt of
the Closing Balance Sheet specifying in reasonable detail the characterization
and amount of all disputed items and the basis therefor, Sellers shall be deemed
to have accepted and agreed to the Closing Balance Sheet. If Sellers notify
Buyers of their objection to the Closing Balance Sheet, Buyers and Sellers
shall, within 30 days following such notice (the "Resolution Period"), attempt
to resolve their differences and any written resolution by them as to any
disputed amounts shall be final, binding and conclusive.
If at the conclusion of the Resolution Period there remain items in
dispute, then all disputed items shall be submitted to the Dallas, Texas office
of Price Waterhouse LLP or, if Price Waterhouse LLP shall be unable or unwilling
to serve, such other nationally recognized independent public accounting firm as
may be agreed in writing between Sellers and Buyers (the "Neutral Auditors").
All fees and expenses relating to the work, if any, to be performed by the
Neutral Auditors shall be borne by DMC. The Neutral Auditors shall act as an
arbitrator to determine, based solely on presentations by Sellers and Buyers,
only those issues still in dispute. The Neutral Auditors' determination shall
be made within 30 days of its selection, shall be set forth in a written
statement delivered to Sellers and Buyers and shall be final, binding and
conclusive. The term "Definitive Closing Balance Sheet" shall mean the Closing
Balance Sheet agreed to by Sellers in accordance with this Section 2.4 or the
Closing Balance Sheet resulting from the determinations made by the Neutral
Auditors in accordance with this Section 2.4 (in addition to those items
theretofore agreed to by Sellers and Buyers).
9
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE DOSKOCILS
-----------------------------------------------
Benjamin L. Doskocil, Sr. and Mary Frances Doskocil jointly and severally
represent and warrant to DMC and Buyers as set forth below.
SECTION 3.1. Organization and Qualification. DMC is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Texas, with all requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as it is now being conducted.
Spectrum is a limited partnership duly formed and existing under the laws of the
State of Texas, with all requisite partnership power and authority to own,
operate and lease its properties and to carry on its business as it is now being
conducted. Each of DMC and Spectrum is qualified or licensed to do business and
is in good standing in every jurisdiction where the nature of the business
conducted by it or the properties owned or leased by it requires qualification.
Sellers have delivered to Buyers complete and correct copies of the Articles of
Incorporation and Bylaws of DMC and the limited partnership agreement of
Spectrum.
SECTION 3.2. Authorization.
-------------
(a) Each of BRI, DMC and Spectrum has full corporate or partnership
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by BRI, DMC and Spectrum, the performance by BRI, DMC and Spectrum of their
respective obligations hereunder, and the consummation by BRI, DMC and Spectrum
of the transactions contemplated hereby, have been duly authorized by the Boards
of Directors of BRI, on its own behalf and as general partner of Spectrum, and
DMC. No other corporate or partnership action on the part of BRI, DMC or
Spectrum is necessary to authorize the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by BRI, DMC and Spectrum and
constitutes a valid and binding obligation of BRI, DMC and Spectrum, enforceable
against them in accordance with its terms, except to the extent that such
enforcement may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, and 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.
(b) Each of the Doskocils has full legal capacity to execute and
deliver this Agreement and to perform each of his obligations hereunder. This
Agreement has been duly and validly executed and delivered by each of the
Doskocils and constitutes a valid and binding obligation of the Doskocils,
enforceable against each of them in accordance with its terms, except to the
extent that such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect
10
<PAGE>
relating to creditors' rights generally, and 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
therefore may be brought.
SECTION 3.3. No Violation. Except as set forth in Section 3.3 of the
------------
Disclosure Schedule, neither the execution and delivery of this Agreement by
DMC, Spectrum or the Sellers and the performance by DMC, Spectrum or the Sellers
of their respective obligations hereunder nor the consummation by DMC, Spectrum
and the Sellers of the transactions contemplated hereby will (a) violate,
conflict with or result in any breach of any provision of the Articles of
Incorporation or Bylaws of DMC or BRI or the limited partnership agreement of
Spectrum, (b) violate, conflict with or result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both) under
the terms, conditions or provisions of any note, bond, mortgage, indenture or
deed of trust, or any license, lease or agreement to which DMC, Spectrum or any
of the Sellers is a party or (c) violate any order, writ, judgment, injunction,
decree, statute, rule or regulation of any court or Governmental Authority
applicable to DMC, Spectrum or the Sellers.
SECTION 3.4. Capitalization of DMC and Spectrum.
----------------------------------
(a) The authorized capital stock of DMC, prior to the filing of the
Amended and Restated Articles of Incorporation, consists of 12,500,000 shares,
all of which are designated Common Stock. As of the date hereof, DMC has
5,998,900 shares of Common Stock issued and outstanding (constituting the
Shares), all of which have been validly issued, are fully paid and non-
assessable and were not issued in violation of any preemptive rights, and 100
shares held as treasury stock. Without giving effect to the transactions
contemplated hereby, there are no options, warrants, calls, subscriptions,
conversion or other rights, agreements or commitments obligating DMC to issue
any additional shares of capital stock or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of capital
stock of DMC.
(b) As of the date hereof, the Interests represent all of the issued
and outstanding equity interests of Spectrum. Without giving effect to the
transactions contemplated hereby, there are no options, warrants, calls,
subscriptions, conversion or other rights, agreements or commitments obligating
Spectrum to issue any additional interests or any other securities convertible
into, exchangeable for or evidencing the right to subscribe for any interests in
Spectrum.
SECTION 3.5. Subsidiaries and Equity Investments. Neither DMC nor Spectrum
-----------------------------------
has any Subsidiaries nor does either have any direct or indirect equity
ownership in any person other than set forth in Section 3.5 of the Disclosure
Schedule.
SECTION 3.6. Consents and Approvals. Except as set forth in Section 3.6 of
----------------------
the Disclosure Schedule, no filing or registration with, no notice to and no
permit, authorization, consent or approval of any Governmental Authority is
necessary for the consummation by DMC, Spectrum or the Sellers of the
transactions contemplated by this Agreement other than
11
<PAGE>
(a) consents and approvals of or filings or registrations with the DOJ pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (b) requirements of federal and state securities laws, and (c) those
already obtained.
SECTION 3.7. Financial Statements.
--------------------
(a) Sellers have delivered to Buyers (i) copies of the audited balance
sheets of DMC as of December 30, 1995 and December 28, 1996, together with the
related audited statements of operations and retained earnings and cash flows
for the years then ended, and (ii) copies of the audited balance sheets of
Spectrum as of December 30, 1995 and December 28, 1996, together with the
related audited statements of earnings, partners' equity and cash flows for the
years then ended (such financial statements being hereinafter referred to as the
"Financial Statements"). The Financial Statements (x) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis ("GAAP") throughout the periods covered thereby, except as otherwise noted
thereon or disclosed in Section 3.7(a) of the Disclosure Schedule, and (y)
present fairly in all material respects the financial position, results of
operations and cash flows of DMC and Spectrum as of such dates and for the
periods then ended.
(b) Sellers have delivered to Buyers (i) copies of the unaudited
balance sheet of DMC as of May 24, 1997, together with the related unaudited
statements of operations and retained earnings and cash flows for the five-month
period then ended, and (ii) copies of the unaudited balance sheet of Spectrum as
of May 24, 1997, together with the related unaudited statements of earnings,
partners' equity and cash flows for the five-month period then ended (such
financial statements being hereinafter referred to as the "Interim Financial
Statements"). The Interim Financial Statements (x) were prepared in accordance
with GAAP throughout the period covered thereby, except as otherwise noted
thereon or disclosed in Section 3.7(b) of the Disclosure Schedule, (y) present
fairly in all material respects the financial position, results of operations
and cash flows of DMC and Spectrum as of such date and for the period then ended
(subject to normal year-end audit adjustments) and (z) have been certified by
the Chief Financial Officer of the Company in his capacity as such.
SECTION 3.8. Absence of Undisclosed Liabilities. Without giving effect to
----------------------------------
the transactions contemplated by this Agreement, there are no liabilities or
financial obligations of DMC or Spectrum that are required to be reflected on a
balance sheet prepared in accordance with GAAP, other than liabilities and
obligations (a) provided for or reserved against in the Interim Financial
Statements, (b) arising after May 24, 1997 in the ordinary course of business,
or (c) disclosed in Section 3.8 of the Disclosure Schedule.
SECTION 3.9. Absence of Certain Changes.
--------------------------
(a) The Company has, since May 24, 1997, conducted its business and
operations according to the Company's ordinary course of business and has used
all reasonable efforts consistent therewith to preserve intact the Company's
properties and
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<PAGE>
assets, keep available the services of the Company's officers and employees and
maintain satisfactory relationships with customers, suppliers, distributors and
others having commercially beneficial business relationships with the Company,
in each case, in the ordinary course of business.
(b) Except as disclosed in Section 3.9 of the Disclosure Schedule, and
except for matters relating to the transactions contemplated by this Agreement,
since December 31, 1996, neither DMC nor Spectrum has:
(i) proposed or adopted any amendment to the Articles of
Incorporation or Bylaws of DMC or the limited partnership agreement of
Spectrum;
(ii) increased in any manner the rate or terms of compensation
of any of its directors, officers or other employees, except with respect
to non-officer employees or increases which were granted in the ordinary
course of business;
(iii) entered into other agreements, commitments or contracts,
except for agreements, commitments or contracts made in the ordinary course
of business;
(iv) made any loan, guaranty or other extension of credit, or
entered into any commitment to make any loan, guaranty or other extension
of credit, to or for the benefit of any affiliate, director, officer,
employee, stockholder of the Company other than advancement and
reimbursement of business expenses incurred in the ordinary course of
business consistent with DMC's or Spectrum's policies and practices;
(v) entered into any new employment agreement with any
employee whose annual base salary would or does exceed $50,000 or any
collective bargaining agreement with any labor union;
(vi) compromised or otherwise settled any claims in excess of
$50,000, agreed to any claim of a deficiency in Taxes filed any appeal with
respect to any alleged deficiency or amended any Tax Return relating to a
prior taxable year.
(vii) made any material Tax election, changed any material
method or period of accounting or changed any significant accounting
policy, practice or procedure;
(viii) adopted or terminated any Employee Benefit Plan;
(ix) terminated or failed to renew any existing insurance
coverage; or
(x) terminated, amended or failed to renew or preserve any
Permits of the Company.
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<PAGE>
(c) Except as disclosed in Section 3.9 of the Disclosure Schedule, and
except for matters relating to the transactions contemplated by this Agreement,
since May 24, 1997, neither DMC nor Spectrum has:
(i) issued, sold or pledged, or authorized or proposed the
issuance, sale or pledge of, additional shares of capital stock of any
class or interests, or securities convertible into any such shares or
interests, or any rights, warrants or options to acquire any such shares or
interests or other convertible securities;
(ii) redeemed, purchased or otherwise acquired any outstanding
shares of capital stock of DMC or the partnership interests of Spectrum;
(iii) incurred any long-term indebtedness for borrowed money or
issued any debt securities or assumed, guaranteed or endorsed the
obligations of any other person except in the ordinary course of business;
(iv) sold, transferred or otherwise disposed of any of its
material property or assets (other than inventory) or mortgaged or
encumbered any of its property or assets;
(v) made any material investment, by purchase, contribution to
capital, property transfer, or otherwise, in any other person;
(vi) disposed of or permitted to lapse any material intangible
property or any rights to its use;
(vii) declared, set aside or paid any dividend or other
distribution in respect of DMC's capital stock or Spectrum's partnership
interests; or
(viii) entered into any agreement or commitment involving an
aggregate capital expenditure or commitment exceeding $100,000.
SECTION 3.10. Litigation. Except as set forth in Section 3.10 of the
----------
Disclosure Schedule, there is no action, suit or proceeding pending or, to the
knowledge of the Company, threatened against DMC or Spectrum before any
Governmental Authority. Neither DMC nor Spectrum is in default under any
judgment, decree, injunction or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against DMC or
Spectrum.
SECTION 3.11. Real Property; Liens and Encumbrances.
-------------------------------------
(a) Except as disclosed in Section 3.11 of the Disclosure Schedule,
neither DMC nor Spectrum owns any real property. Section 3.11 of the Disclosure
Schedule contains a complete and accurate list of all real property leased or
otherwise operated by DMC or Spectrum as of the date hereof. All leases set
forth in Section 3.11 of the
14
<PAGE>
Disclosure Schedule are in full force and effect, neither DMC nor Spectrum is in
material default under any of such leases, and no material default exists or
event has occurred which would constitute a material default upon the passing of
time or the giving of notice, under any of such leases. Full, correct and
complete copies of each lease listed in Section 3.11 of the Disclosure Schedule
have been made available to Buyers.
(b) Except as set forth in Section 3.11 of the Disclosure Schedule,
all properties and assets owned by DMC and Spectrum are free and clear of all
liens, encumbrances, pledges, claims, security interests, mortgages,
assessments, easements, rights of way, covenants, restrictions, rights of first
refusal, defects in title, encroachments and other burdens or adverse claims
(collectively, "Liens") except (i) statutory Liens not yet delinquent, (ii)
purchase money Liens arising in the ordinary course and disclosed on Schedule
3.11 of the Disclosure Schedule, (iii) Liens for taxes not yet delinquent, (iv)
Liens reflected in the Financial Statements or the Interim Financial Statements
(which have not been discharged) and (v) Liens which in the aggregate do not, in
the case of personal property, materially impair the use by DMC or Spectrum of
properties or assets subject thereto or, in the case of real property,
materially impair the present and continued use in the usual and normal conduct
of the business of DMC or Spectrum (such exceptions are referred to herein
collectively as "Permitted Liens").
SECTION 3.12. Certain Agreements. Except as described in Section 3.12 of
------------------
the Disclosure Schedule, neither DMC nor Spectrum is a party to any written or
enforceable oral agreement with any officer, director or employee of DMC or any
officer, employee or partner of Spectrum (a) the benefits of which are
contingent, or the terms of which are altered, upon the occurrence of a
transaction involving DMC or Spectrum of the nature of any of the transactions
contemplated by this Agreement, (b) providing severance benefits or other
benefits after the termination of employment regardless of the reason for such
termination of employment, or (c) any of the benefits of which will be
increased, or the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement. Except as disclosed in Section
3.12 of the Disclosure Schedule, neither DMC nor Spectrum is a party to any
written or enforceable oral (i) agreement, contract, indenture or other
instrument relating to the borrowing of money or the guarantee of any obligation
for the borrowing of money or (ii) other contract, agreement or commitment of
DMC or Spectrum material to the operations of either DMC or Spectrum. Neither
DMC nor Spectrum is in default under any of the agreements, contracts or
obligations described in Section 3.12 of the Disclosure Schedule.
SECTION 3.13. Employee Benefit Plans.
----------------------
(a) Section 3.13 of the Disclosure Schedule sets forth a true and
complete list of each "employee benefit plan" (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), each written employment, severance, retention, termination,
consulting or retirement contract, and each bonus or other
15
<PAGE>
incentive compensation, stock purchase, stock option, stock award or other
equity-based compensation, or vacation plan or policy (other than any
governmental program), and any related trust, as to which DMC or Spectrum has
any obligation or liability, contingent or otherwise (collectively, "Employee
Benefit Plans"). True, correct and complete copies of the following documents
with respect to each of the Employee Benefit Plans have been made available to
Buyers by Sellers: (i) the Employee Benefit Plan and related trust documents,
and amendments thereto, (ii) the three most recent Forms 5500 (including all
attachments and accountants' opinions), (iii) the last Internal Revenue Service
determination letter, and (iv) summary plan descriptions and modifications
thereto and (v) any other written material provided to employees concerning the
Employee Benefit Plans which are within the possession of the Company. No
Employee Benefit Plan invests in any security issued by the Company, or in any
property leased to the Company.
(b) Neither DMC nor Spectrum maintains or contributes to, or on or
after the date which is six years prior to the date of this Agreement (the "Six-
Year Look Back Date") has maintained or contributed to, any "multiemployer
plan," as such term is defined in Section 3(37) or Section 4001(a)(3) of ERISA,
or any defined benefit plans covered by Title IV of ERISA. Each Employee
Benefit Plan which is intended to be qualified under Section 401(a) and, if
applicable, Section 401(k) of the Code, is so qualified.
(c) Except as disclosed in Section 3.13 of the Disclosure Schedule, no
action, suit or proceeding relating to any Employee Benefit Plan (other than
routine claims for benefits for which the plan administrative procedures have
not been exhausted and routine "qualified domestic relations orders" as defined
in Section 414(p) of the Code) is pending or, to the knowledge of the Company,
threatened against DMC, Spectrum, any Employee Benefit Plan or any fiduciary of
any Employee Benefit Plan before any court, arbitrator or administrative or
governmental body, and to the knowledge of the Company, no facts exist which
could reasonably be expected to give rise to such action, suit or proceeding.
Neither DMC nor Spectrum has failed to make contributions to any Employee
Benefit Plan that are required to be made on or after the Six-Year Look Back
Date under the terms of such Employee Benefit Plans or under applicable law.
None of DMC, Spectrum, any employee of DMC or Spectrum, any "party-in-interest"
(as defined in Section 3(14) of ERISA) with respect to any of the Employee
Benefit Plans or any of the Employee Benefit Plans (or any trusts created
thereunder or any trustee or administrator thereof) has engaged in a "prohibited
transaction," as such term is defined in Section 4975 of the Code or under ERISA
on or after the Six-Year Look Back Date, which could reasonably be expected to
subject DMC, Spectrum, any officer of DMC or Spectrum, any of such plans or any
trust to any material tax or penalty on prohibited transactions or any other
liability imposed by such Section 4975 or under ERISA or any obligation to
indemnify another party. To the knowledge of the Company, no material tax or
penalty on prohibited transactions or any other liability imposed by Section
4975 or under ERISA has actually been imposed on any employee of DMC or Spectrum
in such employee's capacity as a party in interest with respect to any of the
Employee Benefit Plans.
16
<PAGE>
(d) Except (i) as required by Section 4980B of the Code, (ii) as
provided for with employee-paid premiums under a flexible spending arrangement
(as defined in proposed Treasury Regulation Section 1.125-2, Question and answer
- -7(c)) or (iii) as disclosed in Section 3.13 of the Disclosure Schedule, none of
the Employee Benefit Plans provides or is required to provide benefits for
medical expenses incurred by a former employee of DMC or Spectrum (or such
former employee's spouse or other dependents) after the employee ceases to be an
employee of DMC or Spectrum. None of the Employee Benefit Plans provides or is
required to provide for the payment of premiums by DMC or Spectrum to maintain
life insurance coverage for any former employee of DMC or Spectrum for any
period following the last day of the calendar month in which a termination of
employment of such former employee occurs.
(e) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
Employee Benefit Plan. All Employee Benefit Plans are in compliance in form and
in operation with the relevant provisions of ERISA and the Code, and all other
laws applicable to all of the Employee Benefit Plans. For purposes of the
preceding sentence, a "law" is not limited to statutory law, but includes all
currently-effective, relevant, controlling legal authority. Sellers, DMC and
Spectrum have performed all of their obligations under all Employee Benefit
Plans for which the deadline for such performance has passed.
(f) Except as provided in the Retention Agreements or otherwise
disclosed in Section 3.13 of the Disclosure Schedule, the execution and
performance of this Agreement will not (i) constitute a stated triggering event
under any Employee Benefit Plan that will result in any payment (whether of
severance pay or otherwise) becoming due from such Employee Benefit Plan, DMC or
Spectrum to any present or former officer, employee, director, shareholder or
consultant, or former employee (or dependents of any thereof), or (ii)
accelerate the time of payment or vesting, or increase the amount, of
compensation due to any employee, officer, director, shareholder or consultant.
SECTION 3.14. Taxes. Except as set forth in Section 3.14 of the
-----
Disclosure Schedule:
(a) all Tax Returns required to be filed by each of DMC and Spectrum
have been filed, and each of DMC and Spectrum has paid all Taxes that are due
from DMC or Spectrum, as the case may be, whether or not shown on any Tax Return
filed;
(b) there are no outstanding agreements extending the statutory period
of limitation applicable to any claim for, or the period for the collection or
assessment of, Taxes due from DMC or Spectrum for any taxable period; and
(c) no audit or other proceeding by any court or Governmental
Authority is pending with respect to any Taxes due from or with respect to DMC
or Spectrum.
17
<PAGE>
SECTION 3.15. Compliance with Applicable Law. Except as set forth in
------------------------------
Section 3.15 of the Disclosure Schedule, the businesses of DMC and Spectrum are
not being conducted in violation of any provision of any federal, state, local
or foreign statute, law, ordinance, rule, regulation, judgment, decree, order,
concession, grant, franchise, permit or license or other governmental
authorization or approval applicable to DMC or Spectrum.
SECTION 3.16. Brokers' Fees and Commissions. Except for Lehman Brothers
-----------------------------
Inc., none of Sellers, DMC, Spectrum and their respective directors, officers,
partners, employees or agents has employed any investment banker, broker,
finder, agent or similar intermediary in connection with the transactions
contemplated hereby and no investment banker, broker, finder, agent or similar
intermediary is entitled to any fee or commission in connection herewith based
on any agreement, arrangement or understanding with Sellers, DMC or Spectrum and
their respective directors, officers, partners, employees or agents.
SECTION 3.17. Proprietary Rights.
------------------
(a) Section 3.17 of the Disclosure Schedule contains a complete and
accurate list of (i) all registered patents and trademarks of DMC and Spectrum
and (ii) all patent and trademark applications of DMC and Spectrum which have
been filed and are currently pending.
(b) Except as set forth in Section 3.17 of the Disclosure Schedule,
(i) DMC and Spectrum own or possess adequate licenses or other valid rights to
use all United States and foreign patents, trademarks, trade names, service
marks, copyrights and applications therefor which are material to the conduct of
the business of DMC or Spectrum (the "Patent and Trademark Rights"), (ii) as of
the date of this Agreement, the validity of the Patent and Trademark Rights and
the title thereto of DMC or Spectrum are not being questioned in any litigation
to which DMC or Spectrum is a party, nor to the knowledge of the Company, is any
such litigation threatened and (iii) as of the date of this Agreement, to the
knowledge of the Company, the conduct of the business of DMC and Spectrum as now
conducted does not conflict with any valid patents, trademarks, trade name,
service marks or copyrights of others.
SECTION 3.18. Labor and Employment. Except as listed or described on
--------------------
Section 3.18 of the Disclosure Schedule, DMC and Spectrum have no unfair labor
practice charges or complaints pending or, to the knowledge of the Company,
threatened against any of them before the National Labor Relations Board.
Neither DMC nor Spectrum has at any time during the last three years had, nor to
the knowledge of the Company, is there now threatened, any walkout, strike,
union activity, picketing, work stoppage, work slowdown or any other similar
occurrence which materially and adversely affects or is reasonably likely to
materially and adversely affect the Company, or any attempt to organize or
represent the labor force of DMC or Spectrum. Neither DMC nor Spectrum has had
a Plant Closing or Mass Layoff, as such terms are defined in the Worker
Adjustment and Retraining Notification Act, or if such has occurred, DMC and
Spectrum have given all required notifications required in connection with such
Plant Closing and/or Mass Layoff. All goods
18
<PAGE>
manufactured by either DMC and/or Spectrum are manufactured and distributed in
compliance with all federal, state and local laws regarding the use of labor,
including, but not limited to, all laws regulating wages, hours, immigration and
working conditions. DMC and Spectrum are in compliance with applicable workers'
compensation insurance laws. The Company has complied with all laws,
regulations and executive orders to which the Company is subject because of any
agreement or contract with any federal or state governmental entity.
SECTION 3.19. Insurance. All material insurance policies (the "Insurance
---------
Policies") with respect to the property, assets, operations and business of DMC
and Spectrum are listed in Section 3.19 of the Disclosure Schedule and are in
full force and effect. Except as set forth in Section 3.19 of the Disclosure
Schedule, as of the date of this Agreement, there are no pending material claims
against the Insurance Policies by DMC or Spectrum as to which the insurers have
denied liability. Sellers make no representation or warranty that the Insurance
Policies will be continued or are continuable after the Closing. The Company
has not received or given a notice of cancellation with respect to any policy or
binder identified in Section 3.19 of the Disclosure Schedule.
SECTION 3.20. Environmental Matters. Except (i) as disclosed on Section
---------------------
3.20 of the Disclosure Schedule or (ii) as disclosed in the Environmental
Reports made available to Buyers:
(a) the operations of DMC and Spectrum are in compliance with all
applicable Environmental Laws;
(b) each of DMC and Spectrum has obtained all permits, licenses and
other authorizations that are required under applicable Environmental Laws
("Environmental Permits") to conduct their businesses;
(c) no judicial, administrative or civil proceedings or investigations
are pending or, to the knowledge of the Company, threatened against DMC or
Spectrum and no written notice, citation, summons or order has been communicated
or delivered to DMC or Spectrum by any Governmental Authority or other person
pursuant to any applicable Environmental Laws (collectively, "Environmental
Claims");
(d) no real property currently (or to the knowledge of the Company,
formerly) owned, operated or leased by DMC or Spectrum is listed or has been
formerly proposed for listing on the National Priorities List, the Comprehensive
Environmental Response Compensation and Liability and Information System
("CERCLIS") or any analogous state lists;
(e) to the knowledge of the Company, there are not now on, in or under
any real property owned, leased or operated by DMC or Spectrum (i) any
underground storage tanks ("USTs"), (ii) any asbestos-containing materials
("ACMs"), or (iii) any polychlorinated biphenyls ("PCBs");
19
<PAGE>
(f) Sellers have provided Buyers with copies of all environmental
investigations, studies or audits conducted by Sellers, DMC or Spectrum in
relation to any real property currently or formerly owned, leased or operated by
DMC or Spectrum; and
(g) to the knowledge of the Company, there has occurred no release of
Hazardous Materials on, in or under any real property currently or formerly
owned, leased or operated by DMC or Spectrum at concentrations that require
investigation or remediation under applicable laws.
SECTION 3.21. Ownership of Securities. Sellers are the holders of record
-----------------------
and own beneficially that number of Shares and the Interests set forth opposite
their names on Exhibit G hereto. Without regard to the transactions
---------
contemplated hereby, Sellers own the Shares and the Interests set forth on
Exhibit G free and clear of any Liens. Sellers are not a party to any voting
- ---------
trust, proxy or other agreement with respect to the voting of any Shares or the
Interests which will remain in force or effect after the Closing.
SECTION 3.22. Title to Common Stock. Buyers are acquiring good and
---------------------
marketable title to and complete ownership of all of the Common Stock being
issues pursuant to Sections 2.1(c) and (e), free of any Liens. Other than this
Agreement and the transactions contemplated hereby, there are no outstanding
contracts or other rights to subscribe for or purchase, or contracts or other
obligations to issue or grant any rights to acquire, any of the shares of Common
Stock or the Interests.
SECTION 3.23. Inventories. The inventory of the Company as set forth on
-----------
the Interim Financial Statements or acquired since the date thereof has been
maintained in the ordinary course of business. Based on the historical
performance of the business, the inventory consists substantially of a quality,
quantity, and condition useable, leasable or saleable in the ordinary course of
business, although Sellers make no representation or warranty as to future
business conditions.
SECTION 3.24. Receivables. All receivables of the Company as set forth on
-----------
the Interim Financial Statements or arising since the date thereof have arisen
solely out of bona fide sales and deliveries of goods, performance of services
or other business transactions in the ordinary course of business, and are fully
collectible net of any reserves shown on the Closing Balance Sheet. The Company
has made available to Buyers a complete and accurate aging list of all
receivables of the Company set forth on the Interim Financial Statements.
SECTION 3.25. Suppliers. Section 3.25 of the Disclosure Schedule lists
---------
the names of and describes all written contracts with any sole-source suppliers
of significant goods or services (other than resin, electricity, gas, telephone
or water) to the Company with respect to which alternative sources of supply are
not readily available on comparable terms and conditions.
SECTION 3.26. Tangible Property. The Company has good and transferable
-----------------
title or other legal right to use all plant, machinery, equipment, leasehold
improvements, fixtures,
20
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data bases, vehicles, structures and any related capitalized items or other
tangible property material to the operation of the business of the Company and
reflected on the Interim Financial Statements or acquired after the date of the
Interim Financial Statements, except for properties and assets disposed of since
the date of the Interim Financial Statements in the ordinary course of business
and subject to Permitted Liens. Such assets are in good operating condition and
repair (reasonable wear and tear excepted).
SECTION 3.27. Powers of Attorney. Except as set forth in Section 3.27 of
------------------
the Disclosure Schedule, the Company has not given any power of attorney
(irrevocable or otherwise) to any person or entity for any purpose relating to
the Company, other than powers of attorney given to regulatory authorities in
connection with routine qualifications to do business.
SECTION 3.28. Permits. DMC and Spectrum hold all Permits that are
-------
required by any Governmental Entity to permit them to conduct their businesses
as now conducted, and all such Permits are valid and in full force and effect.
To the knowledge of the Company, no suspension, cancellation or termination of
any of such Permits is threatened or imminent or will result from the
transactions contemplated by this Agreement. The Permits are identified on
Section 3.28 of the Disclosure Schedule.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF BUYERS
--------------------
Buyers jointly and severally hereby represent and warrant to Sellers as set
forth below.
SECTION 4.1. Organization and Qualification. Each of EPIII, EPIIIA, EPIV,
------------------------------
and EPIVA is a limited partnership duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation, with all requisite
partnership power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted. EMPC is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
businesses as now being conducted. EP Texas is a limited liability company duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, with all requisite power and authority to own,
lease and operate its properties and to carry on its businesses as now being
conducted. Each of EPIII, EPIIIA, EPIV, EPIVA, EMPC and EP Texas is qualified
or licensed to do business and is in good standing in each jurisdiction in which
the ownership or leasing of property by it or the conduct of its business
requires such licensing or qualification.
21
<PAGE>
SECTION 4.2. Authorization. Each of EPIII, EPIIIA, EPIV, EPIVA, EMPC and
-------------
EP Texas has full power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. No other proceeding on the
part of each of EPIII, EPIIIA, EPIV, EPIVA, EMPC and EP Texas is necessary to
authorize the execution and delivery of this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of EPIII, EPIIIA, EPIV, EPIVA, EMPC and EP Texas
and constitutes a valid and binding obligation of each of EPIII, EPIIIA, EPIV,
EPIVA, EMPC and EP Texas, enforceable against each of them in accordance with
its terms, except to the extent that such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, and 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.
SECTION 4.3. No Violation. Neither the execution and delivery of this
------------
Agreement by any of EPIII, EPIIIA, EPIV, EPIVA, EMPC and EP Texas and the
performance of any of their obligations hereunder nor the consummation by EPIII,
EPIIIA, EPIV, EPIVA, EMPC and EP Texas of the transactions contemplated hereby
will (a) violate, conflict with or result in any breach of any provision of the
Certificate of Incorporation of EMPC, the Articles of Organization of EP Texas
or the Limited Partnership Agreements of each of EPIII, EPIIIA, EPIV, and EPIVA
or Bylaws, (b) violate, conflict with or result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both) under
the terms, conditions or provisions of any note, bond, mortgage, indenture or
deed of trust, or any material license, lease or agreement to which any of
EPIII, EPIIIA, EPIV, EPIVA, EMPC and EP Texas or any of their respective
Subsidiaries is a party or (c) violate any order, writ, judgment, injunction,
decree, statute, rule or regulation of any court or Governmental Authority
applicable to any of EPIII, EPIIIA, EPIV, EPIVA, EMPC and EP Texas or any of
their respective Subsidiaries.
SECTION 4.4. Consents and Approvals. No filing or registration with, no
----------------------
notice to and no permit, authorization, consent or approval of any third party
or any Governmental Authority is necessary for the consummation by EPIII,
EPIIIA, EPIV, EPIVA, EMPC and EP Texas of the transactions contemplated by this
Agreement other than (a) consents and approvals of or filings or registrations
with the DOJ pursuant to the HSR Act and (b) requirements of federal and state
securities laws.
SECTION 4.5. Brokers' Fees and Commissions. Neither EPIII, EPIIIA, EPIV,
-----------------------------
EPIVA, EMPC or EP Texas nor any of their respective Subsidiaries, directors,
officers, employees or agents has employed any investment banker, broker,
finder, agent or similar intermediary in connection with the transactions
contemplated hereby and no investment banker, broker, finder, agent or similar
intermediary is entitled to any fee or commission payable by the Company in
connection herewith based on any agreement, arrangement or understanding with
each of Buyers or any of their directors, officers, partners, members, employees
or agents.
22
<PAGE>
SECTION 4.6. Purchase for Investment. Buyers are acquiring the Newly
-----------------------
Issued Shares for their own account for investment purposes and not with a view
to the distribution of the Newly Issued Shares. Buyers have such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Newly Issued Shares. Each of
EPIII, EPIIIA, EPIV, EPIVA, EMPC and EP Texas is an "accredited investor" as
defined in Rule 501 of the Securities Act of 1933, as amended. Each of EPIII,
EPIIIA, EPIV, EPIVA, EMPC and EP Texas will not, directly or indirectly, dispose
of the Newly Issued Shares except in compliance with applicable federal and
state securities laws.
SECTION 4.7. Relationships.
-------------
(a) Buyers have complied with the HSR Act and the regulations
promulgated thereunder. Buyers have conducted their operations in compliance
with federal, state, local and foreign laws, ordinances, rules, regulations,
judgments, decrees, orders, concessions, grants, franchises, Permits and
licenses or other governmental authorizations applicable to them.
(b) No director, officer, member, employee, agent, or affiliate of any
of EPIII, EPIIIA, EPIV, EPIVA, EMPC or EP Texas nor any of their respective
Subsidiaries presently serves as a director, officer, or employee of any
competitor of DMC.
(c) No partner, officer, director or employee of Westar Capital has
received any information regarding the business or operations of DMC that would
violate any applicable antitrust or competition law.
ARTICLE V
COVENANTS
---------
SECTION 5.1. All Reasonable Efforts. Subject to the terms and conditions
----------------------
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper and advisable under applicable laws and regulations to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement. If at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
including, without limitation, the execution of additional instruments, the
parties to this Agreement shall take all such necessary action.
SECTION 5.2. Public Announcements. Buyers and Sellers will consult with
--------------------
each other and will mutually agree (the agreement of each party not to be
unreasonably withheld) upon the content and timing of any press release or other
public statements with respect to the transactions contemplated by this
Agreement and shall not issue any such press release or make any such public
statement prior to such consultation and agreement, except as may be
23
<PAGE>
required by applicable law or by obligations pursuant to any listing agreement
with any securities exchange or any stock exchange regulations; provided,
however, that Buyers and Sellers will give prior notice to the other party of
the content and timing of any such press release or other public statement
required by applicable law or by obligations pursuant to any listing agreement
with any securities exchange or any stock exchange regulations.
SECTION 5.3. No Implied Representations or Warranties. Buyers hereby
----------------------------------------
acknowledge and agree that none of the Sellers, DMC, or Spectrum is making any
representation or warranty whatsoever, express or implied, except those
representations and warranties of the Doskocils explicitly set forth in this
Agreement, in the Disclosure Schedule or any other agreement related hereto to
which DMC is a party.
SECTION 5.4. Employee Benefit Matters.
------------------------
(a) Benefit Arrangements. Buyers agree that on and after the Closing
--------------------
Date Buyers will cause the Company to promptly and in good faith honor all
written employment, severance, retention, termination, consulting and retirement
agreements to which DMC or Spectrum is presently a party.
(b) Indemnification and Insurance. DMC agrees that all rights to
-----------------------------
indemnification or exculpation now existing in favor of the employees, agents,
directors, officers or partners of DMC and Spectrum (the "Company Indemnified
Parties") as provided in the Articles of Incorporation or Bylaws of DMC or the
limited partnership agreement of Spectrum (or other comparable governing
documents), or as provided in an agreement between a Company Indemnified Party
and DMC or Spectrum (the "Indemnification Agreements") shall continue in full
force and effect for a period of not less than seven years from the Closing
Date; provided, however, that, in the event any claim or claims are asserted or
made within such seven-year period, all rights to indemnification in respect of
any such claim or claims shall continue until disposition of any and all such
claims. Any determination required to be made with respect to whether a Company
Indemnified Party's conduct complies with the standards set forth in the
Articles of Incorporation or Bylaws of DMC or the limited partnership agreement
of Spectrum (or other comparable governing documents) or under the
Indemnification Agreements shall be made by independent counsel mutually
selected by the Company Indemnified Party reasonably satisfactory to Buyers
(whose fees and expenses shall be paid by DMC).
(c) Binding on Successors. In the event the Company or its successors
---------------------
or assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger (including the consolidation of Spectrum with and into Buyers through the
acquisition of all of the outstanding partnership interests of Spectrum) or (ii)
transfers all or substantially all of its properties, assets or stock to any
person, then and in each such case, proper provision shall be made so that the
successors and assigns of DMC and Spectrum (or their successors and assigns)
shall assume the obligations set forth in this Section 5.4.
24
<PAGE>
SECTION 5.5. Solvency At the Closing. Buyers agree that at and after the
-----------------------
date hereof, Buyers shall not, and that Buyers shall cause DMC not to, take or
cause to be taken or omit to take any action which could result in a
determination pursuant to state or federal law that, after giving effect to the
transactions contemplated hereby (or after giving effect to such transactions
and to such other subsequent actions or omissions), DMC or Spectrum (a) was
insolvent at the time of the Closing, (b) became insolvent at the time of
Closing as a result of the transactions contemplated hereby, (c) was left at the
time of Closing with unreasonably small capital with which to engage in its
business or (d) incurred debts at the time of Closing beyond its ability to pay
such debts as they mature, such that the payment of the Partnership Purchase
Price or the Redemption Amount may be deemed a "fraudulent conveyance" or
impermissible dividend or distribution under applicable law or otherwise subject
to claims of certain creditors of DMC or Spectrum or their trustees in a
bankruptcy proceeding. Notwithstanding the foregoing, nothing contained in this
Agreement shall be deemed to (i) require Buyers at any time to make any
additional equity contribution to DMC or to lend any funds to DMC, or (ii)
prohibit the Buyers and the Board of Directors of DMC from conducting the
Company in good faith and in a commercially reasonable manner.
SECTION 5.6. Allocation of Partnership Purchase Price. The parties agree
----------------------------------------
that the Partnership Purchase Price (plus any liabilities transferred in
connection with the sale and purchase of the Interests as contemplated by this
Agreement) shall be allocated among the assets of Spectrum in accordance with
Exhibit A hereto (the "Allocation"). The parties shall file all Tax Returns in
- ---------
a manner consistent with the Allocation.
SECTION 5.7. Relationships.
-------------
(a) Buyers shall not directly or indirectly share with, or deliver or
communicate to, any competitor of DMC any information regarding the business or
operations of DMC that would violate any applicable antitrust or competition
law.
(b) Buyers shall not consummate any transaction pursuant to which
Westar Capital or its affiliates would acquire a present or future right to own,
directly or indirectly, any equity securities of DMC or any other securities
convertible into or exchangeable for equity securities of DMC without obtaining
the necessary consents and approvals under the HSR Act.
(c) Buyers shall cause DMC to conduct its business independently and
competitively and not in violation of any applicable antitrust or competition
law.
(d) Buyers shall obtain or effect all necessary consents, approvals
of, or filings or registrations with, the DOJ and the FTC pursuant to the HSR
Act in connection with any future business combinations involving DMC and Buyers
shall comply in all respects with the HSR Act and the regulations promulgated
thereunder.
25
<PAGE>
ARTICLE VI
CLOSING
-------
SECTION 6.1. Closing. The closing of the transactions contemplated by
-------
this Agreement (the "Closing") is taking place at the offices of Weil, Gotshal &
Manges LLP, 100 Crescent Court, Suite 1300, Dallas, Texas 75201-6950 (the date
hereof being the "Closing Date").
(a) Sellers hereby deliver to Buyers or DMC, as the case may be, the
following:
(i) a certificate or certificates representing all of the
Redeemed Shares in appropriate form for transfer to and cancellation by DMC
or accompanied by stock powers duly executed in blank;
(ii) all documents, including without limitation, executed UCC-
3 termination statements if applicable, fully executed payoff letters, as
are necessary to release all Liens (other than Permitted Liens) on the
Company's assets;
(iii) resignation letters from (a) each of DMC's directors,
pursuant to which each such person resigns as a director of DMC, (b)
Benjamin L. Doskocil, Sr. in his capacity as President and Treasurer of
DMC, pursuant to which he resigns as President and Treasurer of DMC, (c)
Mary Frances Doskocil, pursuant to which she resigns as Vice President and
Secretary of DMC;
(iv) a Confidentiality, Non-Solicitation and Non-Competition
Agreement, substantially in the form of Exhibit H hereto (the "Non-
---------
Competition Agreement"), duly executed by the Doskocils;
(v) an opinion substantially in the form of Exhibit I hereto
---------
from counsel to Sellers, DMC and Spectrum;
(vi) the New Real Property Lease Agreements, copies of which
are attached hereto as Exhibit J (the "New Real Property Lease
---------
Agreements"), duly executed by the Doskocils or their affiliates, as
lessors;
(vii) the Stockholders Agreement, a copy of which is attached
hereto as Exhibit K (the "Stockholders Agreement"), duly executed by the
---------
Doskocils;
(viii) Letter Agreement between DMC and Benjamin L. Doskocil,
Sr., a copy of which is attached hereto as Exhibit L (the "Consulting
---------
Agreement"), duly executed by Benjamin L. Doskocil, Sr.; and
26
<PAGE>
(ix) satisfactory evidence of written action taken by the Board
of Directors or shareholders of DMC validly electing Charles D. Martin as a
director of DMC.
(b) Buyers hereby deliver or cause to be delivered to Sellers or DMC,
as the case may be, the following:
(i) an opinion substantially in the form of Exhibit M hereto
---------
from counsel to Buyers;
(ii) the New Real Property Lease Agreements duly executed by
DMC, as lessee;
(iii) the Stockholders Agreement duly executed by DMC and
Buyers;
(iv) the Partnership Purchase Price by wire transfer of
immediately available funds;
(v) the Consulting Agreement duly executed by DMC.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
----------------------------
SECTION 7.1. Survival of Representations and Warranties.
------------------------------------------
(a) The representations and warranties set forth in this Agreement
shall survive the Closing Date and the consummation of the transactions
contemplated hereby until August 31, 1998, except that (i) the representations
and warranties set forth in Section 3.20 respecting environmental matters shall
survive until the expiration of the applicable statute of limitations, (ii) the
representations and warranties set forth in Section 3.14 respecting Tax matters
shall survive until the expiration of the applicable statute of limitations for
the assessment of Taxes with respect to the relevant taxable period, and (iii)
the representations and warranties set forth in Section 3.4 shall survive
without limitation.
(b) No claim for the recovery of indemnifiable damages based upon the
inaccuracy of such representations and warranties may be asserted by a party
after such representations and warranties have expired; provided, however, that
claims first asserted in writing within the applicable period shall not
thereafter be barred.
(c) This Section 7.1 shall not limit any covenant or agreement of the
parties hereto which by its terms contemplates performance after the Closing
Date, including without limitation the Non-Competition Agreement.
27
<PAGE>
SECTION 7.2. Indemnification.
---------------
(a) Each of the Sellers, jointly and severally, agrees to indemnify
and hold harmless DMC and Buyers and each of their respective partners,
officers, directors, employees, successors and assigns (other than the
Doskocils) (the "Buyer Parties") in respect of any and all claims, actions,
suits or other proceedings and any and all losses, costs, expenses, liabilities,
fines, penalties, interest, and damages (including reasonable fees and expenses
of counsel, accountants and consultants and all other reasonable costs and
expenses of investigation, defense or settlement of claims and amounts paid in
settlement) (collectively, "Losses") incurred by, imposed on or borne by DMC or
Buyer Parties resulting from:
(i) the breach of any representation, warranty or covenant by
Sellers contained in this Agreement;
(ii) any violation by the Company of any Environmental Law on
or prior to the Closing Date or the existence of any violation of
Environmental Law relating to the operations of the Company on or prior to
the Closing Date, including, without limitation, any necessary costs
incurred subsequent to the Closing Date to correct or bring into compliance
with Environmental Laws the operations of the Company; provided, that upon
discovery by an officer of the Company of such violation the Company
promptly notifies Sellers in writing of the violation and takes reasonable
steps to address the issue;
(iii) any Environmental Condition existing on or prior to the
Closing Date at any real property currently or formerly owned, leased or
operated by the Company to the extent attributable to the operations of the
Company, including, without limitation, Hazardous Materials contamination
which continues to occur subsequent to the Closing Date as a result of or
relating to an Environmental Condition existing as of the Closing Date;
provided, that upon discovery by an officer of the Company of such
condition the Company promptly notifies Sellers in writing of the condition
and takes reasonable steps to address the situation and avoid exacerbating
the condition;
(iv) the off-site disposal or treatment of any Hazardous
Materials by the Company on or prior to the Closing Date; and
(v) any claim by a current or former employee of the Company
the facts upon which such claim is based occurred prior to the Closing
Date, including but not limited to, claims alleging wrongful discharge,
employment discrimination and wage and hour violations;
provided, however, that Sellers will not be liable for any such Loss provided
for in this Section 7.2(a) unless such individual Loss (any event or occurrence
that may constitute a breach of one or more representation and warranty
provision set forth in Article III may only
28
<PAGE>
be considered a single Loss without duplication) in each instance exceeds
$100,000 and the aggregate amount of all such Losses resulting to Buyer Parties
exceeds $2,000,000 (the "Allowance"), after which Sellers shall be liable for
the Allowance less $1,000,000 (the "Adjusted Allowance") and any additional
Losses in excess of such Adjusted Allowance. Notwithstanding the foregoing: (A)
in no event shall the aggregate liability of Sellers arising from Section
7.2(a)(ii) through (iv), inclusive, or out of breaches by Sellers of
representations or warranties set forth in Sections 3.14 and 3.20 exceed, in the
aggregate, $24,535,000; and (B) in no event shall the aggregate liability of
Sellers hereunder with respect to any other Losses of the Buyer Parties other
than those Losses described in clause (A) of this sentence exceed $4,107,000
(except that the limit with respect to Losses arising out of breaches by Sellers
of representations and warranties set forth in Section 3.4 shall be an amount
equal to the Purchase Amount).
(b) Buyers agree that, on and after the Closing Date, Buyers shall
defend any and all actions or proceedings arising out of the failure of Buyers
to pay or otherwise satisfy the liabilities recorded on the Definitive Closing
Balance Sheet or occurring or arising with respect to the businesses of DMC and
Spectrum (the "Liabilities") and shall be responsible for and indemnify and hold
harmless Sellers against any liability, loss, damage, claim, cost or expense
(including, without limitation, expenses of investigation and expense fees and
disbursement of counsel and other professionals) incurred or suffered by Sellers
arising out of any of the Liabilities. Buyers further agree to indemnify
Sellers and hold Sellers harmless from and against any Losses incurred by,
imposed on or borne by Sellers resulting from the breach of any representation,
warranty or covenant by Buyers contained in this Agreement.
(c) If a claim by a third party is made against an indemnified party
(the "Indemnified Party"), and if such party intends to seek indemnity with
respect thereto under this Agreement from the other party (the "Indemnifying
Party"), the Indemnified Party shall promptly, but in any event, within ten (10)
business days, notify the Indemnifying Party in writing of such claims setting
forth such claims in reasonable detail. The failure to give such notice shall
not relieve the Indemnifying Party of any liability hereunder except to the
extent that the Indemnifying Party is actually prejudiced thereby. The
Indemnifying Party shall have thirty (30) days after receipt of such notice to
undertake, conduct and control, through counsel of its own choosing and at its
own expense, the settlement or defense thereof (except in such instances where
the settlement includes other than strictly the payment of money, in which case
such settlement shall not be entered into without the written consent of the
Indemnified Party, which consent shall not be reasonably withheld or delayed).
The Indemnified Party may participate in (but not control) such settlement or
defense through counsel chosen by such Indemnified Party, provided that the fees
and expenses of such counsel shall be borne by such Indemnified Party. So long
as the Indemnifying Party is reasonably contesting any such claim in good faith,
the Indemnified Party shall not pay or settle any such claim. Notwithstanding
the foregoing, the Indemnified Party shall have the right to pay or settle any
such claim, provided that in such event it shall waive any right to indemnity
therefor by the Indemnifying Party. If the Indemnifying Party does not notify
the Indemnified Party in writing within thirty (30) days after the receipt of
the Indemnified
29
<PAGE>
Party's notice of a claim of indemnity hereunder that it elects to undertake the
defense thereof, the Indemnified Party shall have the right to contest, settle
or compromise the claim but shall not thereby waive any right to indemnity
therefor pursuant to this Agreement.
(d) Notwithstanding anything to the contrary contained in this
Agreement, any indemnification owed under this Agreement shall be reduced as
provided in Section 8.15 and by the amount of any reimbursements actually
received by the Indemnified Party from any insurance carriers or from third
parties.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
------------------------
SECTION 8.1. Amendment and Modification. This Agreement may be amended,
--------------------------
modified or supplemented by a written instrument signed by all of the parties
hereto.
SECTION 8.2. Waiver of Compliance; Consents. Any failure of Buyers or
------------------------------
Sellers to comply with any obligation, covenant, agreement or condition
contained herein may be waived in writing by Sellers or Buyers, respectively,
but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any other failure.
SECTION 8.3. Validity. The invalidity or unenforceability of any
--------
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 8.4. Expenses and Obligations. All costs and expenses incurred in
------------------------
connection with the transactions contemplated by this Agreement by Buyers,
including without limitation legal, accounting and investment banking fees,
shall be paid by DMC, and all costs and expenses incurred in connection with the
transactions contemplated by this Agreement by Sellers, including without
limitation legal, accounting and investment banking fees, shall be paid by
Sellers.
SECTION 8.5. Parties in Interest. This Agreement shall be binding upon
-------------------
and, except as provided below, inure solely to the benefit of each party hereto,
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.
SECTION 8.6. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given upon the earlier of delivery
thereof if by hand or upon receipt if sent by mail (registered or certified,
postage prepaid, return receipt requested) or on the second next business day
after deposit if sent by a recognized overnight delivery service or upon
transmission if sent by telecopy or facsimile transmission (with request of
assurance of receipt in a manner customary for communication of such type) as
follows:
30
<PAGE>
(a) If to Buyers, to:
Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Enterprise Partners IV, L.P.
Enterprise Partners, IV Associates, L.P.
Enterprise Management Partners Corporation
Enterprise Partners Texas Company, L.L.C.
5000 Birch Street, Suite 6200
Newport Beach, California 92660
Attention: Charles D. Martin
Facsimile No.: (714) 833-3652
with a copy to:
O'Melveny & Myers LLP
Suite 1700
610 Newport Center Drive
Newport Beach, California 92660
Attention: J. Jay Herron
Facsimile No.: (714) 669-6994
(b) If to Sellers, to:
Ben Doskocil
5306 Mansfield Road
Arlington, Texas 76017
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby
Craig W. Adas
Facsimile No.: (214) 746-7777
(c) If to DMC, to:
Doskocil Manufacturing Company, Inc.
4209 Barnett
Arlington, Texas 76017
Attention: Chief Executive Officer
Facsimile No.: (817) 472-9810
31
<PAGE>
with copies to:
O'Melveny & Myers LLP
Suite 1700
610 Newport Center Drive
Newport Beach, California 92660
Attention: J. Jay Herron
Robert L. Davis
Facsimile No.: (714) 669-6994
SECTION 8.7. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Texas without regard to
the conflicts-of-laws rules thereof.
SECTION 8.8. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 8.9. Headings. The article and section headings contained in this
--------
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect in any way the meaning or interpretation of
this Agreement.
SECTION 8.10. Entire Agreement. This Agreement and the Disclosure
----------------
Schedule and exhibits attached hereto embody the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein or therein. There are no agreements, representations, warranties or
covenants other than those expressly set forth herein or therein. This
Agreement and the Disclosure Schedule and exhibits attached hereto supersede all
prior agreements and understandings between the parties with respect to such
subject matter.
SECTION 8.11. Assignment. This Agreement shall not be assigned by
----------
operation of law or otherwise.
SECTION 8.12. Certain Tax Audits. With respect to any audit or judicial
------------------
or administrative proceeding relating to taxable income of DMC or Spectrum which
is taxed to any of Sellers ("Pass Through Taxes") or with respect to any Taxes
subject to indemnification by the Sellers under this Agreement ("Indemnifiable
Taxes"), the Doskocils shall, at the Sellers' cost and expense (except for the
first $10,000 of the Doskocils' out of pocket costs and expenses (including
legal and accounting fees), which costs and expenses shall be paid or reimbursed
by DMC), control the conduct, dispute and settlement of such audit or proceeding
relating to Pass Through Taxes or Indemnifiable Taxes. Sellers shall not enter
into any settlement agreement with any taxing authority which materially
increases the liability of DMC for Taxes in taxable periods ending after the
Closing Date without the written consent of DMC. Buyers agree to promptly
notify the Doskocils of the commencement of any such audit or other proceeding
with respect to Pass Through Taxes.
32
<PAGE>
Buyers agree to cause DMC to cooperate with the Doskocils with respect to such
audits or proceedings, including, without limitation, by providing the Doskocils
(and their agents) with access to any and all books and records which relate
thereto and by executing any power of attorney required in connection therewith.
SECTION 8.13. Transfer Taxes. DMC shall pay, or cause to be paid, any
--------------
sales, use, or transfer Tax or fee, recordation or similar Tax or fee, deed,
stamp or other Tax, grantor's or grantee's Tax, recording charge, fee or other
similar cost or expense of any kind required or customary in the applicable
jurisdiction in connection with all transactions pursuant to this Agreement,
whether such Tax or fee is imposed on Sellers, DMC, Spectrum or Buyers.
SECTION 8.14. Certain Tax Returns. The Doskocils shall properly and
-------------------
timely prepare (or cause to be prepared), at the cost and expense of DMC, all
Tax Returns of DMC and Spectrum with respect to taxable periods that end on or
before the Closing Date (the "Seller Returns"), and DMC and Spectrum shall
timely file any Seller Returns which are prepared in a manner consistent with
this Section 8.14; provided that DMC shall not be required to reimburse the
Doskocils for their out-of-pocket costs and expenses relating to preparation of
Sellers Returns (including legal and accounting fees) in excess of $10,000. The
Doskocils shall provide the completed Seller Returns to Buyers for Buyers'
review at least ten business days before the due date thereof. The Seller
Returns shall be prepared in a manner which is consistent with past practices,
except as otherwise required by applicable law. Income, gain, loss, deduction
and credit of DMC and Spectrum shall be allocated between the Seller Returns and
any succeeding taxable period on the basis of a closing of the books of DMC at
the close of business on the day preceding the Closing Date in accordance with
Section 1362(e)(6)(D) of the Code and in the case of Spectrum as of the Closing.
At the request of Buyers, Sellers shall cause an election pursuant to Section
754 of the Code to be in effect with respect to the taxable year of Spectrum
ending on the Closing Date. Buyers, DMC and Spectrum agree to cooperate with
the Doskocils in connection with the preparation of the Seller Returns,
including without limitation by providing the Doskocils (and their agents) with
access to all books and records which are reasonably related to the preparation
of the Seller Returns and executing any required elections with respect thereto.
None of Buyers, DMC or Spectrum will file any amended Tax Returns or claim for
refund or extend any statute of limitations with respect to Indemnifiable Taxes
or Pass Through Taxes without obtaining the prior written consent of the
Doskocils. Pursuant to Section 5.4(a) of this Agreement, certain amounts are
being paid prior to the Closing Date to officers and other employees of DMC and
Spectrum ("Bonus Amounts"). The Sellers and Buyers agree that Bonus Amounts
with respect to employees of Spectrum are deductible in the Seller Returns.
SECTION 8.15. Certain Refunds and Tax Benefits. The Doskocils shall be
--------------------------------
entitled to receive and to retain any and all refunds of Taxes in respect of
taxable periods of DMC and Spectrum ending on or before the Closing Date.
Buyers, DMC and Spectrum shall promptly pay to Doskocils any such refund which
any of them receive (or otherwise receive credit therefor). Any indemnification
under this Agreement shall be reduced by any Tax
33
<PAGE>
Benefit actually realized in connection with or relating to a Loss or any
adjustment relating to Pass Through Taxes. The term "Tax Benefit" means the
amount by which any Taxes of the indemnified party (or any affiliated or related
person) (the "Benefitted Party") are reduced by any loss, deduction, refund,
credit or other Tax benefit, including without limitation any Offsetting Tax
Benefit, net of any related increase in Taxes (including any such increase
attributable to the receipt or accrual of an indemnification payment hereunder).
In the event that a Benefitted Party actually realizes a Tax Benefit described
herein subsequent to the payment of indemnification hereunder or at such time as
an Offsetting Tax Benefit is actually realized, the Benefitted Party shall pay
the amount of such Tax Benefit or Offsetting Tax Benefit to the indemnitor. The
term "Offsetting Tax Benefit" means the amount of any Tax Benefit which is
realized by the Benefitted Party in one or more subsequent taxable periods
attributable to or relating to an adjustment with respect to Taxes in a prior
taxable period.
SECTION 8.16. Exclusive Remedy. Buyers and Sellers agree that, to the
----------------
fullest extent permitted by law, the sole and exclusive remedy of the Buyer
Parties and Sellers after the Closing with respect to any claim or cause of
action asserted by the Buyer Parties or Sellers against the other relating to or
arising from breaches of the representations, warranties or covenants contained
in this Agreement or any list, certificate or other instrument furnished by or
to be furnished by or on behalf of such party or its affiliates, if any, to the
other party or any of such party's representatives in connection with the
transactions contemplated by this Agreement shall be limited to the rights of
the Buyer Parties and Sellers under, and shall be subject to the terms and
conditions of the provisions set forth in, Article VII.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
34
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed on its behalf by its duly authorized officers, all as of
the day and year first above written.
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
------------------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS III ASSOCIATES,
L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
------------------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS IV, L.P.
By: Enterprise Management Partners IV, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
------------------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS IV ASSOCIATES, L.P.
By: Enterprise Management Partners IV, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
------------------------------------------
Charles D. Martin
Its: General Partner
35
<PAGE>
ENTERPRISE MANAGEMENT PARTNERS
CORPORATION
By: /s/ CHARLES D. MARTIN
-----------------------------------------
Charles D. Martin
Its: President
ENTERPRISE PARTNERS TEXAS COMPANY,
L.L.C.
By: /s/ CHARLES D. MARTIN
-----------------------------------------
Charles D. Martin
Manager
/s/ BENJAMIN L. DOSKOCIL, SR.
--------------------------------------------
Benjamin L. Doskocil, Sr.
/s/ MARY FRANCES DOSKOCIL
-------------------------------------------
Mary Frances Doskocil
BED ROCK INTERNATIONAL, INC.
By: /s/ GARLAND STRONG
---------------------------------------
Name: Garland Strong
-----------------------------------
Title: President
-----------------------------------
36
<PAGE>
DOSKOCIL MANUFACTURING COMPANY,
INC.
By: /s/ DONALD J. FRITSCHEN
-----------------------
Name: Donald J. Fritschen
---------------------
Title: Vice President
--------------------
SPECTRUM POLYMERS, LTD.
By: BED ROCK INTERNATIONAL, INC.,
Its: General Partner
By: /s/ GARLAND STRONG
------------------------
Name: Garland Strong
----------------------
Title: President
---------------------
37
<PAGE>
EXHIBIT A
Allocation of Purchase Price of
Spectrum Polymers, Ltd.
<TABLE>
<CAPTION>
(000's omitted)
<S> <C>
Cash $ 20
Accounts Receivable 2,700
Inventory 2,400
Prepaid Expenses 20
Fixed Assets 4,500
Resin Formulas, Goodwill & Intangibles 7,105
-------
Total Purchase Price $16,745
=======
Total Purchase Price consists of the following items:
Cash To Seller $11,005
Seller Liabilities Assumed 4,795
Seller Debt Paid 995
-------
Total $16,745
=======
</TABLE>
A-1
<PAGE>
EXHIBIT B
Wire Transfer Instructions for
Payment of Partnership Purchase Price
SEE FUNDS FLOW MEMORANDUM ATTACHED AS EXHIBIT D
---------
B-1
<PAGE>
EXHIBIT C
Amended and Restated Articles of Incorporation of
Doskocil Manufacturing Company, Inc.
C-1
<PAGE>
EXHIBIT D
Funds Flow Memorandum
D-1
<PAGE>
EXHIBIT E
Wire Transfer Instructions for Redemption Amount
SEE FUNDS FLOW MEMORANDUM ATTACHED AS EXHIBIT D
---------
E-1
<PAGE>
EXHIBIT F
Escrow Agreement
F-1
<PAGE>
EXHIBIT G
Common Stock Ownership
Doskocil Manufacturing Company, Inc.
<TABLE>
<CAPTION>
Number of
Name of Shareholder Shares Held
----------------------- -----------
<S> <C>
Benjamin L. Doskocil, Sr. 5,973,800
Mary Frances Doskocil 25,100
---------
Total 5,998,900
</TABLE>
Ownership of Interests
Spectrum Polymers, Ltd.
<TABLE>
<CAPTION>
Percentage
Name of Partner Ownership
------------------- ---------
<S> <C>
Benjamin L. Doskocil, Sr. (limited partner) 49.5%
Mary Frances Doskocil (limited partner) 49.5%
Bed Rock International, Inc. (general partner) 1.0%
----
Total 100.0%
</TABLE>
G-1
<PAGE>
EXHIBIT H
Form of
Confidentiality, Non-Competition
and Non-Solicitation Agreement
THIS CONFIDENTIALITY, NON-COMPETITION AND NON-SOLICITATION AGREEMENT (this
"Agreement") is made as of July 1, 1997 by and among Benjamin L. Doskocil, Sr.
and Mary Frances Doskocil (together "Sellers"), and Doskocil Manufacturing
Company, Inc., a Texas corporation ("DMC").
WHEREAS, DMC, Sellers, Enterprise Partners III, L.P., a Delaware limited
partnership ("EPIII"), Enterprise Partners III Associates, L.P., a Delaware
limited partnership ("EPIIIA"), Enterprise Partners IV, L.P., a Delaware limited
partnership ("EPIV"), Enterprise Partners IV Associates, L.P., a Delaware
limited partnership ("EPIVA," together with EPIII, EPIIIA and EPIV, the "EP
Funds"), Enterprise Management Partners Corporation, a California corporation
("EMPC"), Enterprise Partners Texas Company, L.L.C., a Texas limited liability
company and wholly-owned subsidiary of EMPC ("EP Texas," together with EMPC and
EP Funds, the "Buyers"), and Spectrum Polymers, Ltd. ("Spectrum" and, together
with DMC, the "Company") are parties to a Recapitalization Agreement dated July
1, 1997 (the "Recapitalization Agreement"), pursuant to which the Company is
being recapitalized;
WHEREAS, Sellers' management contributions to the Company have been
uniquely valuable and involve proprietary information that would be
competitively unfair to make available to any competitor of the Company in the
United States or in any other country in which the Company is currently doing or
proposing to do business.
WHEREAS, in order to induce Enterprise to enter into the Recapitalization
Agreement and consummate the transactions contemplated thereunder, and for the
cash consideration being paid hereunder, Sellers have agreed to maintain certain
information as confidential, not to compete with the Company and not to solicit
employees of the Company without first obtaining the consent of DMC, all in
accordance with the terms set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Defined Terms. Capitalized terms used herein but not otherwise defined
-------------
shall have the meanings set forth in the Recapitalization Agreement.
2. Consideration. As consideration for entering into this Agreement, DMC
-------------
hereby pays to the Sellers $10,000 by wire transfer of immediately available
funds to such account or accounts designated in writing by Sellers.
3. Confidentiality. For a period of three years from and after the
---------------
Closing Date, Sellers shall not disclose to any person, or use or otherwise
exploit for his or her own benefit
H-1
<PAGE>
or for the benefit of anyone other than the Company, any Confidential
Information (as defined below). Sellers shall have no obligation to keep
confidential any Confidential Information if and to the extent disclosure
thereof is specifically required by law, judicial or governmental order or other
legal process; provided, however, that in the event such disclosure is required,
Sellers shall, to the extent reasonably practicable, provide DMC with reasonably
prompt notice of such requirement, prior to making any disclosure, so that DMC
may seek an appropriate protective order or waive compliance with this provision
with respect to such disclosure. For purposes of this Agreement, "Confidential
Information" shall mean any confidential information with respect to the conduct
or details of the businesses of the Company including, without limitation,
methods of operation, customer lists, products (existing and proposed), prices,
fees, costs, plans, designs, technology, inventions, trade secrets, know-how,
software, marketing methods, policies, personnel, suppliers, competitors,
markets or other specialized information or proprietary matters of the Company.
The term "Confidential Information" does not include, and there shall be no
obligation hereunder with respect to, information that (a) is generally
available to the public on the date of this Agreement or (b) becomes generally
available to the public other than as a result of a disclosure by either Seller
in violation of this Agreement.
4. Non-Competition.
---------------
(a) Subject to the other provisions of this Section 4, for a period
of five years from and after the Closing Date (the "Noncompetition Term"),
without the prior written consent of DMC, Sellers shall neither (i) knowingly
participate as a stockholder, proprietor, partner, trustee, consultant,
employee, director, officer, lender, or investor in an entity which directly
competes (whether as a manufacturer, distributor or seller) in the United States
or in any other country in which the Company is currently doing business with
the businesses currently conducted or currently proposed to be conducted and the
products currently manufactured or currently proposed to be manufactured by the
Company (each a "Competing Entity") nor (ii) knowingly fund (including by loan,
investment, forbearance, gift or otherwise) any person, including any current or
future employee of the Company or any relative of Sellers, in a Competing
Entity.
(b) Nothing contained herein shall limit the right of either Seller
to hold and make investments in securities of any corporation or limited
partnership that is registered on a national securities exchange or admitted to
trading privileges thereon or actively traded in a generally recognized over-
the-counter market, provided such Seller's equity interest therein does not
exceed 5% of the total outstanding shares or interests in such corporation or
partnership.
(c) If, during any period within the Noncompetition Term, either
Seller is not in compliance with the terms of this Section 4, the Company shall
be entitled to, among other remedies, compliance by such Seller with the terms
of this Section 4 for an additional period equal to the period of such
noncompliance. For purposes of this Agreement, the term "Noncompetition Term"
shall also include such additional period.
H-2
<PAGE>
(d) Each of the Sellers hereby acknowledges that the geographic
boundaries, scope of prohibited activities and the time duration of the
provisions of this Section 4 are reasonable and are no broader than are
necessary to protect the legitimate business interests of the Company.
5. Non-Solicitation and Non-Interference. During the Noncompetition
-------------------------------------
Term, neither Seller shall, directly or indirectly, (a) solicit the employment
of any current or future employee of the Company without the prior written
consent of DMC, (b) request, induce or attempt to influence any employee of the
Company to terminate his or her employment with the Company, or (c) request,
induce or attempt to influence any supplier or customer of the Company to
terminate its relationship with the Company; provided, however, that this
Agreement shall not prohibit (i) any advertisement or general solicitation that
is not specifically targeted at employees of the Company, and (ii) solicitation
of the employment of any former employee of the Company who either resigned from
the Company at least one year prior to such solicitation or was terminated by
the Company at least one year prior to such solicitation. Notwithstanding the
foregoing, the persons listed on Appendix A shall not be subject to the non-
solicitation covenants set forth in clauses (a) and (b) of this Section 5.
6. Injunctive Relief. Each Seller acknowledges that the breach of any of
-----------------
the agreements contained herein, including, without limitation, any of the
confidentiality, non-competition and non-solicitation covenants specified in
Sections 3 through 5, may give rise to irreparable injury to the Company,
inadequately compensable in money damages. Accordingly, the Company shall be
entitled to injunctive relief to prevent or cure breaches or threatened breaches
of the provisions of this Agreement and to enforce specific performance of the
terms and provisions hereof in any court of competent jurisdiction, in addition
to any other legal or equitable remedies which may be available. Sellers waive
any requirements for the posting of a bond in connection with the issuance of
such an injunction. Each Seller further acknowledges and agrees that his or her
experience and capabilities are such that he or she can obtain employment in
business activities which are of a different or noncompeting nature with his or
her activities as an employee of the Company; and that the enforcement of a
remedy hereunder by way of injunction shall not prevent such Seller from earning
a reasonable livelihood. Each Seller further acknowledges and agrees that the
covenants contained herein are necessary for the protection of the Company's
legitimate business interests and are reasonable in scope and content.
7. Miscellaneous.
-------------
(a) Amendment and Waiver. This Agreement may be amended and any
--------------------
provision of this Agreement may be waived, provided that any such amendment or
waiver will be binding upon a party only if such amendment or waiver is set
forth in a writing executed by DMC and Sellers.
(b) Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given upon the earlier of delivery thereof if by
hand or upon receipt if sent by mail (registered or certified mail, postage
prepaid, return receipt requested)
H-3
<PAGE>
or on the second next business day after deposit if sent by a recognized
overnight delivery service or upon transmission if sent by telecopy or facsimile
transmission (with request of assurance of receipt in a manner customary for
communication of such type) as follows:
(i) If to the Company, to:
Doskocil Manufacturing Company, Inc.
4209 Barnett
Arlington, Texas 76017
Attention: President
Facsimile No.: (817) 465-5686
with copies to:
O'Melveny & Myers
610 Newport Center Drive
17th Floor
Newport Beach, California 92660
Attention: J. Jay Herron
Facsimile No.: (714) 669-6994
(ii) If to Sellers, to:
Benjamin L. Doskocil, Sr.
5306 Mansfield Road
Arlington, Texas 76017
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby
Facsimile No.: (214) 746-7777
(c) Entire Agreement. This Agreement and the documents referred to
----------------
herein contain the entire agreement between the parties and supersede any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.
(d) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
H-4
<PAGE>
(e) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Texas without regard to the
conflicts-of-laws rules thereof.
(f) Jurisdiction and Venue. The parties hereto agree that any suit,
----------------------
action or proceeding arising out of or relating to this Agreement shall be
instituted only in a court of competent jurisdiction sitting in Tarrant County,
Texas. Each party waives any objection it may have now or hereafter to the
laying of the venue of any such suit, action or proceeding, and irrevocably
submits to the jurisdiction of any such court in any such suit, action or
proceeding.
(g) Headings. The article and section headings contained in this
--------
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect in any way the meaning or interpretation of
this Agreement.
(h) Severability and Reformation. Whenever possible, each provision
----------------------------
of this Agreement will be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
Notwithstanding the foregoing, in the event a court of competent jurisdiction
should decline to enforce the provisions of Section 4 hereof, such Section 4
shall be deemed to be modified or reformed to restrict each Seller's competition
with the Company or its subsidiaries to the maximum extent, as to time,
geography and business scope, which the court shall find enforceable.
(i) Successors and Assigns. This Agreement and the rights and duties
----------------------
hereunder shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
H-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
DOSKOCIL MANUFACTURING COMPANY,
INC.
By:________________________________
Name:______________________________
Title:_____________________________
___________________________________
Benjamin L. Doskocil, Sr.
___________________________________
Mary Frances Doskocil
H-6
<PAGE>
Appendix A
Jahron (Ronnie) Flener
H-7
<PAGE>
EXHIBIT I
Matters to be Covered in Legal Opinion of Counsel to Sellers
1. DMC is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as now being conducted.
2. Spectrum is a limited partnership validly existing under the laws of
the jurisdiction of its formation and has all requisite partnership power and
authority to own, operate and lease its properties and to carry on its business
as now being conducted.
3. DMC has all requisite corporate power and authority to execute and
deliver the Recapitalization Agreement and to perform its obligations
thereunder.
4. Spectrum has all requisite partnership power and authority to execute
and deliver the Recapitalization Agreement and to perform its obligations
thereunder.
5. The Recapitalization Agreement has been duly and validly executed and
delivered by each of the Sellers, DMC and Spectrum and constitutes a valid and
binding obligation of each of them, enforceable against them in accordance with
its terms, except to the extent that such enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally, and 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.
6. The authorized capital stock of DMC consists of 12,500,000 shares of
common stock, no par value per share. As of___________1997, there were 5,998,900
shares of common stock issued and outstanding and 100 shares held as treasury
stock. All of such outstanding shares of DMC's capital stock are duly
authorized, validly issued, fully paid and nonassessable. To our knowledge,
there are no outstanding securities of DMC convertible into or evidencing the
right to purchase or subscribe for any shares of capital stock of DMC, there are
no outstanding or authorized options, warrants, calls, subscriptions, rights,
commitments or any other agreements of any character obligating DMC to issue any
shares of its capital stock or any securities convertible into or evidencing the
right to purchase or subscribe for any shares of such stock, and there are no
agreements or understandings with respect to the voting, sale or transfer of any
shares of capital stock of DMC to which DMC is a party.
7. The execution and delivery of the Recapitalization Agreement, the
consummation of the transactions contemplated thereby and compliance by Sellers,
DMC and Spectrum with any of the provisions thereof will not conflict with,
constitute a default under or violate (i) any of the terms, conditions or
provisions of the articles of incorporation or by-
I-1
<PAGE>
laws of DMC, (ii) any of the terms, conditions or provisions of any document,
agreement or other instrument to which Sellers, DMC or Spectrum is a party or by
which any of them are bound of which we are aware, (iii) any Texas or federal
law or regulation (other than federal and state antitrust securities or blue sky
laws, as to which we express no opinion), or (iv) any judgment, writ,
injunction, decree, order or ruling of any court or governmental authority
binding on Sellers, DMC or Spectrum of which we are aware.
I-2
<PAGE>
EXHIBIT J
New Real Property Lease Agreements
J-1
<PAGE>
EXHIBIT K
Stockholders Agreement
K-1
<PAGE>
EXHIBIT L
Consulting Agreement
L-1
<PAGE>
EXHIBIT M
Matters to be Covered in Legal Opinion of Counsel to Buyers
(a) Each of the EP Funds is a duly formed and validly existing
limited partnership under the laws of the State of Delaware, with the power
under the Delaware Revised Uniform Limited Partnership Act (the "Act") and each
of their respective partnership agreements (the "Partnership Agreements") to
enter into the Recapitalization Agreement and the Stockholders' Agreements
(collectively, the "Agreements") and to perform each of their respective
obligations under the Agreements;
(b) The execution, delivery and performance of the Agreements have
been duly authorized by all necessary action under the Act and the Partnership
Agreements on the part of each of the EP Funds, and the Agreements have been
duly executed and delivered by each of the EP Funds;
(c) Each of the EP Funds' execution and delivery of, and performance
of its obligations under the Agreements do not (i) violate the Partnership
Agreements, or (ii) to our knowledge, breach or otherwise violate any existing
obligation of or restriction on the EP Funds under any order, judgment or decree
of any federal court or governmental authority binding on the EP Funds;
(d) EMPC has been duly incorporated, and is validly existing in good
standing under the laws of the State of California, with corporate power to
enter into the Agreements, and to perform its obligations under the Agreements;
(e) The execution, delivery and performance of the Agreements have
been duly authorized by all necessary corporate action on the part of EMPC, and
the Agreements have been duly executed and delivered by EMPC;
(f) EMPC's execution and delivery of, and performance of its
obligations under the Agreements do not (i) violate EMPC's articles of
incorporation or by-laws, or (ii) to our knowledge, breach or otherwise violate
any existing obligation of or restriction on EMPC under any order, judgment or
decree of any federal court or government authority binding on EMPC;
(g) The execution and delivery by each of the EP Funds and EMPC of,
and performance of their respective obligations under the Agreements do not
violate any federal statute or regulation that we have, in the exercise of
customary professional diligence, recognized as applicable to each of the EP
Funds and EMPC or to transactions of the type contemplated by the Agreements;
provided, however, that we express no opinion regarding the applicability of any
federal antitrust or securities laws or Sections 544 and 548 of the U.S.
Bankruptcy Code; and
M-1
<PAGE>
(h) The Agreements constitute the legally valid and binding
obligations of each Buyer, enforcement against it in accordance with the terms
of the Agreements, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally (including, without limitation, fraudulent conveyance laws), and by
general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law.
M-2
<PAGE>
EXHIBIT 10.2
MERGER AGREEMENT
BETWEEN
DOSKOCIL MANUFACTURING COMPANY, INC.
AND
DOGLOO, INC.
DATED SEPTEMBER 19, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
ARTICLE I
THE MERGER....................................... 1
1.1 The Merger....................................... 1
1.2 Effective Time of the Merger..................... 2
1.3 Effect of the Merger............................. 2
1.4 Articles of Incorporation........................ 2
1.5 Bylaws........................................... 2
1.6 Directors........................................ 3
1.7 Conversion of Shares............................. 3
1.8 Exchange of Shares............................... 3
1.9 Dissenting Shares................................ 4
1.10 Assumption of Options............................ 5
1.11 Nature and Qualification of Merger............... 5
ARTICLE II
CONVERSION OF PREFERRED STOCK AND
POST MERGER REDEMPTION OF SHARES................. 5
2.1 Conversion of Certain Shares of DMC Series A
Preferred Stock into DMC Common Stock............ 5
2.2 Redemption of DMC Common Stock and DMC Series
A Preferred Stock................................ 5
2.3 Redemption of DMC Series C Preferred Stock....... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DOGLOO......... 6
3.1 Organization and Qualification................... 6
3.2 Authorization.................................... 7
3.3 No Violation..................................... 7
3.4 Capitalization of Dogloo......................... 7
3.5 Subsidiaries and Equity Investments.............. 8
3.6 Consents and Approvals........................... 8
3.7 Financial Statements............................. 8
3.8 Absence of Undisclosed Liabilities............... 8
3.9 Absence of Certain Changes....................... 9
3.10 Litigation....................................... 9
3.11 Real Property; Liens and Encumbrances............ 9
3.12 Certain Agreements............................... 10
3.13 Employee Benefit Plans........................... 10
3.14 Taxes............................................ 12
3.15 Compliance with Applicable Law................... 12
3.16 Brokers' Fees and Commissions.................... 13
3.17 Proprietary Rights............................... 13
3.18 Labor and Employment............................. 13
3.19 Insurance........................................ 13
3.20 Environmental Laws and Regulations............... 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DMC............ 14
4.1 Organization and Qualification................... 14
4.2 Authorization.................................... 14
</TABLE>
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<TABLE>
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<S> <C>
4.3 No Violation..................................... 15
4.4 Capitalization of DMC............................ 15
4.5 Subsidiaries and Equity Investments.............. 15
4.6 Consents and Approvals........................... 15
4.7 Financial Statements............................. 15
4.8 Absence of Undisclosed Liabilities............... 16
4.9 Absence of Certain Changes....................... 16
4.10 Litigation....................................... 16
4.11 Real Property; Liens and Encumbrances............ 17
4.12 Certain Agreements............................... 17
4.13 Employee Benefit Plans........................... 17
4.14 Taxes............................................ 19
4.15 Compliance with Applicable Law................... 20
4.16 Brokers' Fees and Commissions.................... 20
4.17 Proprietary Rights............................... 20
4.18 Labor and Employment............................. 20
4.19 Insurance........................................ 20
4.20 Environmental Laws and Regulations............... 20
ARTICLE V
COVENANTS WITH RESPECT TO CONDUCT OF BUSINESSES
PRIOR TO CLOSING................................. 21
5.2 Conduct of Business.............................. 22
5.3 Permits and Approvals............................ 22
5.4 Schedules........................................ 22
ARTICLE VI
CONDITIONS OF MERGER............................. 23
6.1 General Conditions............................... 23
6.2 Conditions to Obligations of DMC................. 23
6.3 Conditions to Obligations of Dogloo.............. 24
ARTICLE VII
SURVIVAL OF REPRESENTATIONS...................... 25
7.1 Survival of Representations...................... 25
ARTICLE VIII
TERMINATION OF OBLIGATIONS; SURVIVAL............. 25
8.1 Termination of Agreement......................... 25
8.2 Effect of Termination............................ 25
ARTICLE IX
MISCELLANEOUS PROVISIONS......................... 25
9.1 Amendment and Modifications...................... 25
9.2 Waiver of Compliance............................. 26
9.3 Expenses......................................... 26
9.4 Notices.......................................... 26
9.5 Assignment....................................... 27
9.6 Publicity........................................ 27
</TABLE>
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<S> <C>
9.7 Governing Law.................................... 27
9.8 Counterparts..................................... 27
9.9 Headings......................................... 27
9.10 Entire Agreement................................. 27
9.11 Third Parties.................................... 27
9.12 Waiver of Rights of First Offer.................. 28
</TABLE>
Exhibits
Exhibit A - Agreement of Merger
Exhibit B - DMC Certificate of Designation
Exhibit C - Stock Redemption Agreement with Enterprise
Exhibit D - Stock Redemption Agreement with Westar Capital
Exhibit E - Stock Redemption Agreement With Aurelio Barreto
Exhibit F - Stock Redemption Agreement with Darrell Paxman
Exhibit G - Shareholders' Agreement
iii
<PAGE>
MERGER AGREEMENT
----------------
This MERGER AGREEMENT (this "AGREEMENT") is made and entered into as of
this 19th day of September 1997, between Doskocil Manufacturing Company, Inc., a
Texas corporation ("DMC"), and Dogloo, Inc., a California corporation
("DOGLOO").
W I T N E S S E T H:
-------------------
WHEREAS, there are currently 32,542,148 outstanding shares of Dogloo common
stock, no par value ("DOGLOO COMMON STOCK"), 10,224,255 outstanding shares of
Dogloo Series A preferred stock, no par value ("DOGLOO SERIES A PREFERRED
STOCK"), and 11,841,280 outstanding shares of Dogloo Series B preferred stock,
no par value ("SERIES B PREFERRED STOCK");
WHEREAS, there are currently 1,331,021 outstanding shares of DMC common
stock, no par value ("DMC COMMON STOCK"), and 1,530,674 outstanding shares of
DMC Series A preferred stock ("DMC SERIES A PREFERRED STOCK");
WHEREAS, on August 7, 1997, the waiting period for the Merger (as defined
in Section 1.1 hereof) under the HSR Act (as defined in Section 3.6 hereof)
expired;
WHEREAS, the Boards of Directors of Dogloo and DMC have approved the Merger
in accordance with the terms and subject to the conditions of this Agreement;
WHEREAS, DMC and Dogloo desire to make certain representations, warranties
and agreements in connection with this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and conditions set forth in this Agreement
----------
and in accordance with the Texas Business Corporation Act (the "TBCA"), DMC and
Dogloo shall, on the Closing Date, cause Dogloo to merge with and into DMC, with
DMC as the surviving corporation (the "MERGER"). The Merger shall be effected
in accordance with and pursuant to the Articles of Merger attached hereto as
Exhibit A. The "CLOSING DATE" means the business day on which the conditions
specified in Article VI hereof are satisfied or waived. The closing shall occur
at the
1
<PAGE>
offices of O'Melveny & Myers LLP, 610 Newport Center Drive, Suite 1700, Newport
Beach, California, or at such other time and date as the parties hereto shall by
written instrument designate.
1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall be consummated by
----------------------------
filing with the California Secretary of State and Texas Secretary of State the
Articles of Merger attached hereto as Exhibit A. The date and time the Merger
becomes effective in accordance with the provisions of the TBCA and the
California Corporations Code (the "CCC") is the "EFFECTIVE TIME".
1.3 EFFECT OF THE MERGER. At the Effective Time, the separate existence
--------------------
of Dogloo shall cease and DMC shall thereupon and thereafter possess all of the
rights, privileges, immunities, powers, franchises and authority, and be subject
to all of the restrictions, disabilities and duties of both Dogloo and DMC; and
the rights, privileges, immunities, powers, franchises and authority of both
Dogloo and DMC, and all assets and property of every description, real, personal
and mixed and every interest therein wherever located, and all debts or other
obligations belonging or due to either of Dogloo or DMC, on whatever account, as
well as all other things in action or belonging to either Dogloo or DMC, shall
be vested in DMC; and all property, rights, privileges, immunities, powers,
franchises and authority of either Dogloo or DMC, and each and every other
interest of either of them, shall be thereafter the property of DMC, and the
title to any real estate or interest therein vested by deed or otherwise shall
not revert to or be in any way impaired by reason of the Merger; but all rights
of creditors and all liens upon any property of either Dogloo or DMC shall be
preserved and unimpaired, and DMC be liable for the debts, liabilities, duties
and obligations of Dogloo and DMC and any claim existing, or action or
proceeding pending, by or against either Dogloo or DMC may be prosecuted to
judgment with right of appeal, as if the Merger had not taken place.
1.4 ARTICLES OF INCORPORATION. Immediately prior to the Closing Date, DMC
-------------------------
shall cause a Certificate of Designation of Rights, Preferences and Privileges
with regard to the designation of DMC Series B and Series C Preferred Stock (the
"CERTIFICATE OF DESIGNATION") in the form of Exhibit B hereto to be filed with
the Texas Secretary of State. The Articles of Incorporation of DMC, as in
effect immediately prior to the Effective Time and after giving effect to the
filing of the Certificate of Designation, shall remain unchanged until amended
in accordance with applicable law.
1.5 BYLAWS. The Bylaws of DMC, as in effect immediately prior to the
------
Effective Time, shall remain unchanged until amended in accordance with
applicable law.
2
<PAGE>
1.6 DIRECTORS. At the Effective Time, the directors of DMC immediately
---------
prior to the Effective Time shall continue to be directors and the following
persons shall be deemed to be elected as additional directors of DMC until their
successors are elected and qualified:
George L. Argyros
John W. Clark
Michael Hoopis
Aurelio F. Barreto, III
1.7 CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger
--------------------
and without any action on the part of any holder of shares of Dogloo Common
Stock:
(a) All of the outstanding shares of Dogloo Common Stock, as of the
Effective Time, will be converted, in the aggregate, into 1,400,615 shares of
DMC Common Stock. Each share of Dogloo Common Stock shall cease to be
outstanding and shall be converted into the right to receive 0.04304004 shares
of DMC Common Stock (which ratio is derived by dividing (i) 1,400,615 shares of
newly issued DMC Common Stock by (ii) 32,542,148 shares of currently issued and
outstanding Dogloo Common Stock) (the "COMMON STOCK EXCHANGE RATIO"); provided,
however, that no certificates representing fractional shares of DMC Common Stock
will be issued upon the surrender for exchange of a certificate or certificates
representing Dogloo Common Stock. In lieu of any such fractional shares, each
shareholder of Dogloo who otherwise would be entitled to receive a fractional
share of DMC Common Stock will be entitled to receive from DMC a cash payment
equal to such fraction multiplied by the fair market value of such shares as
determined by the Board of Directors of DMC;
(b) Each share of Dogloo Series A Preferred Stock issued and
outstanding as of the Effective Time will be converted into one share of newly
designated DMC Series B Preferred Stock. Each share of Dogloo Series B
Preferred Stock issued and outstanding as of the Effective Time will be
converted into one share of newly designated DMC Series C Preferred Stock.
1.8 EXCHANGE OF SHARES. Immediately following the Merger, upon surrender
------------------
by the shareholders of the certificates representing the Dogloo Common Stock,
DMC shall cause to be issued to the Dogloo shareholders certificates
representing the newly issued shares of DMC Common Stock, DMC Series B Preferred
Stock and DMC Series C Preferred Stock, as applicable. Each certificate
representing shares of DMC Common Stock will be stamped or imprinted with a
legend in substantially the following form:
"The shares represented by this certificate are subject to an Amended and
Restated Securityholders Agreement dated as of September 19, 1997, which
contains restrictions on
3
<PAGE>
transfer, rights of first offer, tag-along rights, drag-along rights and
certain registration rights. A copy of said Securityholders Agreement may
be obtained from the Company by the holder of such certificate."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE
HOLDER SOLELY FOR ITS OWN ACCOUNT FOR THE PURPOSE OF INVESTMENT AND NOT
WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION OF ANY
THEREOF. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 ("ACT") OR STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT OR AN EXEMPTION
THEREFROM."
Each certificate representing shares of DMC Series B Preferred Stock and Series
C Preferred Stock will be stamped or imprinted with a legend in substantially
the form of the second of the two paragraphs immediately preceding this
sentence.
1.9 DISSENTING SHARES.
-----------------
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Dogloo Common Stock and Preferred Stock held by a holder who has
exercised dissenters' rights for such shares in accordance with the CCC and who,
as of the Effective Time, has not effectively withdrawn or lost such dissenters'
rights ("DOGLOO DISSENTING SHARES"), shall not be converted into or represent a
right to receive DMC Common Stock pursuant to Section 1.8, but the holder
thereof shall only be entitled to such rights as are granted by the CCC.
(b) Notwithstanding the provisions of subsection 1.9(a), if any holder
of Dogloo Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) his dissenters' rights, then, as of the later of the
Effective Time or the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive DMC
Common Stock and cash in lieu of any fractional shares of DMC Common Stock to
which such holder is entitled pursuant to Section 1.7, without interest thereon,
upon surrender of the certificate(s) representing such shares.
(c) Dogloo shall give DMC (i) prompt notice of any written demand
received by Dogloo to require Dogloo to purchase shares of Dogloo Common Stock
pursuant to the applicable provisions of the CCC and (ii) the opportunity to
participate in all negotiations and proceedings with respect to such demands.
Dogloo shall not, except with the prior written consent of DMC, voluntarily make
any payment with respect to any such demands or offer to settle or settle any
such demands.
4
<PAGE>
1.10 ASSUMPTION OF OPTIONS. At the Effective Time, by virtue of the Merger
---------------------
and without any action on the part of any holder, all of the outstanding stock
options of Dogloo will be assumed by DMC and thereby become options to purchase
shares of DMC Common Stock, with adjustments to the assumed options to reflect
the Common Stock Exchange Ratio. None of the outstanding stock options of Dogloo
shall accelerate as a result of the Merger and the Board of Directors of Dogloo
shall take such action as may be necessary to cause such options to remain
unaccelerated. No change will be made to any outstanding stock options of DMC as
a result of the Merger. DMC agrees to take such actions as are necessary for the
assumption of the Dogloo stock options.
1.11 NATURE AND QUALIFICATION OF MERGER. This Agreement contemplates that
----------------------------------
the Merger will be a tax free merger in a reorganization pursuant to Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "CODE"),
whereby the Dogloo shareholders will receive capital stock in DMC in exchange
for their capital stock in Dogloo. The parties hereto expect that the Merger
will further certain of their business purposes objectives and the enhancement
of earnings created thereby. In doing so, following the Merger, the parties
hereto currently intend to carry on at least one significant historic business
enterprise of Dogloo, or to use at least a significant portion of Dogloo's
historic business assets in a business, in each case, within the meaning of
Treasury Reg. (S)1.368-1(d).
ARTICLE II
CONVERSION OF PREFERRED STOCK AND
POST MERGER REDEMPTION OF SHARES
2.1 CONVERSION OF CERTAIN SHARES OF DMC SERIES A PREFERRED STOCK INTO DMC
---------------------------------------------------------------------
COMMON STOCK. Concurrent with the Effective Time, 1,064,816 shares of DMC
- ------------
Series A Preferred Stock owned by Enterprise Management Partners Corporation, a
California corporation ("EMPC"), will be distributed by EMPC to Westar Capital
L.P., a California limited partnership ("WESTAR"), and HBI Financial Inc., a
Washington corporation ("HBI"), to satisfy certain indebtedness of EMPC to
Westar and HBI. Immediately after such distribution, all shares of Series A
Preferred Stock transferred to Westar and HBI will be converted by such entities
into 1,064,816 shares of DMC Common Stock. Upon conversion of the DMC Series A
Preferred Stock into DMC Common Stock, DMC will pay the accrued but unpaid
dividends on such converted shares of DMC Series A Preferred Stock to Westar and
HBI.
2.2 REDEMPTION OF DMC COMMON STOCK AND DMC SERIES A PREFERRED STOCK.
---------------------------------------------------------------
Concurrent with the Effective Time, DMC shall, subject to the consent of DMC's
senior lenders and compliance with the TBCA, in accordance with a Redemption
Agreement by and among DMC and Enterprise Partners III, L.P., a Delaware limited
5
<PAGE>
partnership ("EPIII"), Enterprise Partners III Associates, L.P., a Delaware
limited partnership ("EPIIIA"), Enterprise Partners IV, L.P., a Delaware limited
partnership ("EPIV"), Enterprise Partners IV Associates, L.P., a Delaware
limited partnership ("EPIVA"), and EMPC in the form of Exhibit C hereto (the
"ENTERPRISE REDEMPTION AGREEMENT"), redeem for $14.4 million (plus accrued but
unpaid dividends on such shares of DMC Series A Preferred Stock as of the
Closing Date) 598,959 shares of DMC Common Stock and 359,376 shares of DMC
Series A Preferred Stock owned by EMPC and for, in the aggregate, $3.6 million,
redeem (i) 64,448 shares of DMC Common Stock and 51,558 shares of DMC Series A
Preferred Stock from EPIII, 5,604 shares of DMC Common Stock and 4,483 shares of
DMC Series A Preferred Stock from EPIIIA, 63,050 shares of DMC Common Stock and
47,917 shares of DMC Series A Preferred Stock from EPIV, and 2,524 shares of DMC
Series A Preferred Stock from EPIVA. Further, EPIV will contribute 625 shares
of DMC Common Stock to EPIVA.
2.3 REDEMPTION OF DMC SERIES C PREFERRED STOCK. Immediately following the
------------------------------------------
Effective Time, if adequate funds are available and subject to the consent of
DMC's lenders and compliance with the TBCA, DMC shall, in accordance with the
Enterprise Redemption Agreement and a Stock Redemption Agreement between DMC and
Westar Capital in the form attached hereto as Exhibit D, redeem for cash such
number of shares of Series C Preferred Stock (such shares representing the
shares of Dogloo Series B Preferred Stock converted into DMC Series C Preferred
Stock as part of the Merger) as may be determined to be appropriate by DMC.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DOGLOO
Dogloo represents, warrants, covenants and agrees as follows:
3.1 ORGANIZATION AND QUALIFICATION. Dogloo is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
California, with all requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as it is now being conducted.
Dogloo is qualified or licensed to do business and is in good standing in every
jurisdiction where the nature of the business conducted by it or the properties
owned or leased by it requires qualification. Dogloo has delivered to DMC
complete and correct copies of the Articles of Incorporation and Bylaws of
Dogloo.
3.2 AUTHORIZATION. Dogloo has full corporate power and authority to
-------------
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Dogloo,
the performance by Dogloo of its
6
<PAGE>
obligations hereunder, and the consummation by Dogloo of the transactions
contemplated hereby, have been duly authorized by the Board of Directors of
Dogloo. No other corporate action on the part of Dogloo is necessary to
authorize the execution and delivery of this Agreement or, other than
shareholder approval, the consummation of the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Dogloo and
constitutes a valid and binding obligation of Dogloo, enforceable against it in
accordance with its terms, except to the extent that such enforcement may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally, and 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.
3.3 NO VIOLATION. Except as set forth in Schedule 3.3, neither the
------------
execution and delivery of this Agreement by Dogloo, and the performance by
Dogloo of its obligations hereunder nor the consummation by Dogloo of the
transactions contemplated hereby will (a) violate, conflict with or result in
any breach of any provision of the Articles of Incorporation or Bylaws of
Dogloo, (b) violate, conflict with or result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both) under
the terms, conditions or provisions of any note, bond, mortgage, indenture or
deed of trust, or any material license, lease or agreement to which Dogloo is a
party or (c) violate any order, writ, judgment, injunction, decree, statute,
rule or regulation of any court or governmental authority applicable to Dogloo.
3.4 CAPITALIZATION OF DOGLOO. The authorized capital stock of Dogloo
------------------------
consists of 100,000,000 shares of Dogloo Common Stock, of which 32,542,148
shares are issued and outstanding and 15,000,000 shares of preferred stock, no
par value, of which 10,224,255 shares of Series A Preferred Stock are issued and
outstanding and 11,841,280 shares of Series B Preferred Stock are issued and
outstanding. All of the issued and outstanding shares have been validly issued,
are fully paid and non-assessable and were not issued in violation of any
preemptive rights. Except as set forth on Schedule 3.4, there are no options,
warrants, calls, subscriptions, conversion or other rights, agreements or
commitments obligating Dogloo to issue any additional shares of capital stock or
any other securities convertible into, exchangeable for or evidencing the right
to subscribe for any shares of capital stock of Dogloo.
3.5 SUBSIDIARIES AND EQUITY INVESTMENTS. Dogloo does not have any direct
-----------------------------------
or indirect equity ownership in any person.
3.6 CONSENTS AND APPROVALS. Except as set forth in Schedule 3.6, no
----------------------
filing or registration with, no notice to and no
7
<PAGE>
permit, authorization, consent or approval of any governmental authority is
necessary for the consummation by Dogloo of the transactions contemplated by
this Agreement other than (a) consents and approvals of or filings or
registrations pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), (b) requirements of federal and state
securities laws, and (c) those already obtained.
3.7 FINANCIAL STATEMENTS.
--------------------
(a) Dogloo has delivered to DMC copies of the audited balance sheets
of Dogloo as of December 31, 1995 and 1996, together with the related audited
statements of operations and retained earnings and cash flows for the years then
ended (such financial statements being hereinafter referred to as the "DOGLOO
FINANCIAL STATEMENTS"). The Financial Statements (x) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis ("GAAP") throughout the periods covered thereby, except as otherwise noted
thereon or disclosed in Schedule 3.7(a), and (y) present fairly in all material
respects the financial position, results of operations and cash flows of Dogloo
as of such dates and for the periods then ended.
(b) Dogloo has delivered to DMC copies of the unaudited balance sheet
of Dogloo as of June 30, 1997, together with the related unaudited statements of
operations and retained earnings and cash flows for the six-month period then
ended (such financial statements being hereinafter referred to as the "DOGLOO
INTERIM FINANCIAL STATEMENTS"). The Dogloo Interim Financial Statements (x)
were prepared in accordance with GAAP throughout the period covered thereby,
except as otherwise noted thereon or disclosed in Schedule 3.7(b), and (y)
present fairly in all material respects the financial position, results of
operations and cash flows of Dogloo.
3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Without giving effect to the
----------------------------------
transactions contemplated by this Agreement, there are no liabilities or
financial obligations of Dogloo that are required to be reflected on a balance
sheet prepared in accordance with GAAP, other than liabilities and obligations
(a) provided for or reserved against in the Dogloo Interim Financial Statements,
(b) arising after June 30, 1997 in the ordinary course of business, or (c)
disclosed in Schedule 3.8.
3.9 ABSENCE OF CERTAIN CHANGES.
--------------------------
(a) Dogloo has, since the date of the Dogloo Interim Financial
Statements, conducted its business and operations according to Dogloo's ordinary
course of business and has used all reasonable efforts consistent therewith to
preserve intact its properties and assets, and maintains satisfactory
relationships with customers, suppliers, distributors and others
8
<PAGE>
having commercially beneficial business relationships with it, in each case, in
the ordinary course of business.
(b) Except as disclosed in Schedule 3.9, Dogloo has not, since the
date of the Dogloo Interim Financial Statements:
(i) issued, sold or pledged, or authorized or proposed the
issuance, sale or pledge of, additional shares of capital stock of any class or
interests, or securities convertible into any such shares or interests, or any
rights, warrants or options to acquire any such shares or interests or other
convertible securities;
(ii) redeemed, purchased or otherwise acquired any outstanding
shares of capital stock of Dogloo; or
(iii) declared, set aside or paid any dividend or other
distribution in respect of Dogloo's capital stock.
3.10 LITIGATION. Except as set forth in Schedule 3.10, there is no action,
----------
suit or proceeding pending or, to the knowledge of Dogloo, threatened against
Dogloo before any governmental authority. Dogloo is not in default under any
judgment, decree, injunction or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against Dogloo.
3.11 REAL PROPERTY; LIENS AND ENCUMBRANCES.
-------------------------------------
(a) Except as disclosed in Schedule 3.11, Dogloo does not own any
real property. Schedule 3.11 contains a complete and accurate list of all real
property leased or otherwise operated by Dogloo as of the date hereof. All
leases set forth in Schedule 3.11 are in full force and effect, Dogloo is not in
material default under any of such leases, and no material default exists or
event has occurred which would constitute a material default upon the passing of
time or the giving of notice, under any of such leases.
(b) Except as set forth in Schedule 3.11, all properties and assets
owned by Dogloo is free and clear of all liens, encumbrances, pledges, claims,
security interests, mortgages, assessments, easements, rights of way, covenants,
restrictions, rights of first refusal, defects in title, encroachments and other
burdens or adverse claims (collectively, "LIENS") except (i) statutory Liens not
yet delinquent, (ii) purchase money Liens arising in the ordinary course and
disclosed on Schedule 3.11, (iii) Liens for taxes not yet delinquent, (iv) Liens
reflected in the Financial Statements or the Interim Financial Statements (which
have not been discharged) and (v) Liens which in the aggregate do not, in the
case of personal property, materially impair the use by Dogloo of properties or
assets subject thereto or, in the case of real property,
9
<PAGE>
materially impair the present and continued use in the usual and normal conduct
of the business of Dogloo (such exceptions are referred to herein collectively
as "DOGLOO PERMITTED LIENS").
3.12 CERTAIN AGREEMENTS. Except as described in Schedule 3.12, Dogloo is
------------------
not a party to any written or enforceable oral agreement with any officer,
director or employee of Dogloo (a) the benefits of which are contingent, or the
terms of which are altered, upon the occurrence of a transaction involving DMC
and Dogloo of the nature of any of the transactions contemplated by this
Agreement, (b) providing severance benefits or other benefits after the
termination of employment regardless of the reason for such termination of
employment, or (c) any of the benefits of which will be increased, or the
vesting of benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
3.13 EMPLOYEE BENEFIT PLANS.
----------------------
(a) Schedule 3.13 sets forth a true and complete list of each
"employee benefit plan" (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), each written
employment, severance, retention, termination, consulting or retirement
contract, and each bonus or other incentive compensation, stock purchase, stock
option, stock award or other equity-based compensation, or vacation plan or
policy (other than any governmental program), and any related trust, as to which
Dogloo has any obligation or liability, contingent or otherwise (collectively,
"DOGLOO EMPLOYEE BENEFIT PLANS"). True, correct and complete copies of the
following documents with respect to each of the Dogloo Employee Benefit Plans
have been made available to DMC by Dogloo: (i) the Dogloo Employee Benefit Plan
and related trust documents, and amendments thereto, (ii) the three most recent
Forms 5500 (including all attachments and accountants' opinions), (iii) the last
Internal Revenue Service determination letter, and (iv) summary plan
descriptions and modifications thereto and (v) any other written material
provided to employees concerning the Dogloo Employee Benefit Plans which are
within the possession of Dogloo. No Dogloo Employee Benefit Plan invests in any
security issued by Dogloo, or in any property leased to Dogloo.
(b) Dogloo does not maintain or contribute to, or on or after the date
which is six years prior to the date of this Agreement (the "SIX-YEAR LOOK BACK
DATE") has maintained or contributed to, any "MULTIEMPLOYER PLAN," as such term
is defined in Section 3(37) or Section 4001(a)(3) of ERISA, or any defined
benefit plans covered by Title IV of ERISA. Each Dogloo Employee Benefit Plan
which is intended to be qualified under Section 401(a) and, if applicable,
Section 401(k) of the Code, is so qualified.
10
<PAGE>
(c) Except as disclosed in Schedule 3.13, no action, suit or
proceeding relating to any Dogloo Employee Benefit Plan (other than routine
claims for benefits for which the plan administrative procedures have not been
exhausted and routine "QUALIFIED DOMESTIC RELATIONS ORDERS" as defined in
Section 414(p) of the Code) is pending or, to the knowledge of Dogloo,
threatened against Dogloo, any Employee Benefit Plan or any fiduciary of any
Dogloo Employee Benefit Plan before any court, arbitrator or administrative or
governmental body, and to the knowledge of Dogloo, no facts exist which could
reasonably be expected to give rise to such action, suit or proceeding. Dogloo
has not failed to make contributions to any Employee Benefit Plan that are
required to be made on or after the Six-Year Look Back Date under the terms of
such Dogloo Employee Benefit Plans or under applicable law. None of Dogloo, any
employee of Dogloo, any "PARTY-IN-INTEREST" (as defined in Section 3(14) of
ERISA) with respect to any of the Dogloo Employee Benefit Plans or any of the
Dogloo Employee Benefit Plans (or any trusts created thereunder or any trustee
or administrator thereof) has engaged in a "PROHIBITED TRANSACTION," as such
term is defined in Section 4975 of the Code or under ERISA on or after the Six-
Year Look Back Date, which could reasonably be expected to subject Dogloo, any
officer of Dogloo, any of such plans or any trust to any material tax or penalty
on prohibited transactions or any other liability imposed by such Section 4975
or under ERISA or any obligation to indemnify another party. To the knowledge
of Dogloo, no material tax or penalty on prohibited transactions or any other
liability imposed by Section 4975 or under ERISA has actually been imposed on
any employee of Dogloo in such employee's capacity as a party in interest with
respect to any of the Dogloo Employee Benefit Plans.
(d) Except (i) as required by Section 4980B of the Code, (ii) as
provided for with employee-paid premiums under a flexible spending arrangement
(as defined in proposed Treasury Regulation Section 1.125-2, Question and answer
- -7(c)) or (iii) as disclosed in Schedule 3.13, none of the Dogloo Employee
Benefit Plans provides or is required to provide benefits for medical expenses
incurred by a former employee of Dogloo (or such former employee's spouse or
other dependents) after the employee ceases to be an employee of Dogloo. None
of the Dogloo Employee Benefit Plans provides or is required to provide for the
payment of premiums by Dogloo to maintain life insurance coverage for any former
employee of Dogloo for any period following the last day of the calendar month
in which a termination of employment of such former employee occurs.
(e) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
Dogloo Employee Benefit Plan. All Employee Benefit Plans are in compliance in
form and in operation with the relevant provisions of ERISA and the Code, and
all other laws applicable to all of the Dogloo Employee Benefit Plans. For
11
<PAGE>
purposes of the preceding sentence, a "LAW" is not limited to statutory law, but
includes all currently-effective, relevant, controlling legal authority. Dogloo
has performed all of its obligations under all Dogloo Employee Benefit Plans for
which the deadline for such performance has passed.
(f) Except as provided in the Retention Agreements or otherwise
disclosed in Section 3.13, the execution and performance of this Agreement will
not (i) constitute a stated triggering event under any Dogloo Employee Benefit
Plan that will result in any payment (whether of severance pay or otherwise)
becoming due from such Dogloo Employee Benefit Plan, Dogloo to any present or
former officer, employee, director, shareholder or consultant, or former
employee (or dependents of any thereof), or (ii) accelerate the time of payment
or vesting, or increase the amount, of compensation due to any employee,
officer, director, shareholder or consultant.
3.14 TAXES. Except as set forth in Schedule 3.14:
(a) all tax returns required to be filed by Dogloo have been filed,
and Dogloo has paid all taxes that are due from Dogloo, as the case may be,
whether or not shown on any tax return filed;
(b) there are no outstanding agreements extending the statutory period
of limitation applicable to any claim for, or the period for the collection or
assessment of, taxes due from Dogloo for any taxable period; and
(c) no audit or other proceeding by any court or governmental
authority is pending with respect to any taxes due from or with respect to
Dogloo.
3.15 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in Schedule 3.15,
------------------------------
the business of Dogloo is not being conducted in violation of any provision of
any federal, state, local or foreign statute, law, ordinance, rule, regulation,
judgment, decree, order, concession, grant, franchise, permit or license or
other governmental authorization or approval applicable to Dogloo.
3.16 BROKERS' FEES AND COMMISSIONS. Except as set forth on Schedule 3.16,
-----------------------------
Dogloo and its directors, officers, partners, employees or agents have not
employed any investment banker, broker, finder, agent or similar intermediary in
connection with the transactions contemplated hereby and no investment banker,
broker, finder, agent or similar intermediary is entitled to any fee or
commission in connection herewith based on any agreement, arrangement or
understanding with Dogloo and its directors, officers, partners, employees or
agents.
12
<PAGE>
3.17 PROPRIETARY RIGHTS. Schedule 3.17 contains a complete and
------------------
accurate list of (i) all registered patents and trademarks of Dogloo and (ii)
all patent and trademark applications of Dogloo which have been filed and are
currently pending.
3.18 LABOR AND EMPLOYMENT. Except as listed or described on Schedule 3.18,
--------------------
Dogloo has no unfair labor practice charges or complaints pending or, to the
knowledge of Dogloo, threatened against it before the National Labor Relations
Board.
3.19 INSURANCE. All material insurance policies (the "DOGLOO INSURANCE
---------
POLICIES") with respect to the property, assets, operations and business of
Dogloo are listed in Schedule 3.19 and are in full force and effect. Except as
set forth in Schedule 3.19, as of the date of this Agreement, there are no
pending material claims against the Dogloo Insurance Policies by Dogloo as to
which the insurers have denied liability.
3.20 ENVIRONMENTAL LAWS AND REGULATIONS. Dogloo is in compliance in all
----------------------------------
material respects with all applicable federal, state and local laws and
regulations relating to product registration, pollution control and
environmental contamination including, but not limited to, all laws and
regulations governing the generation, use, collection, discharge or disposal of
Hazardous Materials and all laws and regulations with regard to recordkeeping,
notification and reporting requirements respecting Hazardous Materials. Except
as disclosed in Schedule 3.20, Dogloo has not been alleged to be in violation of
and has not been subject to any administrative or judicial proceeding pursuant
to such laws or regulations either now or any time during the past three years.
Except as disclosed in Schedule 3.20, there are no facts or circumstances which
could form the basis for the assertion of any Claim (as defined below) against
Dogloo relating to environmental practices asserted under CERCLA (as defined
below) or RCRA (as defined below), or any other federal, state or local
environmental statute, which would be reasonably likely to have a material
adverse effect on the business, results of operations or financial condition of
Dogloo.
For purposes of this Section 3.20, the following terms shall have the
following meanings:
(a) "HAZARDOUS MATERIALS" shall mean materials defined as "hazardous
substances", "hazardous wastes" or "solid wastes" in (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. (S)(S)
9601-9657, and any amendments thereto ("CERCLA"), (ii) the Resource Conservation
and Recovery Act, 42 U.S.C. (S)(S)6901-6987 and any amendments thereto ("RCRA")
and (iii) any similar federal, state or local environmental statute; and
(b) "CLAIM" shall mean any and all claims, demands, causes of action,
suits, proceedings, administrative proceedings,
13
<PAGE>
losses, judgments, decrees, debts, damages, liabilities, court costs, attorneys'
fees and any other expenses incurred, assessed or sustained by or against
Dogloo.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DMC
DMC represents, warrants, covenants and agrees as follows:
4.1 ORGANIZATION AND QUALIFICATION. DMC is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of the State of Texas, with
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted. DMC is
qualified or licensed to do business and is in good standing in every
jurisdiction where the nature of the business conducted by it or the properties
owned or leased by it requires qualification. DMC has delivered to Dogloo
complete and correct copies of the Articles of Incorporation and Bylaws of DMC.
4.2 AUTHORIZATION. DMC has full corporate or partnership power and
-------------
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by DMC, the performance by DMC of its obligations hereunder, and the
consummation by DMC of the transactions contemplated hereby, have been duly
authorized by the Board of Directors of DMC. No other corporate action on the
part of DMC is necessary to authorize the execution and delivery of this
Agreement or, other than shareholder approval, the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by DMC and constitutes a valid and binding obligation of
DMC, enforceable against it in accordance with its terms, except to the extent
that such enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally, and 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.
4.3 NO VIOLATION. Except as set forth in Schedule 4.3, neither the
------------
execution and delivery of this Agreement by DMC, and the performance by DMC, of
its obligations hereunder nor the consummation by DMC of the transactions
contemplated hereby will (a) violate, conflict with or result in any breach of
any provision of the Articles of Incorporation or Bylaws of DMC, (b) violate,
conflict with or result in a violation or breach of, or constitute a default
(with or without due notice or lapse of time or both) under the terms,
conditions or provisions of any note, bond, mortgage, indenture or deed of
trust, or any material license, lease or agreement to which DMC is a party or
14
<PAGE>
(c) violate any order, writ, judgment, injunction, decree, statute, rule or
regulation of any court or governmental authority applicable to DMC.
4.4 CAPITALIZATION OF DMC. The authorized capital stock of DMC consists
---------------------
of 15,000,000 shares of DMC Common Stock, of which 1,331,021 shares are issued
and outstanding, and 25,000,000 shares of preferred stock, no par value, of
which 1,530,674 shares of Series A Preferred Stock are issued and outstanding.
All of the issued and outstanding shares have been validly issued, are fully
paid and non-assessable and were not issued in violation of any preemptive
rights. Except as set forth on Schedule 4.4, there are no options, warrants,
calls, subscriptions, conversion or other rights, agreements or commitments
obligating DMC to issue any additional shares of capital stock or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of capital stock of DMC.
4.5 SUBSIDIARIES AND EQUITY INVESTMENTS. DMC does not have any direct or
-----------------------------------
indirect equity ownership in any person.
4.6 CONSENTS AND APPROVALS. Except as set forth in Schedule 4.6, no
----------------------
filing or registration with, no notice to and no permit, authorization, consent
or approval of any governmental authority is necessary for the consummation by
DMC of the transactions contemplated by this Agreement other than (a) consents
and approvals of or filings or registrations to the HSR Act, (b) requirements of
federal and state securities laws, and (c) those already obtained.
4.7 FINANCIAL STATEMENTS.
--------------------
DMC has delivered to Dogloo copies of the audited balance sheets of
DMC as of December 30, 1995, December 28, 1996 and June 30, 1997, together with
the related audited statements of operations and retained earnings and cash
flows for the years and, in the case of June 30, 1997 balance sheet, six months,
then ended (such financial statements being hereinafter referred to as the "DMC
FINANCIAL STATEMENTS"). The DMC Financial Statements (x) were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, except as otherwise noted thereon or disclosed in Schedule
4.7(a), and (y) present fairly in all material respects the financial position,
results of operations and cash flows of DMC as of such dates and for the periods
then ended.
4.8 ABSENCE OF UNDISCLOSED LIABILITIES. Without giving effect to the
----------------------------------
transactions contemplated by this Agreement, there are no liabilities or
financial obligations of DMC that are required to be reflected on a balance
sheet prepared in accordance with GAAP, other than liabilities and obligations
(a) provided for or reserved against in the DMC June 30, 1997
15
<PAGE>
financial statements, (b) arising after June 10, 1997 in the ordinary course of
business, or (c) disclosed in Schedule 4.8.
4.9 ABSENCE OF CERTAIN CHANGES.
--------------------------
(a) DMC has, since June 30, 1997, conducted its business and
operations according to DMC's ordinary course of business and has used all
reasonable efforts consistent therewith to preserve intact its properties and
assets, and maintains satisfactory relationships with customers, suppliers,
distributors and others having commercially beneficial business relationships
with it, in each case, in the ordinary course of business.
(b) Except with respect to the transactions contemplated herein or as
disclosed in Schedule 4.9, since June 30, 1997, DMC has not:
(i) issued, sold or pledged, or authorized or proposed the
issuance, sale or pledge of, additional shares of capital stock of any class or
interests, or securities convertible into any such shares or interests, or any
rights, warrants or options to acquire any such shares or interests or other
convertible securities;
(ii) redeemed, purchased or otherwise acquired any outstanding
shares of capital stock of DMC; or
(iii) declared, set aside or paid any dividend or other
distribution in respect of DMC's capital stock.
4.10 LITIGATION. Except as set forth in Schedule 4.10, there is no action,
----------
suit or proceeding pending or, to the knowledge of DMC, threatened against DMC
before any governmental authority. DMC is not in default under any judgment,
decree, injunction or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding against DMC.
4.11 REAL PROPERTY; LIENS AND ENCUMBRANCES.
-------------------------------------
(a) Except as disclosed in Schedule 4.11, DMC does not own any real
property. Schedule 4.11 contains a complete and accurate list of all real
property leased or otherwise operated by DMC as of the date hereof. All leases
set forth in Schedule 4.11 are in full force and effect, DMC is not in material
default under any of such leases, and no material default exists or event has
occurred which would constitute a material default upon the passing of time or
the giving of notice, under any of such leases.
(b) Except as set forth in Schedule 4.11, all properties and assets
owned by DMC are free and clear of all
16
<PAGE>
Liens, except (i) statutory Liens not yet delinquent, (ii) purchase money Liens
arising in the ordinary course and disclosed on Schedule 4.11, (iii) Liens for
taxes not yet delinquent, (iv) Liens reflected in the DMC Financial Statements
or the Interim Financial Statements (which have not been discharged) and (v)
Liens which in the aggregate do not, in the case of personal property,
materially impair the use by DMC of properties or assets subject thereto or, in
the case of real property, materially impair the present and continued use in
the usual and normal conduct of the business of DMC (such exceptions are
referred to herein collectively as "DMC PERMITTED LIENS").
4.12 CERTAIN AGREEMENTS. Except as described in Schedule 4.12, DMC is not
------------------
a party to any written or enforceable oral agreement with any officer, director
or employee of DMC (a) the benefits of which are contingent, or the terms of
which are altered, upon the occurrence of a transaction involving DMC and Dogloo
of the nature of any of the transactions contemplated by this Agreement, (b)
providing severance benefits or other benefits after the termination of
employment regardless of the reason for such termination of employment, or (c)
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement.
4.13 EMPLOYEE BENEFIT PLANS.
----------------------
(a) Schedule 4.13 sets forth a true and complete list of each
"employee benefit plan" (within the meaning of Schedule 3(3) of ERISA), each
written employment, severance, retention, termination, consulting or retirement
contract, and each bonus or other incentive compensation, stock purchase, stock
option, stock award or other equity-based compensation, or vacation plan or
policy (other than any governmental program), and any related trust, as to which
DMC has any obligation or liability, contingent or otherwise (collectively, "DMC
EMPLOYEE BENEFIT PLANS"). True, correct and complete copies of the following
documents with respect to each of the DMC Employee Benefit Plans have been made
available to Dogloo by DMC: (i) the DMC Employee Benefit Plan and related trust
documents, and amendments thereto, (ii) the three most recent Forms 5500
(including all attachments and accountants' opinions), (iii) the last Internal
Revenue Service determination letter, and (iv) summary plan descriptions and
modifications thereto and (v) any other written material provided to employees
concerning the DMC Employee Benefit Plans which are within the possession of
DMC. No DMC Employee Benefit Plan invests in any security issued by DMC, or in
any property leased to DMC.
(b) DMC does not maintain or contribute to, or on or after the Six-
Year Look Back Date has maintained or contributed
17
<PAGE>
to, any "MULTIEMPLOYER PLAN," as such term is defined in Section 3(37) or
Section 4001(a)(3) of ERISA, or any defined benefit plans covered by Title IV of
ERISA. Each DMC Employee Benefit Plan which is intended to be qualified under
Section 401(a) and, if applicable, Section 401(k) of the Code, is so qualified.
(c) Except as disclosed in Schedule 4.13, no action, suit or
proceeding relating to any DMC Employee Benefit Plan (other than routine claims
for benefits for which the plan administrative procedures have not been
exhausted and routine "QUALIFIED DOMESTIC RELATIONS ORDERS" as defined in
Section 414(p) of the Code) is pending or, to the knowledge of DMC, threatened
against DMC, any DMC Employee Benefit Plan or any fiduciary of any DMC Employee
Benefit Plan before any court, arbitrator or administrative or governmental
body, and to the knowledge of DMC, no facts exist which could reasonably be
expected to give rise to such action, suit or proceeding. DMC has not failed to
make contributions to any Employee Benefit Plan that are required to be made on
or after the Six-Year Look Back Date under the terms of such DMC Employee
Benefit Plans or under applicable law. None of DMC, any employee of DMC, any
"PARTY-IN-INTEREST" (as defined in Section 3(14) of ERISA) with respect to any
of the DMC Employee Benefit Plans or any of the Employee Benefit Plans (or any
trusts created thereunder or any trustee or administrator thereof) has engaged
in a "PROHIBITED TRANSACTION," as such term is defined in Section 4975 of the
Code or under ERISA on or after the Six-Year Look Back Date, which could
reasonably be expected to subject DMC, any officer of DMC, any of such plans or
any trust to any material tax or penalty on prohibited transactions or any other
liability imposed by such Section 4975 or under ERISA or any obligation to
indemnify another party. To the knowledge of DMC, no material tax or penalty on
prohibited transactions or any other liability imposed by Section 4975 or under
ERISA has actually been imposed on any employee of DMC in such employee's
capacity as a party in interest with respect to any of the DMC Employee Benefit
Plans.
(d) Except (i) as required by Section 4980B of the Code, (ii) as
provided for with employee-paid premiums under a flexible spending arrangement
(as defined in proposed Treasury Regulation Section 1.125-2, Question and answer
- -7(c)) or (iii) as disclosed in Schedule 4.13, none of the DMC Employee Benefit
Plans provides or is required to provide benefits for medical expenses incurred
by a former employee of DMC (or such former employee's spouse or other
dependents) after the employee ceases to be an employee of DMC. None of the DMC
Employee Benefit Plans provides or is required to provide for the payment of
premiums by DMC to maintain life insurance coverage for any former employee of
DMC for any period following the last day of the calendar month in which a
termination of employment of such former employee occurs.
18
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(e) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
DMC Employee Benefit Plan. All DMC Employee Benefit Plans are in compliance in
form and in operation with the relevant provisions of ERISA and the Code, and
all other laws applicable to all of the Employee Benefit Plans. For purposes of
the preceding sentence, a "LAW" is not limited to statutory law, but includes
all currently-effective, relevant, controlling legal authority. DMC has
performed all of its obligations under all DMC Employee Benefit Plans for which
the deadline for such performance has passed.
(f) Except as provided in the Retention Agreements or otherwise
disclosed in Schedule 4.13, the execution and performance of this Agreement will
not (i) constitute a stated triggering event under any DMC Employee Benefit Plan
that will result in any payment (whether of severance pay or otherwise) becoming
due from such DMC Employee Benefit Plan, DMC to any present or former officer,
employee, director, shareholder or consultant, or former employee (or dependents
of any thereof), or (ii) accelerate the time of payment or vesting, or increase
the amount, of compensation due to any employee, officer, director, shareholder
or consultant.
4.14 TAXES. Except as set forth in Schedule 4.14:
(a) all tax returns required to be filed by DMC have been filed, and
DMC has paid all taxes that are due from DMC, as the case may be, whether or not
shown on any tax return filed;
(b) there are no outstanding agreements extending the statutory period
of limitation applicable to any claim for, or the period for the collection or
assessment of, taxes due from DMC for any taxable period; and
(c) no audit or other proceeding by any court or governmental
authority is pending with respect to any taxes due from or with respect to DMC.
4.15 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in Schedule 4.15,
------------------------------
the business of DMC is not being conducted in violation of any provision of any
federal, state, local or foreign statute, law, ordinance, rule, regulation,
judgment, decree, order, concession, grant, franchise, permit or license or
other governmental authorization or approval applicable to DMC.
4.16 BROKERS' FEES AND COMMISSIONS. Except as set forth in Schedule 4.16,
-----------------------------
DMC, and its directors, officers, partners, employees or agents have not
employed any investment banker, broker, finder, agent or similar intermediary in
connection with the transactions contemplated hereby and no investment banker,
broker, finder, agent or similar intermediary is entitled to any fee or
commission in connection herewith based on any agreement,
19
<PAGE>
arrangement or understanding with DMC and its directors, officers, partners,
employees or agents.
4.17 PROPRIETARY RIGHTS. Schedule 4.17 contains a complete and accurate
------------------
list of (i) all registered patents and trademarks of DMC and (ii) all patent and
trademark applications of DMC which have been filed and are currently pending.
4.18 LABOR AND EMPLOYMENT. Except as listed or described on Schedule 4.18,
--------------------
DMC has no unfair labor practice charges or complaints pending or, to the
knowledge of DMC, threatened against any of them before the National Labor
Relations Board.
4.19 INSURANCE. All material insurance policies (the "DMC INSURANCE
---------
POLICIES") with respect to the property, assets, operations and business of DMC
are listed in Schedule 4.19 and are in full force and effect. Except as set
forth in Schedule 4.19, as of the date of this Agreement, there are no pending
material claims against the DMC Insurance Policies by DMC as to which the
insurers have denied liability.
4.20 ENVIRONMENTAL LAWS AND REGULATIONS. DMC is in compliance in all
----------------------------------
material respects with all applicable federal, state and local laws and
regulations relating to product registration, pollution control and
environmental contamination including, but not limited to, all laws and
regulations governing the generation, use, collection, discharge or disposal of
Hazardous Materials and all laws and regulations with regard to recordkeeping,
notification and reporting requirements respecting Hazardous Materials. Except
as disclosed in Schedule 4.20, DMC has not been alleged to be in violation of
and has not been subject to any administrative or judicial proceeding pursuant
to such laws or regulations either now or any time during the past three years.
Except as disclosed in Schedule 4.20, there are no facts or circumstances which
could form the basis for the assertion of any Claim (as defined below) against
DMC relating to environmental practices asserted under CERCLA (as defined below)
or RCRA (as defined below), or any other federal, state or local environmental
statute, which would be reasonably likely to have a material adverse effect on
the business, results of operations or financial condition of DMC.
For purposes of this Section 4.20, the following terms shall have the
following meanings:
(a) "HAZARDOUS MATERIALS" shall mean materials defined as "hazardous
substances", "hazardous wastes" or "solid wastes" in (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. (S)(S)
9601-9657, and any amendments thereto ("CERCLA"), (ii) the Resource Conservation
and Recovery Act, 42 U.S.C. (S)(S)6901-6987 and any amendments thereto ("RCRA")
and (iii) any similar federal, state or local environmental statute; and
20
<PAGE>
(b) "CLAIM" shall mean any and all claims, demands, causes of action,
suits, proceedings, administrative proceedings, losses, judgments, decrees,
debts, damages, liabilities, court costs, attorneys' fees and any other expenses
incurred, assessed or sustained by or against DMC.
ARTICLE V
COVENANTS WITH RESPECT TO CONDUCT OF BUSINESSES
PRIOR TO CLOSING
5.1 ACCESS TO THE COMPANY; CONFIDENTIALITY. (a) DMC and Dogloo will each
--------------------------------------
authorize and permit the other and its representatives (which term shall be
deemed to include each parties' independent accountants and counsel), from the
date hereof to the Closing Date, to have reasonable access during normal
business hours, upon reasonable notice and in such manner as will not
unreasonably interfere with the conduct of the business of such party, to all of
the other parties' properties, books, records, operating instructions and
procedures, tax returns and all other information with respect to their business
as the other party may from time to time request, and to make copies of such
books, records and other documents and to discuss the business of such party
with such third persons, including, without limitation, its directors, officers,
employees, accountants, counsel, suppliers, customers and creditors, as such
party considers necessary provided, however, that notwithstanding the foregoing,
the parties shall not exchange competitively sensitive information.
(b) Subject to the requirements of law or judicial process, from the
date hereof to the Closing Date, each of DMC and Dogloo shall hold in
confidence, and shall use its good faith efforts to cause its agents to hold in
confidence, all such non-public information obtained by it or its agents
pursuant to such access. If for any reason the Merger is not completed, each of
DMC and Dogloo shall return and cause its agents to return all such non-public
written information, or shall confirm to the other that such information has
been destroyed, and shall cause its agents to maintain the confidentiality
thereof.
5.2 CONDUCT OF BUSINESS. From the date hereof to the Closing Date, each
-------------------
of DMC and Dogloo shall not do the following without the prior written consent
of the other, which consent may not be unreasonably withheld:
(a) conduct its business except in the ordinary course consistent with
prudent industry practice; or
(b) issue, sell, redeem or acquire for value, or agree to do so, any
debt obligations or equity securities other than pursuant to the exercise of
stock options outstanding on the date hereof; or
21
<PAGE>
(c) declare, issue, make or pay any dividend or other distribution of
assets, whether consisting of money, or personal property, real property or
other thing of value, to its share holders, or split, combine, divide,
distribute or reclassify any shares of its equity securities; or
(d) change or amend its charter documents or bylaws; or
(e) agree to or make any commitment to take any action prohibited by
this Section 5.2.
5.3 PERMITS AND APPROVALS.
---------------------
(a) DMC and Dogloo each agree to cooperate and use their good faith
efforts to obtain, and will immediately prepare, all registrations, filings and
applications, requests and notices preliminary to all approvals and permits that
may be necessary to consummate the transactions contemplated by this Agreement.
(b) To the extent that the approval of a third party with respect to
any contract is required in connection with the transactions contemplated by
this Agreement, each of DMC and Dogloo shall use its good faith efforts to
obtain such approval prior to the Closing Date.
5.4 SCHEDULES. Dogloo shall deliver to DMC the Schedules referenced in
---------
Article III, DMC shall deliver to Dogloo the Schedules referenced in Article IV,
and Dogloo and DMC shall mutually deliver Schedule 6.1 on or before five (5)
business days prior to the Closing Date. Both parties shall have from the
delivery date of such Schedules until one day before the Closing Date to review
such Schedules. In the event the Schedules are not mutually acceptable to DMC
and Dogloo, both parties shall have the right in their sole individual
discretion to terminate this Agreement by written notice delivered to the other
party on or before the Closing Date.
ARTICLE VI
CONDITIONS OF MERGER
6.1 GENERAL CONDITIONS. The obligations of the parties to effect the
------------------
Merger shall be subject to the following conditions unless waived in writing by
all parties:
(a) DEBT REFINANCING. DMC shall, concurrent with the closing, (i)
----------------
have completed its private placement of Senior Subordinated Notes due 2007 and
(ii) have entered into a satisfactory Amended and Restated Credit Agreement with
its senior lenders, and (iii) have received funds sufficient to repay the
indebtedness scheduled on Schedule 6.1 hereto and to redeem DMC Common and
Preferred Stock as referenced in Sections 2.2 and
22
<PAGE>
2.3 hereof. Concurrent with the closing, the indebtedness scheduled on Schedule
6.1 to this Agreement shall be repaid in full.
(b) OPINION OF ADVISOR. DMC shall have received the solvency opinion
------------------
of Houlihan Lokey Howard & Zukin addressing the redemption of the DMC Common
Stock and DMC Preferred Stock contemplated by Sections 2.2 and 2.3 hereof.
(c) NO ORDERS; LEGAL PROCEEDINGS. No law or order shall have been
----------------------------
enacted, entered, issued, promulgated or enforced by any governmental entity,
nor shall any action have been instituted and remain pending or have been
threatened and remain so by any governmental entity at what would otherwise be
the Closing Date, which prohibits or restricts or would (if successful) prohibit
or restrict the transactions contemplated by this Agreement or which would not
permit the business of Dogloo as presently conducted to continue unimpaired
following the Closing Date.
(d) STOCKHOLDERS' AGREEMENT. A satisfactory number of the common
-----------------------
stock stockholders of DMC and Dogloo, after giving effect to the Merger, shall
have entered into that certain Amended and Restated Securityholders Agreement, a
form of which is attached hereto as Exhibit G except that, in the case of
Benjamin Doskocil, modifications to that certain Stockholders' Agreement dated
July 1, 1997 shall have been entered into with Benjamin Doskocil and the other
parties to that agreement.
6.2 CONDITIONS TO OBLIGATIONS OF DMC. The obligations of DMC to effect
--------------------------------
the Merger shall be subject to the following conditions except to the extent
waived in writing by DMC:
(a) REPRESENTATIONS AND WARRANTIES AND COVENANTS OF DOGLOO. The
------------------------------------------------------
representations and warranties of Dogloo contained herein shall be true at the
Closing Date in all material respects with the same effect as though made at
such time; Dogloo shall have in all material respects performed all obligations
and complied with all covenants and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing Date, and Dogloo
shall have delivered to DMC certificates in form and substance satisfactory to
DMC, dated the Closing Date, to such effect.
(b) NO MATERIAL ADVERSE CHANGE. There shall have been no material
--------------------------
adverse change in the business or financial condition of Dogloo.
(c) CONSENTS. Dogloo shall have obtained all permits, authorizations
--------
and material third party consents necessary for the consummation of the Merger,
including, but not limited to, compliance with the HSR Act and the approval of
DMC shareholders as required under the TBCA.
23
<PAGE>
(d) STOCK REDEMPTION AGREEMENTS. Each of the Stock Redemption
---------------------------
Agreements in substantially the form attached hereto as Exhibits C, D, E and F,
or such other form as is acceptable to DMC (such acceptance to be evidenced by
consummation of the Merger), shall have been executed and delivered by the
parties to such agreements.
6.3 CONDITIONS TO OBLIGATIONS OF DOGLOO. The obligations of Dogloo to
-----------------------------------
effect the Closing and the Merger shall be subject to the following conditions,
except to the extent waived in writing by Dogloo:
(a) REPRESENTATIONS AND WARRANTIES AND COVENANTS OF DMC. The
---------------------------------------------------
representations and warranties of DMC herein contained shall be true at the
Closing Date in all material respects with the same effect as though made at
such time; DMC shall in all material respects have performed all obligations and
complied with all covenants and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing Date, and DMC shall
have delivered to Dogloo a certificate of DMC in form and substance satisfactory
to Dogloo, dated the Closing Date and signed by a duly authorized corporate
officer to such effect.
(b) NO MATERIAL ADVERSE CHANGE. There shall have been no material
--------------------------
adverse change in the business or financial condition of DMC.
(c) CONSENTS. DMC shall have received all permits, authorizations,
--------
and material third party consents necessary for the consummation of the Merger,
including, but not limited to, compliance with the HSR Act and the approval of
Dogloo shareholders required under the CCC.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS
7.1 SURVIVAL OF REPRESENTATIONS. The representations and warranties of
---------------------------
the parties contained in this Agreement shall not survive the Closing hereunder.
ARTICLE VIII
TERMINATION OF OBLIGATIONS; SURVIVAL
8.1 TERMINATION OF AGREEMENT. Anything herein to the contrary
------------------------
notwithstanding, this Agreement and the transactions contemplated by this
Agreement shall terminate if the Closing does not occur on or before the close
of business on November 30, 1997 unless extended by mutual consent in writing of
DMC and Dogloo and may otherwise be terminated at any time before the Closing as
follows and in no other manner:
24
<PAGE>
(a) MUTUAL CONSENT. By mutual consent in writing of the parties.
--------------
(b) CONDITIONS TO DMC'S PERFORMANCE NOT MET. By DMC by written notice
---------------------------------------
to Dogloo if any event occurs which would render impossible the satisfaction of
one or more conditions to the obligations of DMC to consummate the transactions
contemplated by this Agreement as set forth in Sections 6.1 or 6.2.
(c) CONDITIONS TO DOGLOO'S PERFORMANCE NOT MET. By Dogloo by written
------------------------------------------
notice to DMC if any event which occurs would render impossible the satisfaction
of the conditions to the obligations of Dogloo to consummate the transactions
contemplated by this Agreement as set forth in Sections 6.1 or 6.3.
8.2 EFFECT OF TERMINATION. In the event this Agreement shall be
---------------------
terminated pursuant to Section 8.1, all further obliga tions of the parties
under this Agreement shall terminate without further liability of any party to
another; provided that the obligations of the parties contained in Sections
5.1(b), 9.3 and 9.6 shall survive any such termination.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 AMENDMENT AND MODIFICATIONS. Subject to applicable law, this
---------------------------
Agreement may be amended, modified and supplemented only by written agreement
between the parties hereto which states that it is intended to be a modification
of this Agreement.
9.2 WAIVER OF COMPLIANCE. Any failure of Dogloo or DMC to comply with any
--------------------
obligation, covenant, agreement or condition herein may be expressly waived in
writing by the other party, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
9.3 EXPENSES. The parties agree that all fees and expenses incurred by
--------
them in connection with this Agreement and the trans action contemplated hereby
shall be borne by the party incurring such fees and expenses.
9.4 NOTICES. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
25
<PAGE>
(a) if to Dogloo, to:
Dogloo, Inc.
1241 Old Temescal Road
Corona, California 91719
Attention: Executive Vice President
with a copy to:
Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Attention: Greg T. Williams, Esq.
or to such other person or address as Dogloo shall furnish to DMC in writing;
(b) if to DMC, to:
Doskocil Manufacturing Company, Inc.
4209 Barnett
Arlington, Texas 76017
Attention: Chief Executive Officer
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660-6429
Attention: J. Jay Herron, Esq.
Facsimile No.: (714) 669-6994
or to such other person or address as DMC shall furnish to Dogloo in writing.
9.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
----------
binding upon and inure to the benefit of the par ties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other party.
9.6 PUBLICITY. Neither Dogloo nor DMC shall make or issue, or cause to be
---------
made or issued, any announcement or written statement concerning this Agreement
or the transactions contemplated hereby for dissemination to the general public
without the express written consent of the other parties. This provision shall
not apply, however, to any announcement or written statement required to be made
by law or the regulations of any federal or state governmental agency.
26
<PAGE>
9.7 GOVERNING LAW. This Agreement and the legal relations among the
-------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of Texas, as applied to contracts entered into and to be wholly
performed within such State, except with regard to the internal affairs of
corporations not incorporated in Texas (which internal affairs shall be governed
by the law of the state or other jurisdiction of incorporation).
9.8 COUNTERPARTS. This Agreement may be executed simultaneously 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.
9.9 HEADINGS. The headings of the Sections and Articles of this Agreement
--------
are inserted for convenience only and shall not constitute a part hereof or
affect in any way the meaning or interpretation of this Agreement.
9.10 ENTIRE AGREEMENT. This Agreement, including the Exhibits and
----------------
Schedules hereto, and the other documents and certificates delivered pursuant to
the terms hereof, set forth the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein, and supersede
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto.
9.11 THIRD PARTIES. Except as specifically set forth or referred to
-------------
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
9.12 WAIVER OF RIGHTS OF FIRST OFFER. In consideration of this Agreement
-------------------------------
and acknowledgment of DMC's offer to purchase the shares of Dogloo Common Stock
held by certain minority stockholders of Dogloo, Dogloo hereby waives any and
all rights of first offer to purchase such shares it may have under that certain
Securityholders Agreement by and among Dogloo, Westar Capital, a California
limited partnership, Enterprise Partners III, L.P., a California limited
partnership, Enterprise Partners III Associates, L.P., a California limited
partnership, HBI Financial, Inc., a Washington corporation, Aurelio F. Barreto,
III, Darrell R. Paxman and the other securityholders of Dogloo who have become
parties thereto, dated as of September 22, 1995.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be affixed hereto, all as
of the day and year first above written.
"DMC"
DOSKOCIL MANUFACTURING COMPANY, INC.,
a Texas corporation
By: /s/ LARRY E. REMBOLD
_____________________________
Its: Larry E. Rembold
President and Chief
Executive Officer
"DOGLOO"
DOGLOO, INC.,
a California corporation
By: /s/ MICHAEL J. FARMER
______________________________
Its: Michael J. Farmer
Executive Vice President
28
<PAGE>
ARTICLES OF MERGER
OF A
DOMESTIC AND FOREIGN CORPORATION
Pursuant to the provisions of Article 5.04 of the Texas Business
Corporation Act, the undersigned domestic and foreign corporations adopt the
following Articles of Merger for the purpose of effecting a merger in accordance
with the provisions of Article 5.01 of the Texas Business Corporation Act.
ARTICLE I
The names of the undersigned corporations and the states under the
laws of which they are respectively organized are:
NAME OF CORPORATION STATE
------------------- -----
Doskocil Manufacturing Company, Inc. Texas
Dogloo, Inc. California
ARTICLE II
The laws of the State under which such foreign corporation is
organized permit such merger. The address, including street and number, if any,
of the registered or principal office of such surviving corporation in the state
under whose laws it is to be governed is Doskocil Manufacturing Company, Inc.,
4209 Barnett, Arlington, Texas 76017.
ARTICLE III
The name of the surviving corporation is Doskocil Manufacturing
Company, Inc., and it is to be governed by the laws of the State of Texas.
ARTICLE IV
The following Plan of Merger was approved by the shareholders of the
undersigned corporations on _____________, 1997 in the manner prescribed by the
laws of the States in which they are organized.
A-1
<PAGE>
PLAN OF MERGER
--------------
1. Dogloo, Inc., a California corporation (the "ABSORBED
CORPORATION") shall be merged with and into Doskocil Manufacturing Company,
Inc., a Texas corporation (the "SURVIVING CORPORATION"), to exist and be
governed by the laws of the State of Texas.
2. When this Plan shall become effective, the separate existence of
the Absorbed Corporation shall cease and the Surviving Corporation shall succeed
without other transfer to all the rights and property of the Absorbed
Corporation and shall be subject to all the debts and liabilities of the
Absorbed Corporation in the same manner as if the Surviving Corporation had
itself incurred them.
3. The Surviving Corporation will carry on business with both its
own assets and the assets of the Absorbed Corporation.
4. (a) Each share of common stock, no par value, of the Absorbed
Corporation issued and outstanding immediately prior to the effective time of
the merger shall, by virtue of the merger and without any action on the part of
the holder thereof, be converted into the right to receive 0.04304004 shares of
common stock of the Surviving Corporation.
(b) Each share of the Absorbed Corporation's Series A and Series
B Preferred Stock issued and outstanding as of the effective time shall, by
virtue of the merger and without any action on the part of the holder thereof,
be converted into one share of the Surviving Corporation's Series B and Series C
Preferred Stock, respectively.
5. The following persons shall be the directors and officers of the
Surviving Corporation until their respective successors are elected and
qualified:
George C. Argyros Benjamin L. Doskocil, Sr.
John W. Clark Charles D. Martin
Michael Hoopis Larry E. Rembold
Aurelio F. Barreto, III
6. The Articles of Incorporation and Bylaws of the Surviving
Corporation shall continue in full force and effect until altered, amended or
repealed or as provided by law.
7. The effective date of this merger shall be the date when the
Secretary of State of the Surviving Corporation shall have issued a Certificate
of Merger or other similar documents.
A-2
<PAGE>
ARTICLE V
As to each of the undersigned corporations, the number of shares
outstanding and entitled to vote on such Plan of Merger, all of which are
designated as common stock, except as indicated below, is as follows:
<TABLE>
<CAPTION>
Number of Shares Outstanding
Name of the Corporation and Entitled to Vote
- -------------------------- ----------------------------
<S> <C>
Doskocil Manufacturing 1,331,021 Common Stock
Company, Inc., a Texas 1,530,674 Preferred Stock
corporation Series A
Dogloo, Inc., a California 32,542,148 Common Stock
corporation 10,224,255 Dogloo Series A
11,841,280 Dogloo Series B
</TABLE>
The holders of the Surviving Corporation's Series A Preferred Stock are entitled
to vote on the Plan of Merger as a class, the holders of the Absorbed
Corporation's Series A Preferred Stock are entitled to vote on the Plan of
Merger as a class and the holders of the Absorbed Corporation's Series B
Preferred Stock are entitled to vote on the Plan of Merger as a class.
ARTICLE VI
As to each of the undersigned corporations, the holders of the
necessary number of outstanding shares of each class of Common Stock and series
of Preferred Stock have approved the Plan of Merger. As to the Surviving
Corporation's Common Stock, 1,331,021 shares voted for the Plan and no shares
voted against the Plan. As to the Surviving Corporation's Series A Preferred
Stock, 1,530,674 shares voted for the Plan and no shares voted against the Plan.
As to the Disappearing Corporation's Common Stock, _______ shares voted for the
Plan and _______ shares voted against the Plan. As to the Disappearing
Corporation's Series A Preferred Stock, _______ shares voted for the Plan and
_______ shares voted against the Plan. As to the Disappearing Corporation's
Series B Preferred Stock, 11,841,280 shares voted for the Plan and no shares
voted against the Plan.
ARTICLE VII
The Plan of Merger and performance of its terms has been duly
authorized, and all required actions have been taken by Doskocil Manufacturing
Company, Inc. under the laws of the State of Texas and under its Amended and
Restated Articles of Incorporation.
A-3
<PAGE>
ARTICLE VIII
The Plan of Merger and performance of its terms has been duly
authorized, and all required actions have been taken by Doskocil Manufacturing
Company, Inc. under the laws of the State of Texas and under its Amended and
Restated Articles of Incorporation.
A-4
<PAGE>
DATED: _______________, 1997
_________________________________________
DOSKOCIL MANUFACTURING COMPANY, INC.,
a Texas corporation
By:______________________________________
__________________, [an officer]
_________________________________________
DOGLOO, INC.,
a California corporation
By:_____________________________________
__________________, [an officer]
A-5
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF ________ (S)
I, the undersigned Notary Public, do hereby certify that on the _____
day of ______________, 19__, personally appeared
______________________________________, who being by me first duly sworn,
declared that he she is an officer of __________________________________, a
Texas corporation, that he she executed the foregoing document as such officer
of said corporation and that the statements contained therein are true.
[S E A L] ____________________________________________
Notary Public in and for _________
My Commission Expires: County, Texas
_______________________
A-6
<PAGE>
STATE OF _________ (S)
(S)
COUNTY OF ________ (S)
I, the undersigned Notary Public, do hereby certify that on the _____
day of ______________, 19__, personally appeared
______________________________________, who being by me first duly sworn,
declared that he she is an officer of __________________________________, a
Texas corporation, that he she executed the foregoing document as such officer
of said corporation and that the statements contained therein are true.
[S E A L] ____________________________________________
Notary Public in and for _________
My Commission Expires: County, Texas
_______________________
A-7
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC.
A TEXAS CORPORATION
STATEMENT OF DESIGNATION
OF
SERIES B AND SERIES C PREFERRED STOCK
The undersigned, Larry E. Rembold, President and Chief Executive
Officer of Doskocil Manufacturing Company, Inc., a corporation organized and
existing under and by virtue of the Texas Business Corporation Act, in
accordance with the provisions of Article 2.13 thereof, hereby certifies as
follows:
FIRST: The name of the corporation is Doskocil Manufacturing Company,
Inc. (the "CORPORATION").
SECOND: Pursuant to the authority vested in the Board of Directors of
the corporation by Article IV of the Corporation's Articles of Incorporation, as
amended and restated on July 1, 1997, the Board of Directors of the Corporation
duly adopted a resolution establishing two series of preferred stock of the
Corporation out of the authorized but unissued shares of the capital stock of
the Corporation and designating such series as Series B Preferred Stock (the
"SERIES B PREFERRED STOCK") consisting of 10,224,255 shares, no par value, and
Series C Preferred Stock (the "SERIES C PREFERRED STOCK") consisting of
11,841,280 shares, no par value.
THIRD: The following is a true and correct copy of the preferences
and relative and other rights, and the qualifications, limitations or
restrictions of the Series B Preferred Stock and Series C Preferred Stock as
approved pursuant to the foregoing resolution:
I. SERIES B PREFERRED STOCK
The rights, preferences, privileges and restrictions granted to and
imposed upon the Series B Preferred Stock are as set forth below:
1.1 Designation. The secondary series of the Corporation Preferred
-----------
Stock shall be designated "SERIES B PREFERRED STOCK."
1.2 Number of Shares. The number of shares constituting the Series B
----------------
Preferred Stock shall be 10,224,255 shares.
B-1
<PAGE>
1.3 Dividend Provisions.
-------------------
(a) Subject to (i) the rights of the Series A Preferred Stock and any
series of Preferred Stock which may from time to time come into existence, other
than the Series C Preferred Stock, and (ii) any loan covenant or other provision
for the benefit of the holders of Senior Debt (as defined herein), the holders
of shares of Series B Preferred shall be entitled to receive cash dividends, out
of any assets legally available therefor, prior and in preference to any
declaration or payment of any cash dividend on the Common Stock of this
corporation, at the rate of $0.10 per share of Series B Preferred Stock (as
adjusted for subsequent stock dividends, stock splits or recapitalizations of
the Series B Preferred Stock), per annum payable annually on March 1 of each
year beginning March 1, 1998. The amount of accrued but unpaid dividends on
each share of the Series B Preferred Stock shall, as of September 19, 1997, be
deemed to be $0.2118 (referred to herein as the "CURRENT UNPAID SERIES B
DIVIDENDS"). Dividends on the Series B Preferred Stock shall accrue, whether or
not declared, and such dividends shall be cumulative so that, if such dividends
in respect of any previous or current annual dividend period, at the annual rate
specified above, shall not have been paid, subject to the rights of Series A
Preferred Stock and any series of Preferred Stock, other than the Series C
Preferred Stock, which may from time to time come into existence, the deficiency
shall first be fully paid before any dividend or other distribution shall be
paid on or declared and set apart for the Common Stock. Except as provided in
subsection (b) below, any accumulation of dividends on the Series B Preferred
Stock shall not bear interest.
"SENIOR DEBT" shall mean all principal of, premium and interest
(including, without limitation, any interest which accrues (or which would
accrue but for such case, proceeding or other action) after the commencement of
any case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of this corporation (whether or not such interest is allowed or
allowable as a claim in such case, proceeding or other action)) on any
indebtedness created, incurred, assumed or guaranteed by this corporation and
its subsidiaries (present or future), whether now existing or hereafter arising,
due or to become due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, under any working capital or other credit agreement
or facility with a lender, any debt issued to the public pursuant to a private
placement or registration statement filed with and declared effective by the
Securities and Exchange Commission, any debt incurred in connection with any
past or future acquisitions by this corporation and its subsidiaries (present
and future), and any sale/leaseback financing on equipment or real property of
this corporation or its subsidiaries (present and future).
B-2
<PAGE>
(b) The holders of Series B Preferred Stock shall be entitled to
additional dividends on the Current Unpaid Series B Dividends and, if, on any
dividend payment date, the holders of Series B Preferred Stock shall not have
received the full annual dividend provided for herein (the "UNPAID DIVIDEND"),
then the holders of Series B Preferred Stock shall also be entitled to
additional dividends on such Unpaid Dividends (collectively, the "ADDITIONAL
DIVIDENDS"). Additional Dividends shall also be cumulative and shall accrue at
the same rate as dividends are then accruing on the Series B Preferred Stock,
whether or not declared, for each succeeding dividend period during which
accumulated annual dividends, or Additional Dividends thereon, shall remain
unpaid.
1.4 Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to (i) the rights of
any series of Preferred Stock (other than the Series A and Series B Preferred
Stock) which may from time to time come into existence and (ii) any loan
covenant or other provision for the benefit of the holders of Senior Debt, the
holders of Series B Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Common Stock, an amount per share equal to the sum of the Series B
Redemption Price (as defined in Section 1.6 herein). If upon the occurrence of
such event, the assets and funds to be distributed among the holders of the
Series B Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then, subject to the rights
of any series of Preferred Stock which may from time to time come into existence
(other than the Series A and Series C Preferred Stock), the entire assets and
funds of this corporation legally available for distribution shall be
distributed ratably among the holders of the Series B Preferred Stock in
proportion to the amount of such stock owned by each such holder. Written notice
of the liquidation, dissolution or winding up, stating a payment date, the
amount of the liquidation payment and place where the amount distributable shall
be payable, shall be given by mail, postage prepaid, not less than fifteen (15)
days prior to the payment dated stated therein, to each holder of record of the
Series B Preferred Stock, such notice to be addressed to each such holder at his
or its post office address as shown by the records of this corporation.
(b) Upon the completion of (i) the distributions to the holders of
Series B Preferred Stock required by Section 1.4(a), (ii) the distributions to
the holders of Series C Preferred Stock required by 2.4(a) and (iii) any other
distribution that may be required with respect to any series of Preferred Stock
that exists or may from time to time come into existence, if assets remain in
this corporation, the holders of
B-3
<PAGE>
the Common Stock of this corporation (based on the number of shares of Common
Stock held by each), shall receive all of the remaining assets of this
corporation.
1.5 Exchange and Replacement of Certificates.
----------------------------------------
(a) This corporation shall keep at its principal office (or such
other place as this corporation reasonably designates) a register for the
registration of shares of Series B Preferred Stock. Upon the surrender of any
certificates representing shares of Series B Preferred Stock at such place, this
corporation shall, at the request of the registered holder of such certificate,
execute and deliver a new certificate or certificates in exchange therefor
representing in the aggregate the number of shares represented by the
surrendered certificate (and this corporation forthwith shall cancel such
surrendered certificate), subject to the requirements of all applicable
securities laws and the Securityholders Agreement. Each such new certificate
shall be registered in such name and shall represent such number of shares as is
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate. The issuance of
new certificates shall be made without charge to the holders of the surrendered
certificates or any issuance tax in respect thereof or other costs incurred by
this corporation in connection with such issuance; provided, that this
corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the surrendered certificate.
(b) Upon receipt of evidence reasonably satisfactory to this
corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing one or more shares of Series B Preferred Stock and, in the case of
any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to this corporation, or in the case of any such mutilation, upon
surrender of such certificate, this corporation shall execute and deliver in
lieu of such certificate a new certificate of like kind representing the number
of shares represented by such lost, stolen, destroyed or mutilated certificate
dated the date of such lost, stolen, destroyed or mutilated certificate. The
term "OUTSTANDING" when used in this Article is referenced to shares of the
Series B Preferred Stock as of any particular time and shall not include any
such shares represented by any certificate in lieu of which a new certificate
has been executed and delivered by this corporation in accordance with this
provision but shall include instead those shares represented by such new
certificate.
B-4
<PAGE>
1.6 Redemption.
----------
(a) Subject to (i) the rights of any series of Preferred Stock which
may from time to time come into existence, other than the Series A and Series C
Preferred Stock and (ii) any loan covenant or other provision for the benefit of
the holders of Senior Debt contained in any document or agreement evidencing
Senior Debt, this corporation shall redeem, from any source of funds legally
available therefor, the Series B Preferred Stock in four (4) annual installments
beginning on March 1, 1998 and continuing thereafter on each subsequent March 1
(each a "SERIES B REDEMPTION DATE") until March 1, 2001, whereupon the remaining
Series B Preferred Stock outstanding shall be redeemed. This corporation shall
effect such redemptions on the applicable Series B Redemption Dates by paying in
cash in exchange for shares of Series B Preferred Stock to be redeemed a sum
equal to $1.00 per share of Series B Preferred Stock (as adjusted for any
subsequent stock dividends, stock splits or recapitalizations of the Series B
Preferred Stock) plus all accrued but unpaid dividends, if any, on such shares
(the "SERIES B REDEMPTION PRICE"). The number of shares of Series B Preferred
Stock that this corporation shall be required under this subsection 1.6(a) to
redeem on (i) the first Series B Redemption Date shall be 33.32% of the number
of shares of Series B Preferred Stock originally issued (less any shares of
Series B Preferred Stock reacquired by this corporation (other than pursuant to
this subsection 1.6(a)) subsequent to the immediately preceding Redemption Date,
(ii) each of the second and third Series B Redemption Dates shall be 16% of the
number of shares of Series B Preferred Stock originally issued (less any shares
of Series B Preferred Stock reacquired by the corporation (other than pursuant
to this subsection 1.6(a)) subsequent to the immediately preceding Redemption
Date and (iii) the final Series B Redemption Date shall be the total number of
shares of Series B Preferred Stock outstanding on such date. Any redemption
effected pursuant to this subsection 1.6(a) shall be made on a pro rata basis
among the holders of the Series B Preferred Stock based upon the number of
shares of Series B Preferred Stock then held by each such holder in proportion
to the total number of shares of Series B Preferred Stock then held by all such
holders.
(b) Subject to (i) the rights of any series of Preferred Stock which
may from time to time come into existence, other than the Series A and Series C
Preferred Stock and (ii) any loan covenant or other provision for the benefit of
the holders of Senior Debt contained in any document or agreement evidencing
Senior Debt, this corporation shall redeem, from any source of funds legally
available therefor, all of the then outstanding shares of the Series B Preferred
Stock upon any "CORPORATION TRANSACTION," which shall mean (A) the combination
of this corporation with another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation); or (B) a sale of
B-5
<PAGE>
all or substantially all of the assets of this corporation; unless this
------
corporation's shareholders of record as constituted immediately prior to such
combination or sale will, immediately after such acquisition or sale (by virtue
of securities issued as consideration for this corporation's acquisition or sale
or otherwise) hold at least 50% of the voting power of the surviving or
acquiring entity. This corporation shall effect such redemptions by paying the
Series B Redemption Price in cash in exchange for each share of Series B
Preferred Stock to be redeemed. Any redemption effected pursuant to this
subsection 1.6(b) shall be made on a pro rata basis among the holders of the
Series B Preferred Stock in proportion to the number of shares of Series B
Preferred Stock then held by such holders.
(c) Subject to the rights of series of Preferred Stock which may from
time to time come into existence, other than the Series A and Series B Preferred
Stock, this corporation may at any time it may lawfully do so, at the option of
the Board of Directors, redeem in whole or in part the Series B Preferred Stock
by paying in cash per share a sum equal to the Series B Redemption Price. Any
redemption effected pursuant to this subsection 1.6(c) shall be made on a pro
rata basis among the holders of the Series B Preferred Stock based upon the
number of shares of Series B Preferred Stock held by each such holder in
proportion to the total number of shares of Series B Preferred Stock then held
by all such holders and shall be applied against the annual installments of the
Series B Preferred Stock redemptions required pursuant to Section 1.6(a) hereof
in the order of their maturity. In the event of any redemption pursuant to this
subsection 1.6(c), at least twenty (20) but no more than sixty (60) days prior
to any such redemption, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series B Preferred Stock
to be redeemed, at the address last shown on the records of this corporation for
such holder, notifying such holder of the redemption to be effected, specifying
the number of shares to be redeemed from such holder, the date such redemption
is to occur, the Redemption Price, the place at which payment may be obtained
and calling upon such holder to surrender to this corporation, in the manner and
at the place designated, his, her or its certificate or certificates
representing the shares to be redeemed.
(d) Except as provided in this subsection 1.6(d), on or after the
date of any redemption pursuant to Section 1.6 hereof, each holder of Series B
Preferred Stock to be redeemed shall surrender to this corporation the
certificate or certificates representing such shares, and thereupon the Series B
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be cancelled. In the event less than all the
shares represented by
B-6
<PAGE>
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the date of any redemption
under Section 1.6, unless there shall have been a default in payment of the
Series B Redemption Price, all rights of the holders of shares of Series B
Preferred Stock designated for redemption (except the right to receive the
Series B Redemption Price upon surrender of their certificate or certificates),
including, without limitation, the right to receive dividends thereon, shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of this corporation or be deemed to be outstanding for
any purpose whatsoever. Upon consummation of any redemption of the reissuable
by this corporation. If the funds of this corporation legally available for
redemption of shares of Series B Preferred Stock on the date of any mandatory
redemption under Section 1.6 are insufficient to redeem the total number of
shares of Series B Preferred Stock to be redeemed on such date, subject to the
rights of any series of Preferred Stock which may from time to time come into
existence, those funds which are legally available will be used to redeem the
maximum possible number of such shares ratably among the holders of such shares
to be redeemed based upon their holdings of Series B Preferred Stock. The
shares of Series B Preferred Stock not redeemed on the date of any mandatory
redemption shall remain outstanding and shall be entitled to all the rights and
preferences provided herein, including, without limitation, accrual of dividends
pursuant to Section 1.3. At any time thereafter when additional funds of this
corporation are legally available for the redemption of shares of Series B
Preferred Stock, subject to the rights of any series of Preferred Stock which
may from time to time come into existence in compliance herewith, such funds
will immediately be used to redeem the balance of the shares which this
corporation has become so obliged to redeem but which it has not redeemed.
1.7 Conversion. The Series B Preferred Stock shall have no rights to
----------
convert into any other equity security of this Corporation.
1.8 Voting Rights. The Series B Preferred Stock shall have no voting
-------------
rights other than those provided by law or in the Protective Provisions set
forth below in Section 1.9.
1.9 Protective Provisions.
---------------------
(a) So long as any shares of Series B Preferred Stock are
outstanding, this corporation shall not, without first obtaining the approval
(by vote or written consent), of the holders of at least 66 2/3% of the then
outstanding shares of Series B Preferred Stock:
B-7
<PAGE>
(i) amend the corporation's Articles of Incorporation to, or
otherwise, alter or change the rights, preferences or privileges of the shares
of Series B Preferred Stock so as to affect adversely such shares;
(ii) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security having a preference over, or being on a parity with, the
Series B Preferred Stock with respect to redemption, dividends or liquidation
payments; or
(iii) redeem or purchase or otherwise acquire shares of any
class of stock of this corporation, directly or indirectly, other than (A)
redemptions of Series B Preferred Stock pursuant to the provisions of Section
1.6 or (B) repurchases of options or capital stock issued upon exercise of
options from employees, officers, directors or consultants; (in addition, if at
any time there shall be either (A) accrued and unpaid dividends on any shares of
Series B Preferred Stock then outstanding or (B) any redemption required by
Section 1.6 to be made of shares of Series B Preferred Stock then outstanding
which has not been made, no dividends whatsoever of any kind may be paid upon,
nor may any distribution of any kind be made upon any share of any class of
stock of this corporation other than the Series B Preferred Stock).
(b) If this corporation shall in any manner sub-divide (by stock-
split, stock dividend or otherwise) or combine (by reverse stock-split or
otherwise) the outstanding shares of Series B Preferred Stock, the liquidation
payment per share, the redemption price per share and the number of shares
required to be redeemed on any mandatory Series B Redemption Date shall be
proportionately reduced or increased, as the case may be.
II. SERIES C PREFERRED STOCK
The rights, preferences, privileges and restrictions granted to and
imposed on the Series C Preferred Stock are as set forth below:
2.1 Designation. The tertiary series of the Corporation Preferred
-----------
Stock shall be designated "SERIES C PREFERRED STOCK."
2.2 Number of Shares. The number of shares constituting the Series C
----------------
Preferred Stock shall be 11,841,280 shares.
2.3 Dividend Provisions. Subject to (i) the rights of the Series B
-------------------
Preferred Stock and the rights of any series of Preferred Stock which may from
time to time come into existence,
B-8
<PAGE>
other than the Series A Preferred Stock, and (ii) any loan covenant or other
provision for the benefit of the holders of Senior Debt contained in any
document or agreement evidencing Senior Debt, the holders of shares of Series C
Preferred Stock shall be entitled to receive cash dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any cash dividend on the Common Stock, at the rate $0.10 per share of
Series C Preferred Stock (as adjusted for subsequent stock dividends, stock
splits or recapitalizations of the Series C Preferred Stock), per annum payable
annually on March 1 of each year beginning March 1, 1998. The amount of accrued
but unpaid dividends on each share of the Series C Preferred Stock shall, as of
September 19, 1997, be deemed to be $0.1995 (referred to herein as the "CURRENT
UNPAID SERIES C DIVIDEND"). Such dividends shall accrue on each outstanding
share of Series C Preferred Stock commencing on the Closing Date, whether or not
earned or declared. Such dividends shall be cumulative so that, if such
dividends in respect of any previous or current annual dividend period, at the
annual rate specified above, shall not have been paid, the deficiency shall,
subject to the rights of the Series B Preferred Stock and any series of
Preferred Stock which may from time to time come into existence, other than the
Series A Preferred Stock, first be fully paid before any dividend or other
distribution shall be paid on or declared and set apart for the Common Stock.
Any accumulation of dividends on the Series C Preferred Stock, including the
Current Unpaid Series C Dividend, shall not bear interest.
2.4 Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to (i) the rights of
the Series B Preferred Stock and any other series of Preferred Stock that may
from time to time come into existence, other than the Series A Preferred Stock,
and (ii) any loan covenant or other provision for the benefit of the holders of
Senior Debt contained in any document or agreement evidencing Senior Debt, the
holders of Series C Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Common Stock, an amount per share equal to the Series C Redemption
Price as defined in Section 2.5(a). If upon the occurrence of such event and
after payment in full of the liquidation preference of the Series B Preferred
Stock and any other series of Preferred Stock that may from time to time come
into existence, other than the Series A Preferred Stock, the assets and funds
thus distributed among the holders of the Series C Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, the entire assets and funds of this corporation
legally available for distribution after payment in full of the liquidation
preference of the Series B Preferred Stock and any other series
B-9
<PAGE>
of Preferred Stock that may from time to time come into existence, other than
the Series A Preferred Stock, shall be distributed ratably among the holders of
the Series C Preferred Stock in proportion to the amount of such stock owned by
each such holders.
(b) Upon the completion of (i) the distributions to the holders of
the Series B Preferred Stock, (ii) the distributions to the holders of Series C
Preferred Stock required by Section 2.4(a) and (iii) any other distribution that
may be required with respect to series of Preferred Stock that may from time to
time come into existence, other than the Series A Preferred Stock, if assets
remain in this corporation, the holders of the Common Stock of this corporation
(based on the number of shares of Common Stock held by each), shall receive all
of the remaining assets of this corporation.
2.5 Redemption.
----------
(a) Provided that the Series B Preferred Stock has been redeemed in
full and subject to (i) the rights of any series of Preferred Stock which may
from time to time come into existence other than the Series A Preferred Stock,
and (ii) any loan covenant or other provision for the benefit of the holders of
Senior Debt contained in any document or agreement evidencing Senior Debt, this
corporation shall redeem, from any source of funds legally available therefor,
all of the then outstanding shares of the Series C Preferred Stock upon the
consummation of any Corporation Transaction (as defined in Section 1.6(b)).
Provided that the Series B Preferred Stock has been redeemed in full and subject
to (i) the rights of any series of Preferred Stock which may from time to time
come into existence, other than the Series A Preferred Stock, and (ii) any loan
covenant or other provision for the benefit of the holders of Senior Debt
contained in any document or agreement evidencing Senior Debt, upon the
consummation of an initial underwritten public offering of the Common Stock of
this corporation pursuant to an effective registration statement, this
corporation shall use the net proceeds it receives from such offering and which
remain after redemption of all shares of Series B Preferred Stock which are then
outstanding to redeem the Series C Preferred Stock. This corporation shall
effect the redemptions pursuant to this subsection 2.5(a) by paying in cash, in
exchange for each share of Series C Preferred Stock to be redeemed, a sum equal
to $1.00 per share of Series C Preferred Stock (as adjusted for any stock
dividends, subdivisions, combinations or reclassifications with respect to such
shares) plus all accrued but unpaid dividends on such share (the "SERIES C
REDEMPTION PRICE"). Any redemption effected pursuant to this subsection 2.5(a)
or otherwise, including, without limitation, voluntary repurchases shall be made
on a pro rata basis among the holders of the Series C Preferred Stock based upon
the number of shares of Series C Preferred Stock held by each such holder in
proportion to the
B-10
<PAGE>
total number of shares of Series C Preferred Stock then held by all such
holders.
(b) Except as provided in this subsection 2.5(b), each holder of
Series C Preferred Stock to be redeemed pursuant to this Section 2.5 shall
surrender to this corporation the certificate or certificates representing such
shares, and thereupon the Series C Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled. In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares. From and after the date of any redemption under this Section
2.5, unless there shall have been a default in payment of the Series C
Redemption Price, all rights of the holders of shares of Series C Preferred
Stock designated for redemption (except the right to receive the Redemption
Price upon surrender of their certificate or certificates, including, without
limitation, the right to receive dividends thereon) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books of
this corporation or be deemed to be outstanding for any purpose whatsoever.
Upon consummation of any redemption of the Series C Preferred Stock, the shares
which are redeemed shall be cancelled and shall not be reissuable by this
corporation.
2.6 Conversion. The Series C Preferred Stock shall have no rights to
----------
convert into any other equity security of this Corporation.
2.7 Voting Rights. The Series C Preferred Stock shall have no voting
-------------
rights other than those provided by law or in the Protective Provisions set
forth below in Section 2.8.
2.8 Protective Provisions.
---------------------
(a) So long as any shares of Series C Preferred Stock are
outstanding, this corporation shall not, without first obtaining the approval
(by vote or written consent) of the holders of at least a majority of the then
outstanding shares of Series C Preferred Stock:
(i) amend this corporation's Articles of Incorporation to, or
otherwise, alter or change the rights, preferences, privileges or restrictions
of the shares of Series C Preferred Stock so as to affect adversely such shares;
or
(ii) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security having a preference over, or being on a parity with, the
Series C
B-11
<PAGE>
Preferred Stock with respect to redemption, conversion, voting, dividends or
upon liquidation.
(b) If this corporation shall in any manner subdivide (by stock-
split, stock dividend or otherwise) or combine (by reverse stock-split or
otherwise) the outstanding shares of Series C Preferred Stock, the liquidation
payment per share, the redemption price per share and the number of shares
required to be redeemed shall be proportionately reduced or increased, as the
case may be.
IN WITNESS WHEREOF, this Statement of Designation has been signed by
the undersigned on _____________, 1997.
___________________________________________
Larry E. Rembold, President
B-12
<PAGE>
EXHIBIT C
---------
STOCK REDEMPTION AGREEMENT
This Stock Redemption Agreement, dated as of September ___, 1997 (this
"AGREEMENT"), is entered into by and among Enterprise Partners III, L.P., a
Delaware limited partnership ("EPIII"), Enterprise Partners III Associates,
L.P., a Delaware limited partnership ("EPIIIA"), Enterprise Partners IV, L.P., a
Delaware limited partnership ("EPIV"), Enterprise Partners IV Associates, L.P.,
a Delaware limited partnership ("EPIVA"), and Enterprise Management Partners
Corporation, a California corporation ("EMPC," and together with EPIII, EPIIIA,
EPIV and EPIVA, the "STOCKHOLDERS"), and Doskocil Manufacturing Company, Inc., a
Texas corporation ("DMC" or the "COMPANY").
RECITALS
--------
WHEREAS, DMC and Dogloo, Inc., a California corporation ("DOGLOO"),
contemplate entering into that certain merger agreement (the "MERGER AGREEMENT),
to be dated as of the ______ day of September 1997;
WHEREAS, pursuant to the Merger Agreement, and in accordance with the Texas
Business Corporations Act (the "TBCA"), DMC and Dogloo will cause Dogloo to
merge with and into DMC, with DMC as the surviving corporation, pursuant to
Section 5.04 of the TBCA (the "MERGER");
WHEREAS, EPIII currently owns 193,344 shares of DMC Common Stock and 51,558
shares of DMC Series A Preferred Stock; EPIIIA currently owns 16,811 shares of
DMC Common Stock and 4,483 shares of DMC Series A Preferred Stock; EPIV
currently owns 179,688 shares of DMC Common Stock and 47,917 shares of DMC
Series A Preferred Stock; EPIVA currently owns 9,464 shares of DMC Common Stock
and 2,524 shares of DMC Series A Preferred Stock; EMPC currently owns 598,959
shares of DMC Common Stock and 1,424,192 shares of DMC Series A Preferred Stock
(collectively, the "DMC SHARES");
WHEREAS, EPIII and EPIIIA currently own 1,846,440 and 160,560 shares (the
"DOGLOO SERIES B SHARES"), respectively, of Dogloo Series B Preferred Stock, no
par value ("DOGLOO SERIES B PREFERRED STOCK"), and each such share will, as part
of the Merger, be converted into one share of DMC Series C Preferred Stock, no
par value ("DMC SERIES C PREFERRED STOCK");
WHEREAS, the Stockholders, as an inducement to cause DMC to enter into the
Merger Agreement, desire to grant to DMC the right to purchase the shares of DMC
Common Stock, DMC Series A
C-1
<PAGE>
Preferred Stock and DMC Series C Preferred Stock specified in the foregoing
recitals;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE III.
OPTION TO REDEEM SHARES
1.1 OPTION TO REDEEM DMC STOCK HELD BY EMPC. EMPC hereby grants to DMC
---------------------------------------
the right to purchase for a total price of $14.4 million (plus accrued but
unpaid dividends on such shares of DMC Series A Preferred Stock as of the
Closing Date), 598,959 shares of DMC Common Stock and 359,376 shares of DMC
Series A Preferred Stock owned by EMPC. The Company agrees to pay the sum of
$14.4 million (plus accrued but unpaid dividends on such shares of DMC Series A
Preferred Stock as of the Closing Date) to EMPC by check or wire transfer on the
date of redemption. The option granted hereby may be exercised in whole or from
time to time in part on or before October 31, 1997 by delivering to EMPC at 5000
Birch Street, Suite 6200, Newport Beach, California 92660 a notice of exercise
of the option which notice shall specify a closing date and the shares being
purchased. On the closing date, EMPC agrees to deliver to the Company stock
certificates representing 598,959 shares of DMC Common Stock and 359,376 shares
of Series A Preferred Stock, which certificates shall be either duly endorsed in
blank or accompanied by stock powers duly executed in the blank, on the date of
redemption.
1.2 OPTION TO REDEEM DMC STOCK HELD BY EPIII, EPIIIA, EPIV AND EPIVA.
----------------------------------------------------------------
EPIII, EPIIIA, EPIV and EPIVA hereby grant to the Company the right to purchase
for a total price of $3.6 million (plus accrued but unpaid dividends on such
shares of DMC Series A Preferred Stock as of the Closing Date) (i) 64,448 shares
of Common Stock and 51,558 shares of Series A Preferred Stock held by EPIII,
(ii) 5,604 shares of Common Stock and 4,483 shares of Series A Preferred Stock
held by EPIIIA, (iii) 63,050 shares of Common Stock and 47,917 shares of Series
A Preferred Stock held by EPIV, and (iv) 2,524 shares of Series A Preferred
Stock held by EPIVA. The Company agrees to pay the sums of $1,743,120 to EPIII,
$151,560 to EPIIIA, $1,667,400 to EPIV and $37,920 to EPIVA (plus such amount to
each entity as represents accrued but unpaid dividends on their respective
shares of DMC Series A Preferred Stock being redeemed), all of which will be
paid by check or wire transfer on the date of redemption. The option granted
hereby may be exercised in whole or from time to time in part on or before
October 31, 1997 by delivering to EPIII, EPIIIA, EPIV and EPIVA at 5000 Birch
Street, Suite 6200, Newport Beach, California 92660 a notice of exercise of the
option which notice shall specify a closing date and the shares being purchased.
On the closing date, EPIII, EPIIIA, EPIV, and EPIVA
C-2
<PAGE>
agree, severally but not jointly, to deliver stock certificates to the Company
representing the number of shares of DMC Common Stock and DMC Series A Preferred
Stock enumerated in this Section 1.2 and held by each of EPIII, EPIIIA, EPIV,
and EPIVA, respectively, which certificates shall be either duly endorsed in
blank or accompanied by stock powers duly executed in the blank.
EPIII and EPIIIA hereby grant to the Company the right to purchase all of
the shares of DMC Series C Preferred Stock owned by EPIII and EPIIIA immediately
following the Merger for a price per share of $1.00 plus any unpaid accrued
dividends thereon. The Company agrees to pay the redemption price by check or
wire transfer on the date of redemption. The option granted hereby may be
exercised in whole or from time to time in part on or before October 31, 1997 by
delivering to EPIII and EPIIIA at 5000 Birch Street, Suite 6200, Newport Beach,
California 92660 a notice of exercise of the option, which notice shall specify
a closing date and the shares being purchased. On the closing date, EPIII and
EPIIIA agree to deliver to the Company stock certificates representing the
shares of DMC Series C Preferred Stock being purchased, which certificates shall
be either duly endorsed in blank or accompanied by stock powers duly executed in
blank, on the date of redemption.
ARTICLE IV.
STOCKHOLDER REPRESENTATIONS
In connection with the granting of the options provided for herein and in
connection with the redemption of shares of DMC Common Stock, DMC Series A
Preferred Stock and DMC Series C Preferred Stock, each Stockholder represents to
Company as follows:
2.1 OWNER OF RECORD. The Stockholder is the beneficial and owner of
---------------
record of the DMC Shares and the Dogloo Series B Shares and holds the DMC Shares
and the Dogloo Series B Shares free and clear of any liens or encumbrances and,
after the Merger, will be the beneficial and owner of record of the DMC Shares
and shares of DMC Series C Preferred Stock.
2.2 NO CONFLICTS. To the best of each Stockholder's knowledge, no other
------------
person or entity has any rights to purchase the Shares being redeemed by the
Company pursuant to this Agreement, and the redemption contemplated hereby will
not conflict with or result in a breach of, or constitute a default (with or
without due notice or lapse of time or both) of any note, pledge, bond,
mortgage, indenture or deed of trust, or any license, lease or agreement to
which Stockholder is a party.
C-3
<PAGE>
ARTICLE V.
COMPANY REPRESENTATIONS
In connection with the redemption of the shares of DMC Common Stock, DMC
Series A Preferred Stock and DMC Series C Preferred Stock, the Company
represents to the Stockholders that it is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, that it has
full corporate power and authority to execute and deliver this Agreement and to
perform its obligations under and to consummate the transactions contemplated by
this Agreement, and that all corporate action of the Company necessary for such
execution, delivery and performance has been or will be duly and validly taken
and remains or will remain in full force and effect.
ARTICLE VI.
MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Texas,
without regard to conflicts of laws principles.
5.2 ENTIRE AGREEMENT; AMENDMENTS; ENFORCEMENT OF RIGHTS. This Agreement
---------------------------------------------------
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
5.3 SEVERABILITY. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
5.3 HEADINGS. The headings used in this Agreement are used for
--------
convenience only and are not to be considered in construing or interpreting this
Agreement.
5.4 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
C-4
<PAGE>
IN WITNESS WHEREOF, the Company and the Stockholders have caused this
Agreement to be duly executed and delivered as of the date first written above.
THE STOCKHOLDERS:
----------------
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III,
L.P.
Its: General Partner
By:________________________________
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III,
L.P.
Its: General Partner
By:________________________________
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS IV, L.P.
By: Enterprise Management Partners IV, L.P.
Its: General Partner
By:_______________________________
Charles D. Martin
Its: General Partner
C-5
<PAGE>
ENTERPRISE PARTNERS IV ASSOCIATES, L.P.
By: Enterprise Management Partners IV, L.P.
Its: General Partner
By:________________________________
Charles D. Martin
Its: General Partner
ENTERPRISE MANAGEMENT PARTNERS CORPORATION
By:____________________________________
Charles D. Martin
Its: President
THE COMPANY:
-----------
DOSKOCIL MANUFACTURING COMPANY, INC.,
a Texas corporation
By:____________________________________
Name:__________________________________
Title:Name:____________________________
C-6
<PAGE>
EXHIBIT D
---------
STOCK REDEMPTION AGREEMENT
This Stock Redemption Agreement, dated as of _________ ___, 1997 (this
"AGREEMENT"), is entered into by and among Westar Capital, a California limited
partnership ("WESTAR"), HBI Financial Inc., a Washington corporation ("HBI"),
and together with Westar, the "STOCKHOLDERS"), and Doskocil Manufacturing
Company, Inc., a Texas corporation ("DMC" or the "COMPANY").
RECITALS
--------
WHEREAS, DMC and Dogloo, Inc., a California corporation ("DOGLOO"),
contemplate entering into that certain merger agreement (the "MERGER AGREEMENT),
to be dated as of the ______ day of September 1997;
WHEREAS, pursuant to the Merger Agreement, and in accordance with the Texas
Business Corporations Act (the "TBCA"), DMC and Dogloo will cause Dogloo to
merge with and into DMC, with DMC as the surviving corporation, pursuant to
Section 5.04 of the TBCA (the "MERGER");
WHEREAS, Westar and HBI currently own 1,538,600 and 6,154,400 shares (the
"DOGLOO SERIES B SHARES"), respectively, of Dogloo Series B Preferred Stock, no
par value ("DOGLOO SERIES B PREFERRED STOCK") and each such share will, as part
of the Merger, be converted into one share of DMC Series C Preferred Stock, no
par value ("DMC SERIES C PREFERRED STOCK");
WHEREAS, the Stockholders, as an inducement to cause DMC to enter in the
Merger Agreement, desire to grant to DMC the right to redeem or purchase the
shares of shares of DMC Series C Preferred Stock specified in the foregoing
recitals;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
D-1
<PAGE>
ARTICLE VII.
OPTION TO REDEEM SHARES
1.1 OPTION TO REDEEM SHARES. Westar and HBI hereby grant to the Company
-----------------------
the right to purchase all of the shares of DMC Series C Preferred Stock owned by
EPIII and EPIIIA immediately following the Merger for a price per share of $1.00
plus any unpaid accrued dividends thereon. The Company agrees to pay the
redemption price by check or wire transfer on the date of redemption. The
option granted hereby may be exercised in whole or from time to time in part on
or before October 31, 1997 by delivering to Westar and HBI at 949 South Coast
Drive, Suite 650, Costa Mesa, California 92626 a notice of exercise of the
option, which notice shall specify a closing date and the shares being
purchased. On the closing date, Westar and HBI agree to deliver to the Company
stock certificates representing the shares of DMC Series C Preferred Stock being
purchased, which certificates shall be either duly endorsed in blank or
accompanied by stock powers duly executed in blank, on the date of redemption.
ARTICLE VIII.
STOCKHOLDER REPRESENTATIONS
In connection with the granting of the option provided for herein and in
connection with the redemption of shares of DMC Series C Preferred Stock, each
Stockholder represents to Company as follows:
2.1 OWNER OF RECORD. Westar and HBI are the beneficial and owners of
---------------
record of 1,538,600 and 6,154,400 shares, respectively, of Dogloo Series B
Preferred Stock and hold such shares free and clear of any liens or encumbrances
and, after the Merger, will be the beneficial and owner of record of 1,538,600
and 6,154,400 shares, respectively, of DMC Series C Preferred Stock.
2.2 NO CONFLICTS. To the best of each Stockholder's knowledge, no other
------------
person or entity has any rights to purchase the Shares being redeemed by the
Company pursuant to this Agreement, and the redemption contemplated hereby will
not conflict with or result in a breach of, or constitute a default (with or
without due notice or lapse of time or both) of any note, pledge, bond,
mortgage, indenture or deed of trust, or any license, lease or agreement to
which Stockholder is a party.
ARTICLE IX.
COMPANY REPRESENTATIONS
In connection with the redemption of the shares of DMC Series C Preferred
Stock, the Company represents to the Stockholders that it is a corporation duly
organized, validly existing and in good standing under the laws of the State of
D-2
<PAGE>
Texas, that it has full corporate power and authority to execute and deliver
this Agreement and to perform its obligations under and to consummate the
transactions contemplated by this Agreement, and that all corporate action of
the Company necessary for such execution, delivery and performance has been or
will be duly and validly taken and remains or will remain in full force and
effect.
ARTICLE X.
MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Texas,
without regard to conflicts of laws principles.
5.2 ENTIRE AGREEMENT; AMENDMENTS; ENFORCEMENT OF RIGHTS. This Agreement
---------------------------------------------------
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
5.3 SEVERABILITY. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
5.3 HEADINGS. The headings used in this Agreement are used for
--------
convenience only and are not to be considered in construing or interpreting this
Agreement.
5.4 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
D-3
<PAGE>
IN WITNESS WHEREOF, the Company and the Stockholders have caused this
Agreement to be duly executed and delivered as of the date first written above.
THE STOCKHOLDERS:
----------------
WESTAR CAPITAL
By: Westar Capital Associates, a limited
partnership
Its: General Partner
By:_________________________________
John W. Clark
Its: General Partner
HBI FINANCIAL, INC.
By:_____________________________________
Its:____________________________________
THE COMPANY:
-----------
DOSKOCIL MANUFACTURING COMPANY, INC.,
a Texas corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
D-4
<PAGE>
EXHIBIT E
---------
STOCK REDEMPTION AGREEMENT
This Stock Redemption Agreement, dated as of _________ ___, 1997 (this
"AGREEMENT"), is entered into between Aurelio F. Barreto, III ("BARRETO") and
Doskocil Manufacturing Company, Inc., a Texas corporation ("DMC" or the
"COMPANY").
RECITALS
--------
WHEREAS, Doskocil Manufacturing Company, Inc., a Texas corporation ("DMC"),
and Dogloo, Inc., a California corporation ("DOGLOO") contemplate entering into
that certain merger agreement (the "MERGER AGREEMENT) dated as of the ______ day
of September 1997;
WHEREAS, pursuant to the Merger Agreement, and in accordance with the Texas
Business Corporations Act (the "TBCA"), DMC and Dogloo have agreed to cause
Dogloo to merge with and into DMC, with DMC as the surviving corporation,
pursuant to Section _____ of the TBCA (the "MERGER");
WHEREAS, pursuant to the Merger Agreement, each share of Dogloo Common
Stock, no par value (the "DOGLOO COMMON STOCK"), issued and outstanding at the
time of the Merger will be converted into __ shares of DMC Common Stock (the
"DMC COMMON STOCK",) each share of Dogloo Series A Preferred Stock, no par value
(the "DOGLOO SERIES A PREFERRED STOCK"), issued and outstanding at the time of
the Merger will be converted into one share of newly designated DMC Series B
preferred stock, no par value (the "DMC SERIES B PREFERRED STOCK") and each
share of Dogloo Series B Preferred Stock, no par value (the "DOGLOO SERIES B
PREFERRED STOCK"), issued and outstanding at the time of the Merger will be
converted into one share of newly designated DMC Series C preferred stock, no
par value (the "DMC SERIES C PREFERRED STOCK");
WHEREAS, Barreto currently owns ______, ______ and _____ shares,
respectively, of Dogloo Common Stock, Series A Preferred Stock and Series B
Preferred Stock (collectively, the "DOGLOO SHARES"), which, pursuant to the
Merger Agreement, will be converted into _______, ______ and ______ shares,
respectively of DMC Common Stock, Series B Preferred Stock and Series C
Preferred Stock (collectively, the "DMC SHARES"); and
WHEREAS, Barreto, as an inducement to cause DMC to enter into the Merger
Agreement, desires to grant to DMC the right to redeem or purchase the shares of
DMC Common Stock, Series B Preferred Stock and Series C Preferred Stock that
Barreto will own immediately following the Effective Time (as defined in Section
1.2 of the Merger Agreement) of the Merger.
E-1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE XI.
OPTION TO REDEEM SHARES
1.1 OPTION TO REDEEM DMC STOCK. Barreto hereby grants to DMC the right to
--------------------------
purchase any or all of the shares of [DMC Common Stock], Series B Preferred
Stock and [Series C Preferred] Stock owned by Barreto immediately following the
Merger provided that no shares of DMC Common Stock may be purchased from Barreto
unless prior to or concurrent with such purchase all of the shares of DMC Series
B and Series C Preferred Stock then owned by Barreto have been redeemed. The
price per share of Common Stock shall be $___; the price per share of Series B
Preferred Stock shall be $___ plus any unpaid accrued dividends thereon; and the
price per share of Series C Preferred Stock shall be $____ plus any unpaid
accrued dividends thereon. The option granted hereby may be exercised in whole
or from time to time in part on or before October 31, 1997 by delivering to
Barreto at ______________ a notice of exercise of the option which notice shall
specify a closing date and the shares being purchased. On the closing date, the
Company agrees to pay the purchase price payable to Barreto by check or wire
transfer and Barreto agrees to deliver to the Company (or other purchaser) stock
certificates representing the shares purchased which certificates shall be
either duly endorsed in blank or accompanied by stock powers duly executed in
the blank, on the date of redemption.
ARTICLE XII.
SHAREHOLDER REPRESENTATIONS
In connection with the granting of the option provided for herein and the
redemption or purchase of shares of DMC Common Stock, Series B Preferred Stock
and Series C Preferred Stock, Barreto represents and covenants to Company as
follows:
2.1 OWNER OF RECORD. Barreto is the beneficial and owner of record of the
---------------
Dogloo Shares and holds the Dogloo Shares free and clear of any liens or
encumbrances and, after the Merger, will be the beneficial and owner of record
of the DMC Shares. Barreto will not, prior to the expiration of this Agreement,
sell, transfer, assign, pledge, encumber or otherwise transfer any interest in
the Dogloo Shares or the DMC Shares to any person.
2.2 NO CONFLICTS. No other person or entity has any rights to purchase
------------
the Shares that are the subject of this Agreement, and the redemption or
purchase contemplated hereby will not conflict with or result in a breach of, or
constitute a default
E-2
<PAGE>
(with or without due notice or lapse of time or both) of any note, pledge, bond,
mortgage, indenture or deed of trust, or any license, lease or agreement to
which Stockholder is a party. [Need to address existing Securityholders
Agreement and options to purchase certain shares of Aurelio's Stock]
2.2 NO FURTHER OBLIGATION BY DMC OR DOGLOO. Barreto represents and
--------------------------------------
acknowledges that any consideration received hereunder upon the exercise of the
option satisfies all obligations by or on the part of the Company or Dogloo to
Barreto regarding the shares redeemed or purchased.
ARTICLE XIII.
COMPANY REPRESENTATIONS
In connection with the redemption of the Shares, the Company represents to
the Shareholders that it is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas, that it has full
corporate power and authority to execute and deliver this Agreement and to
perform its obligations under and to consummate the transactions contemplated by
this Agreement, and that all corporate action of the Company necessary for such
execution, delivery and performance has been or will be duly and validly taken
and remains or will remain in full force and effect.
ARTICLE XIV.
MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Texas,
without regard to conflicts of laws principals.
5.2 ENTIRE AGREEMENT; AMENDMENTS; ENFORCEMENT OF RIGHTS. This Agreement
---------------------------------------------------
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party. This
rights of the Company under this Agreement may be assigned by the Company.
5.3 SEVERABILITY. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
E-3
<PAGE>
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
5.3 HEADINGS. The headings used in this Agreement are used for
--------
convenience only and are not to be considered in construing or interpreting this
Agreement.
5.4 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
E-4
<PAGE>
IN WITNESS WHEREOF, the Company and Barreto have caused this Agreement to
be duly executed and delivered as of the date first written above.
THE SHAREHOLDERS:
----------------
AURELIO F. BARRETO, III,
an individual
______________________________________
THE COMPANY:
-----------
DOSKOCIL MANUFACTURING COMPANY, INC.,
a Texas corporation
By: __________________________________
Name: __________________________
Title: _________________________
E-5
<PAGE>
EXHIBIT F
---------
STOCK REDEMPTION AGREEMENT
This Stock Redemption Agreement, dated as of _________ ___, 1997 (this
"AGREEMENT"), is entered into between Darrell R. Paxman ("PAXMAN") and Doskocil
Manufacturing Company, Inc., a Texas corporation ("DMC" or the "COMPANY").
RECITALS
--------
WHEREAS, Doskocil Manufacturing Company, Inc., a Texas corporation ("DMC"),
and Dogloo, Inc., a California corporation ("DOGLOO") contemplate entering into
that certain merger agreement (the "MERGER AGREEMENT) dated as of the ______ day
of _____________ 1997;
WHEREAS, pursuant to the Merger Agreement, and in accordance with the Texas
Business Corporations Act (the "TBCA"), DMC and Dogloo have agreed to cause
Dogloo to merge with and into DMC, with DMC as the surviving corporation,
pursuant to Section _____ of the TBCA (the "MERGER");
WHEREAS, pursuant to the Merger Agreement, each share of Dogloo Series A
Preferred Stock, no par value (the "DOGLOO SERIES A PREFERRED STOCK"), issued
and outstanding at the time of the Merger will be converted into one share of
newly designated DMC Series B preferred stock, no par value (the "DMC SERIES B
PREFERRED STOCK");
WHEREAS, Paxman currently owns ______ shares of Dogloo Series A Preferred
Stock (the "DOGLOO SHARES"), which, pursuant to the Merger Agreement, will be
converted into _______ shares of DMC Common Series B Preferred Stock (the "DMC
SHARES"); and
WHEREAS, Paxman, as an inducement to cause DMC to enter into the Merger
Agreement, desires to grant to DMC the right to redeem or purchase his shares of
DMC Series B Preferred Stock that Paxman will own immediately following the
Effective Time (as defined in Section 1.2 of the Merger Agreement) of the
Merger.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE XV.
OPTION TO REDEEM SHARES
1.1 OPTION TO REDEEM DMC STOCK. Paxman hereby grants to DMC the right to
--------------------------
purchase any or all of the shares of DMC Series B Preferred Stock owned by
Paxman immediately following
F-1
<PAGE>
the Merger. The price per share of Series B Preferred Stock shall be $___ plus
any unpaid accrued dividends thereon. The option granted hereby may be
exercised in whole or from time to time in part on or before October 31, 1997 by
delivering to Paxman at ______________ a notice of exercise of the option which
notice shall specify a closing date and the shares being purchased. On the
closing date, the Company agrees to pay the purchase price payable to Paxman by
check or wire transfer and Paxman agrees to deliver to the Company (or other
purchaser) stock certificates representing the shares purchased which
certificates shall be either duly endorsed in blank or accompanied by stock
powers duly executed in the blank, on the date of redemption.
ARTICLE XVI.
SHAREHOLDER REPRESENTATIONS
In connection with the granting of the option provided for herein and the
redemption or purchase of shares of DMC Series B Preferred Stock, Paxman
represents and covenants to Company as follows:
2.1 OWNER OF RECORD. Paxman is the owner of record of the Dogloo Shares
---------------
and holds the Dogloo Shares free and clear of any liens or encumbrances and,
after the Merger, will be the beneficial and owner of record of the DMC Shares.
Paxman will not, prior to the expiration of this Agreement, sell, transfer,
assign, pledge, encumber or otherwise transfer any interest in the Dogloo Shares
or the DMC Shares to any person.
2.2 NO CONFLICTS. No other person or entity has any rights to purchase
------------
the Shares that are the subject of this Agreement, and the redemption or
purchase contemplated hereby will not conflict with or result in a breach of, or
constitute a default (with or without due notice or lapse of time or both) of
any note, pledge, bond, mortgage, indenture or deed of trust, or any license,
lease or agreement to which Paxman is a party.
2.2 NO FURTHER OBLIGATION BY DMC OR DOGLOO. Paxman represents and
--------------------------------------
acknowledges that any consideration received hereunder upon the exercise of the
option satisfies all obligations by or on the part of the Company or Dogloo to
Paxman regarding the shares redeemed or purchased.
ARTICLE XVII.
COMPANY REPRESENTATIONS
In connection with the redemption of the Shares, the Company represents to
Paxman that it is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas, that it has full corporate power
and authority to
F-2
<PAGE>
execute and deliver this Agreement and to perform its obligations under and to
consummate the transactions contemplated by this Agreement, and that all
corporate action of the Company necessary for such execution, delivery and
performance has been or will be duly and validly taken and remains or will
remain in full force and effect.
ARTICLE XVIII.
MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Texas,
without regard to conflicts of laws principals.
5.2 ENTIRE AGREEMENT; AMENDMENTS; ENFORCEMENT OF RIGHTS. This Agreement
---------------------------------------------------
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party. This
rights of the Company under this Agreement may be assigned by the Company.
5.3 SEVERABILITY. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
5.3 HEADINGS. The headings used in this Agreement are used for
--------
convenience only and are not to be considered in construing or interpreting this
Agreement.
5.4 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
F-3
<PAGE>
IN WITNESS WHEREOF, the Company and the Paxman have caused this Agreement
to be duly executed and delivered as of the date first written above.
DARRELL R. PAXMAN,
an individual
__________________________________
THE COMPANY:
-----------
DOSKOCIL MANUFACTURING COMPANY, INC.,
a Texas corporation
By: ______________________________________
Name: ______________________________
Title: _____________________________
F-4
<PAGE>
EXHIBIT G
---------
[TO COME]
G-1
<PAGE>
EXHIBIT 10.3
STOCK REDEMPTION AGREEMENT
This Stock Redemption Agreement, dated as of September ___, 1997 (this
"AGREEMENT"), is entered into by and among Enterprise Partners III, L.P., a
Delaware limited partnership ("EPIII"), Enterprise Partners III Associates,
L.P., a Delaware limited partnership ("EPIIIA"), Enterprise Partners IV, L.P., a
Delaware limited partnership ("EPIV"), Enterprise Partners IV Associates, L.P.,
a Delaware limited partnership ("EPIVA," and together with EPIII, EPIIIA and
EPIV, the "EP ENTITIES"), and Enterprise Management Partners Corporation, a
California corporation ("EMPC," and together with the EP Entities, the
"STOCKHOLDERS"), and Doskocil Manufacturing Company, Inc., a Texas corporation
("DMC" or the "COMPANY").
RECITALS
--------
WHEREAS, DMC and Dogloo, Inc., a California corporation ("DOGLOO"),
contemplate entering into that certain merger agreement (the "MERGER AGREEMENT),
to be dated as of the ______ day of September 1997;
WHEREAS, pursuant to the Merger Agreement, and in accordance with the Texas
Business Corporation Act (the "TBCA"), DMC and Dogloo will cause Dogloo to merge
with and into DMC, with DMC as the surviving corporation, pursuant to Section
5.04 of the TBCA (the "MERGER");
WHEREAS, EPIII currently owns 193,344 shares of DMC Common Stock and 51,558
shares of DMC Series A Preferred Stock; EPIIIA currently owns 16,811 shares of
DMC Common Stock and 4,483 shares of DMC Series A Preferred Stock; EPIV
currently owns 179,688 shares of DMC Common Stock and 47,917 shares of DMC
Series A Preferred Stock; EPIVA currently owns 9,464 shares of DMC Common Stock
and 2,524 shares of DMC Series A Preferred Stock; EMPC currently owns 598,959
shares of DMC Common Stock and 1,424,192 shares of DMC Series A Preferred Stock
(collectively, the "DMC SHARES");
WHEREAS, EPIII and EPIIIA currently own 1,846,440 and 160,560 shares (the
"DOGLOO SERIES B SHARES"), respectively, of Dogloo Series B Preferred Stock, no
par value ("DOGLOO SERIES B PREFERRED STOCK"), and each such share will, as part
of the Merger, be converted into one share of DMC Series C Preferred Stock, no
par value ("DMC SERIES C PREFERRED STOCK");
WHEREAS, EMPC and the Company mutually desire that EMP grant to DMC the
right to purchase the shares of DMC Common Stock and DMC Series A Preferred
Stock held by EMPC;
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I.
OPTION TO REDEEM SHARES
1.1 OPTION TO REDEEM DMC STOCK HELD BY EMPC. EMPC hereby grants to DMC
---------------------------------------
the right to purchase for a total price of $14.4 million (plus accrued but
unpaid dividends on such shares of DMC Series A Preferred Stock as of the
Closing Date), 598,959 shares of DMC Common Stock and 359,376 shares of DMC
Series A Preferred Stock owned by EMPC. The Company agrees to pay the sum of
$14.4 million (plus accrued but unpaid dividends on such shares of DMC Series A
Preferred Stock as of the Closing Date) to EMPC by check or wire transfer on the
date of redemption. The option granted hereby may be exercised in whole or from
time to time in part on or before October 31, 1997 by delivering, personally, by
U.S. certified or registered mail, postage prepaid, return receipt requested or
by facsimile transmission, to EMPC at 5000 Birch Street, Suite 6200, Newport
Beach, California 92660 a notice of exercise of the option which notice shall
specify a closing date and the shares being purchased. On the closing date,
EMPC agrees to (i) deliver to the Company stock certificates representing
598,959 shares of DMC Common Stock and 359,376 shares of Series A Preferred
Stock, which certificates shall be either duly endorsed in blank or accompanied
by stock powers duly executed in the blank, on the date of redemption or (ii) in
the event the certificates are lost, the provisions of Section 2.1 shall apply.
1.2 OPTION TO REDEEM DMC SHARES HELD BY EPIII, EPIIIA, EPIV AND EPIVA.
-----------------------------------------------------------------
The EP Entities hereby grant to the Company the right to purchase for a total
price of $3.6 million (no dividends will be paid to the EP Entities on their
respective shares of DMC Series A Preferred Stock being redeemed), (i) 64,448
shares of Common Stock and 51,558 shares of Series A Preferred Stock held by
EPIII, (ii) 5,604 shares of Common Stock and 4,483 shares of Series A Preferred
Stock held by EPIIIA, (iii) 63,050 shares of Common Stock and 47,917 shares of
Series A Preferred Stock held by EPIV, and (iv) 2,524 shares of Series A
Preferred Stock held by EPIVA. The Company agrees to pay the sums of $1,743,120
to EPIII, $151,560 to EPIIIA, $1,667,400 to EPIV and $37,920 to EPIVA, all of
which will be paid by check or wire transfer on the date of redemption. The
option granted hereby may be exercised in whole or from time to time in part on
or before October 31, 1997 by delivering, personally, by U.S. certified or
registered mail, postage prepaid, return receipt requested or by facsimile
transmission, to the EP Entities at 5000 Birch Street, Suite 6200, Newport
Beach, California 92660 a notice of exercise of the option which notice shall
specify a closing date and the shares being purchased. On the closing date, the
EP Entities agree, severally but not jointly, to (i) deliver stock certificates
to
2
<PAGE>
the Company representing the number of shares of DMC Common Stock and DMC Series
A Preferred Stock enumerated in this Section 1.2 and held by each of EPIII,
EPIIIA, EPIV, and EPIVA, respectively, which certificates shall be either duly
endorsed in blank or accompanied by stock powers duly executed in the blank or
(ii) in the event the certificates are lost, the provisions of Section 2.1 shall
apply. As an inducement to cause DMC to effect the redemptions contemplated by
this Section 1.2 hereof, the EP Entities agree, in the event the option
contained in this Section 1.2 is exercised, to waive their respective rights to
accrued but unpaid dividends on such shares of DMC Series A Preferred Stock that
are redeemed pursuant to this Section 1.2.
EPIII and EPIIIA hereby grant to the Company the right to purchase 495,358
shares and 43,075 shares of DMC Series C Preferred Stock owned by EPIII and
EPIIIA, respectively, immediately following the Merger for a price per share of
$1.00 plus any unpaid accrued dividends thereon. The Company agrees to pay the
redemption price by check or wire transfer on the date of redemption. The
option granted hereby may be exercised in whole or from time to time in part on
or before October 31, 1997 by delivering, personally, by U.S. certified or
registered mail, postage prepaid, return receipt requested or by facsimile
transmission, to EPIII and EPIIIA at 5000 Birch Street, Suite 6200, Newport
Beach, California 92660 a notice of exercise of the option, which notice shall
specify a closing date and the shares being purchased. On the closing date,
EPIII and EPIIIA agree to (i) deliver to the Company stock certificates
representing the shares of DMC Series C Preferred Stock being purchased, which
certificates shall be either duly endorsed in blank or accompanied by stock
powers duly executed in blank, on the date of redemption or (ii) in the event
the certificates are lost, the provisions of Section 2.1 shall apply.
ARTICLE II.
STOCKHOLDER REPRESENTATIONS
In connection with the granting of the options provided for herein and in
connection with the redemption of shares of DMC Common Stock, DMC Series A
Preferred Stock and DMC Series C Preferred Stock, each Stockholder represents to
Company as follows:
2.1 OWNER OF RECORD. The Stockholder is the beneficial and owner of
---------------
record of the DMC Shares and the Dogloo Series B Shares and holds the DMC Shares
and the Dogloo Series B Shares free and clear of any liens or encumbrances and,
after the Merger, will be the beneficial and owner of record of the DMC Shares
and shares of DMC Series C Preferred Stock. Each Stockholder has made or caused
to be made a search for the certificate representing their shares of Series A
Preferred Stock and has been unable to locate the certificate. Each Stockholder
represents that (i) as
3
<PAGE>
of the date hereof, neither the lost certificate nor the rights of Stockholder
to the lost certificate have, in whole or in part, been cashed, negotiated,
sold, assigned, transferred, hypothecated, pledged, deposited under any
agreement or otherwise disposed of or encumbered and (ii) and, to such
Stockholder's knowledge, no claim of right, title or interest adverse to
Stockholder in or to the lost certificate has been made or advanced by any
person. Each Stockholder agrees to surrender the lost certificate if comes into
their possession and hereby agrees to indemnify and save harmless the Company
for any an all claims, actions and suits and from any liabilities, losses,
damages, costs and charges of any kind from the making of any payment, credit,
conversion, exchange, distribution or delivery in respect of their lost
certificate.
2.2 NO CONFLICTS. To the best of each Stockholder's knowledge, no other
------------
person or entity has any rights to purchase the Shares being redeemed by the
Company pursuant to this Agreement, and the redemption contemplated hereby will
not conflict with or result in a breach of, or constitute a default (with or
without due notice or lapse of time or both) of any note, pledge, bond,
mortgage, indenture or deed of trust, or any license, lease or agreement to
which Stockholder is a party.
ARTICLE III.
COMPANY REPRESENTATIONS
In connection with the redemption of the shares of DMC Common Stock, DMC
Series A Preferred Stock and DMC Series C Preferred Stock, the Company
represents to the Stockholders that it is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, that it has
full corporate power and authority to execute and deliver this Agreement and to
perform its obligations under and to consummate the transactions contemplated by
this Agreement, and that all corporate action of the Company necessary for such
execution, delivery and performance has been or will be duly and validly taken
and remains or will remain in full force and effect.
ARTICLE IV.
MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Texas,
without regard to conflicts of laws principles.
4
<PAGE>
5.2 ENTIRE AGREEMENT; AMENDMENTS; ENFORCEMENT OF RIGHTS. This Agreement
---------------------------------------------------
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
5.3 SEVERABILITY. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
5.3 HEADINGS. The headings used in this Agreement are used for
--------
convenience only and are not to be considered in construing or interpreting this
Agreement.
5.4 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
5
<PAGE>
IN WITNESS WHEREOF, the Company and the Stockholders have caused this
Agreement to be duly executed and delivered as of the date first written above.
THE STOCKHOLDERS:
----------------
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
----------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
----------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS IV, L.P.
By: Enterprise Management Partners IV, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
----------------------------------
Charles D. Martin
Its: General Partner
6
<PAGE>
ENTERPRISE PARTNERS IV ASSOCIATES, L.P.
By: Enterprise Management Partners IV, L.P.
Its: General Partner
By:
/s/ CHARLES D. MARTIN
-----------------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE MANAGEMENT PARTNERS CORPORATION
By:
/s/ CHARLES D. MARTIN
-----------------------------------------------
Charles D. Martin
Its: President
THE COMPANY:
-----------
DOSKOCIL MANUFACTURING COMPANY, INC.,
a Texas corporation
By:
/s/ LARRY E. REMBOLD
-----------------------------------------------
Name: Larry E. Rembold
Title: President
7
<PAGE>
EXHIBIT 10.4
STOCK REDEMPTION AND PURCHASE AGREEMENT
This Stock Redemption and Purchase Agreement, dated August 28, 1997, (this
"AGREEMENT"), is entered into between Aurelio F. Barreto, III ("BARRETO"),
Doskocil Manufacturing Company, Inc., a Texas corporation ("DMC" or the
"COMPANY") and Westar Capital, a limited partnership ("WESTAR").
RECITALS
--------
WHEREAS, DMC and Dogloo, Inc., a California corporation ("DOGLOO") contemplate
entering into that certain merger agreement (the "MERGER AGREEMENT");
WHEREAS, pursuant to the Merger Agreement, and in accordance with the Texas
Business Corporations Act (file "TBCA"), DMC and Dogloo will agree to cause
Dogloo to merge with and into DMC, with DMC as the surviving corporation (the
"MERGER");
WHEREAS, pursuant to the Merger Agreement, each share of Dogloo Common Stock,
no par value (the "DOGLOO COMMON STOCK"), issued and outstanding at the time of
the Merger will be converted into 0.04304004 shares of DMC Common Stock (the
"DMC COMMON STOCK"), each share of Dogloo Series A Preferred Stock, no par value
(the "DOGLOO SERIES A PREFERRED STOCK"), issued and outstanding at the time of
the Merger will be converted into one share of newly designated DMC Series B
Preferred Stock, no par value (the "DMC SERIES B PREFERRED STOCK") and each
share of Dogloo Series B Preferred Stock, no par value (the "DOGLOO SERIES B
PREFERRED STOCK"), issued and outstanding at the time of the Merger will be
converted into one share of newly designated DMC Series C Preferred Stock, no
par value (the "DMC SERIES C PREFERRED STOCK");
WHEREAS, Barreto currently owns 8,599,667, 6,890,000 and 2,141,280 shares,
respectively, of Dogloo Common Stock, Dogloo Series A Preferred Stock and Dogloo
Series B Preferred Stock (collectively, the "DOGLOO SHARES"), which, pursuant to
the Merger Agreement, will be converted into 370,130, 6,890,000 and 2,141,280
shares, respectively, of DMC Common Stock, DMC Series B Preferred Stock and DMC
Series C Preferred Stock (collectively, the "DMC SHARES"); and
WHEREAS, Barreto, as an inducement to cause DMC to enter into the Merger
Agreement, desires to grant to DMC or its designee or designees and Westar or
its designee or designees the right to redeem or purchase the DMC Shares that
Barreto will own immediately following the Effective Time (as defined in Section
1.2 of the Merger Agreement) of the Merger.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
<PAGE>
ARTICLE I.
OPTION TO REDEEM OR PURCHASE SHARES
1.1 OPTION TO REDEEM OR PURCHASE DMC SHARES. Barreto hereby grants to (i)
----------------------------------------
DMC or its designee or designees the right to redeem or purchase any or all of
the DMC Series B Preferred Stock or DMC Series C Preferred Stock owned by
Barreto immediately following the Merger and (ii) Westar or its designee or
designees the right to redeem or purchase any or all of the DMC Common Stock
owned by Barreto immediately following the Merger; provided, that no shares of
DMC Common Stock may be redeemed or purchased from Barreto unless prior to or
concurrent with such redemption or purchase all of the shares of DMC Series B
and DMC Series C Preferred Stock then owned by Barreto have been redeemed or
purchased. The price per share of DMC Common Stock shall be $15.026069 per
share (or $0.6467226 per share of Dogloo Common Stock); the price per share of
DMC Series B Preferred Stock shall be $1.00 plus any unpaid accrued dividends
thereon through the date of the purchase; and the price per share of DMC Series
C Preferred Stock shall be $1.00 plus any unpaid accrued dividends thereon
through the date of the redemption or purchase/(1)/. The options granted hereby
may be exercised in whole or from time to time in part on or before the earlier
of (a) 15 business days after the Closing Date (as defined in the Merger
Agreement) or (b) October 31, 1997, by delivering to Barreto by facsimile or
first class mail at the address or facsimile number set forth on the signature
page hereto a notice of exercise of the options which notice shall specify a
closing date and the shares being purchased. On the closing date, the party or
parties redeeming or purchasing the DMC Shares agree to pay the purchase price
payable to Barreto by check or wire transfer and Barreto agrees to deliver to
such party or parties (i) stock certificates representing the shares
- -----------------------------
(1) By way of example only, if all of Barreto's DMC Shares were purchased or
redeemed on September 30, 1997, assuming no other purchases or redemptions, the
following amounts, prior to the discount referred to in Section 1.1, shall
be paid to Barreto for his DMC Shares:
<TABLE>
<CAPTION>
DMC Common Stock
----------------
<S> <C>
370,130 shares (or 8,599,667
shares of Dogloo Common Stock) $ 5,561,599
DMC Series B Preferred Stock
----------------------------
6,890,000 $ 6,890,000
Dividends $ 1,483,323
DMC Series C Preferred Stock
----------------------------
2,141,280 $ 2,141,280
Dividends $ 433,536
-----------
$16,509,738
===========
</TABLE>
2
<PAGE>
purchased, which certificates shall be either duly endorsed in blank or
accompanied by stock powers duly executed in blank, on the date of redemption or
purchase (the purchasing party or parties shall accept an affidavit of lost
stock certificate and indemnity from Barreto in place of any lost stock
certificate so long as the form and substance of such document is reasonably
acceptable to such purchasing party or parties and Barreto diligently attempts
to locate such certificates) and (ii) releases, in form and substance
satisfactory to the purchasing party or parties, from all those persons who may
hold any interest, option or right of any kind or nature therein. In addition,
in the event that all of the DMC Shares then owned by Barreto are being
redeemed or purchased hereunder, on the closing date, DMC and Westar shall cause
the parties (other than Barreto) to that certain First Amendment to Settlement
Agreement and Mutual Release, in the form attached hereto as Schedule 1, to
execute the same and Barreto hereby agrees to execute the same concurrently upon
receipt of the purchase price for the DMC Shares being redeemed or purchased.
The aggregate purchase price payable to Barreto upon the redemption or purchase
of all of his DMC Shares hereunder shall be reduced by an amount equal to
$867,935.
1.2 AMENDMENT TO THE AMENDED AND RESTATED SECURITYHOLDERS' AGREEMENT. In the
-----------------------------------------------------------------
event Westar or its designee or designees do not purchase all of the shares of
the DMC Common Stock held by Barreto, then Barreto shall have the right to be a
member of the Board of Directors of DMC or to designate a nominee to be a member
of the Board of Directors of DMC (in place of Barreto), pursuant to the terms
and conditions of the Amended and Restated Securityholders' Agreement (as
defined in the Merger Agreement). The Amended and Restated Securityholders'
Agreement shall be amended to provide that the stockholders of DMC that are
parties to such Agreement shall vote their shares to elect either Barreto or his
nominee, who shall be Jon Stone or another individual that has relevant
experience in the non-food pet products industry and is reasonably acceptable to
a majority of the other members of the Board of Directors of DMC. Barreto hereby
agrees to execute the Amended and Restated Securityholders' Agreement at the
Effective Time of the Merger.
ARTICLE II.
BARRETO REPRESENTATIONS
In connection with the granting of the options provided for herein and the
redemption or purchase of DMC Shares, Barreto represents and covenants to DMC
and Westar as follows:
2.1 OWNER OF RECORD. Barreto is the beneficial owner and owner of record of
---------------
the Dogloo Shares and holds the Dogloo Shares free and clear of any liens or
encumbrances and, after the Merger, will be the beneficial owner and owner of
record of the DMC Shares and such DMC Shares will be free and clear of any liens
or encumbrances. Barreto will not, prior to the expiration of this Agreement,
sell, transfer, assign, pledge, encumber or otherwise transfer any interest in
the Dogloo Shares or the DMC Shares to any person or entity.
2.2 NO CONFLICTS. No other person or entity has any rights to purchase the DMC
-------------
Shares that are the subject of this Agreement, and the redemption or purchase
contemplated hereby will not conflict with or result in a breach of, or
constitute a default (with or without
3
<PAGE>
due notice or lapse of time or both) of any note, pledge, bond, mortgage,
indenture or deed of trust, or any license, lease or agreement to which Barreto
is a party, other than pursuant to that Amended and Restated Securityholders'
Agreement to be dated as of the Closing Date (as defined in the Merger
Agreement).
2.3 NO FURTHER OBLIGATION BY DMC OR WESTAR. Barreto represents and
---------------------------------------
acknowledges that any consideration received hereunder upon the exercise of the
options satisfies all obligations by or on the part of DMC, Westar or their
designees to Barreto regarding the shares redeemed or purchased.
ARTICLE III.
COMPANY AND WESTAR REPRESENTATIONS
In connection with the redemption of the DMC Shares, the Company represents
to Barreto that it is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas. In addition, the Company
and Westar represent to Barreto that each has full power and authority to
execute and deliver this Agreement and to perform its obligations under and to
consummate the transactions contemplated by this Agreement, and that all action
of the Company and Westar necessary for such execution, delivery and
performance has been or will be duly and validly taken.
ARTICLE IV.
MISCELLANEOUS
4.1 GOVERNING LAW. This Agreement and all acts and transactions pursuant
--------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Texas,
without regard to conflicts of laws principals.
4.2 ENTIRE AGREEMENT; AMENDMENTS; ENFORCEMENT OF RIGHTS. This Agreement sets
----------------------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the
parties to this Agreement. The failure by any party to enforce any rights under
this Agreement shall not be construed as a waiver of any rights of such party.
This rights of the Company and Westar under this Agreement may be assigned by
the Company or Westar to a designee or designees and shall inure to the benefit
of such parties upon the assignment hereof.
4.3 SEVERABILITY. If one or more provisions of this Agreement are held to be
-------------
unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this
4
<PAGE>
Agreement, (ii) the balance of the Agreement shall be interpreted as if such
provision were so excluded and (iii) the balance of the Agreement shall be
enforceable in accordance with its terms.
4.4 HEADINGS. The headings used in this Agreement are used for convenience
---------
only and are not to be considered in construing or interpreting this Agreement.
4.5 COUNTERPARTS. This Agreement may be executed in two or more counterparts,
-------------
each of which shall be deemed an original and all of which together shall
constitute one instrument. This Agreement may be executed by facsimile
signatures.
4.6 CONSENT TO MERGER. Barreto hereby consents to the Merger and approves the
------------------
Merger Agreement in his capacity as a holder of Common Stock, Series A Preferred
Stock and Series B Preferred Stock of Dogloo and agrees to execute all documents
reasonably required by Dogloo or DMC to evidence the same.
IN WITNESS WHEREOF, the Company, Westar and Barreto have caused this Agreement
to be duly executed and delivered as of the date first written above.
AURELIO F. BARRETO, III,
an individual
/s/ AURELIO F. BARRETO, III
-----------------------------
Address: 20455 Somma Drive
Lake Matthews, CA 92570
Facsimile:
--------------------------------
THE COMPANY:
------------
DOSKOCIL MANUFACTURING COMPANY,
INC., a Texas corporation
By: /s/ DONALD J. FRITSCHEN
---------------------------------------
Name: Donald J. Fritschen
-------------------------------------
Title: CEO & VP
------------------------------------
<PAGE>
WESTAR CAPITAL
By: Westar Capital Associates, a limited
partnership
Its: General Partner
By: /s/ ALAN B. SELLERS
--------------------------------------
Alan B. Sellers
Its: General Partner
<PAGE>
SCHEDULE 1
AMENDMENT NO. 1 TO SETTLEMENT AGREEMENT AND MANUAL RELEASE
----------------------------------------------------------
THIS AMENDMENT NO. 1 TO SETTLEMENT AGREEMENT AND MUTUAL RELEASE ("Amendment
No. 1") is entered into between Doskocil Manufacturing Company, Inc. (successor
to Dogloo, Inc.) ("DMC"), Aurelio F. Barreto III and Peggy Barreto ("Barreto"),
Westar Capital ("Westar"), Enterprise Partners III, L.P. ("Enterprise III"),
Enterprise Partners III Associates, L.P. ("Enterprise Associates"), and HBI
Financial, Inc. ("HBI").
W I T N E S E T H:
-----------------
WHEREAS, the parties hereto are also parties to that certain Settlement
Agreement and Mutual Release, dated as of May 27, 1997 (the "Original
Agreement"); and
WHEREAS, the parties hereto desire to amend the Original Agreement as provided
herein.
NOW, THEREFORE, for and in consideration of the foregoing premises, which are
incorporated by reference into this Amendment No. 1, and of the mutual promises
set forth below, the parties agree as follows.
1. Section 1 of the Original Agreement is hereby amended as follows:
the date of September 30, 1998 in the first and last sentences of Section 1 of
the Original Agreement shall hereby be amended to the date hereof. In addition,
Section 1 of the Original Agreement is hereby amended by adding the following
provision after the last sentence of such Section:
"Following the date hereof, neither DMC or Dogloo or any of their
successors in interest shall be obligated to pay Barreto any amounts for
any salary or benefits as a DMC or Dogloo employee or otherwise for any
past, current or future period. In addition, after such date, Barreto
shall (i) not be eligible to participate in any DMC, Dogloo or any
successor in interest's medical/dental/vision plan or other health plan
and (ii) no longer be eligible to participate in any DMC, Dogloo or any
successor in interest stock option plan, 401(k) plan, LTD or any other
employee benefit plan or accrue any vacation, sick leave or personal
days."
Barreto shall retain his rights to COBRA benefits as stated in Section 1 of the
Original Agreement.
2. Section 2 of the Original Agreement is hereby deleted in its
entirety.
<PAGE>
3. Section 3 of the Original Agreement is hereby amended and restated
to read in full as follows:
"3. Board Membership. Barreto hereby resigns his membership on the Board
-----------------
of Directors of Dogloo, effective on the date of this Amendment No. 1."
4. Section 6.b. of the Original Agreement shall be amended to delete
the phrases "9.1(c) (Taxes)" and "9.1(d) (Environmental)" from such Section.
5. Section 8.a. of the Original Agreement is hereby amended to delete
the phrases "9.1(c) (Taxes)" and "9.1(d) (Environmental)."
6. The Original Agreement shall remain in full force and effect (as
amended hereby) following the date of this Amendment No. 1.
Executed as of this ________ day of _________, 1997.
--------------------------------------
Aurelio F. Barreto III
--------------------------------------
Peggy Barreto
DOKOCIL MANUFACTURING
COMPANY, INC.
By:___________________________________
Its:__________________________________
WESTAR CAPITAL
By: Westar Capital Associates, a limited partnership
Its: General Partner
By:___________________________________
Alan B. Sellers
Its: General Partner
<PAGE>
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By:__________________________________
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS III,
ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By:__________________________________
Charles D. Martin
Its: General Partner
HBI FINANCIAL, INC.
By:__________________________________
Charles E. Packard
Its: Executive Vice President
<PAGE>
Exhibit 10.5
STOCK REDEMPTION AGREEMENT
This Stock Redemption Agreement, dated as of September 15, 1997 (this
"AGREEMENT"), is entered into between Darrell R. Paxman ("PAXMAN"), Doskocil
Manufacturing Company, Inc., a Texas corporation ("DMC" or the "COMPANY") and
the other parties hereto.
RECITALS
--------
WHEREAS, DMC and Dogloo, Inc., a California corporation ("DOGLOO")
contemplate entering into a merger agreement (the "MERGER AGREEMENT");
WHEREAS, pursuant to the Merger Agreement, and in accordance with the Texas
Business Corporations Act (the "TBCA"), DMC and Dogloo will agree to cause
Dogloo to merge with and into DMC, with DMC as the surviving corporation,
pursuant to the TBCA (the "MERGER");
WHEREAS, DMC and Dogloo currently contemplate that the Closing Date (as
defined in the Merger Agreement) of the Merger will be September 19, 1997;
WHEREAS, pursuant to the Merger Agreement, each share of Dogloo Series A
Preferred Stock, no par value (the "DOGLOO SERIES A PREFERRED STOCK"), issued
and outstanding at the time of the Merger will be converted into one share of
newly designated DMC Series B preferred stock, no par value (the "DMC SERIES B
PREFERRED STOCK");
WHEREAS, Paxman currently owns 3,334,255 shares of Dogloo Series A
Preferred Stock (the "DOGLOO SHARES"), which, pursuant to the Merger Agreement,
will be converted into 3,334,255 shares of DMC Series B Preferred Stock (the
"DMC SHARES"); and
WHEREAS, Paxman, as an inducement to cause DMC to enter into the Merger
Agreement and proceed with the Merger, desires to grant to DMC the right to
redeem and/or purchase the DMC Shares that Paxman will own immediately following
the Effective Time (as defined in Section 1.2 of the Merger Agreement) of the
Merger.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I.
OPTION TO REDEEM SHARES
1.1 PURCHASE AND SALE OF THE DMC STOCK. Subject to (i) the funding and
----------------------------------
closing of the Senior Subordinated Note financing and Senior Credit facility as
contemplated by that certain Offering Memorandum dated September 12, 1997,
including as contemplated by the
1
<PAGE>
"Use of Proceeds" section contained therein (except that with respect to
footnote 6 thereof, no further offset shall be made to the 3,334,255 shares
currently held by Paxman or the accrued dividends thereon), and (ii) the closing
of the Merger as contemplated by the Merger Agreement, DMC hereby agrees to
purchase all of the DMC Shares to be owned by Paxman immediately following the
Effective Time of the Merger. Such purchase and sale shall be effected, and the
closing of such transaction shall occur, no later than two business days
following the Closing Date of the Merger. The price per share for the DMC
shares shall be $1.00 plus any unpaid accrued dividends thereon through the
Closing Date./1/ On the closing date of the purchase and sale, the Company
agrees to pay the purchase price payable to Paxman by check or wire transfer and
Paxman agrees to deliver to the Company (or other purchaser) stock certificates
representing the DMC Shares purchased which certificates shall be either duly
endorsed in blank or accompanied by stock powers duly executed in blank. In
consideration for DMC's agreements set forth herein, and, subject to Paxman's
receipt of the aggregate purchase price for his DMC Shares (including all
accrued, but unpaid dividends thereon), Paxman hereby waives his right to all
statutory and other notice requirements related to the redemption of his DMC
Shares or otherwise in connection with the Merger.
ARTICLE II.
SHAREHOLDER REPRESENTATIONS
In connection with the purchase of the DMC Shares, Paxman represents and
covenants to the Company as follows:
2.1 OWNER OF RECORD. Paxman is the beneficial owner and owner of record
---------------
of the Dogloo Shares and holds the Dogloo Shares free and clear of any liens or
encumbrances and, after the Merger, will be the beneficial owner and owner of
record of the DMC Shares and such DMC shares will be free and clear of any liens
or encumbrances. Paxman will not, prior to the expiration of this Agreement,
sell, transfer, assign, pledge, encumber or otherwise transfer any interest in
the Dogloo Shares or the DMC Shares to any person.
______________
/1/ By way of example only, if all of Paxman's DMC Shares are purchased or
redeemed on September 19, 1997, as contemplated (subject to the conditions set
forth in Section 1.1) assuming no other purchases or redemptions, the following
amounts shall be paid to Paxman for his DMC Shares:
DMC Series B Preferred Stock Dollar Amount
- ---------------------------- -------------
3,334,255........................... $3,334,255
Aggregate Dividends................. 706,324
----------
Total.......................... $4,040,579
==========
2
<PAGE>
2.2 NO CONFLICTS. No other person or entity has any rights to purchase
------------
the Shares that are the subject of this Agreement, and the redemption or
purchase contemplated hereby will not conflict with or result in a breach of, or
constitute a default (with or without due notice or lapse of time or both) of
any note, pledge, bond, mortgage, indenture or deed of trust, or any license,
lease or agreement to which Paxman is a party.
2.2 NO FURTHER OBLIGATION BY DMC OR DOGLOO. Paxman represents and
--------------------------------------
acknowledges that the consideration received hereunder for the purchase of his
DMC Shares satisfies all obligations by or on the part of the Company or Dogloo
to Paxman regarding such DMC Shares.
ARTICLE III.
COMPANY REPRESENTATIONS
In connection with the redemption or purchase of the DMC Shares, the
Company represents to Paxman that it is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, that it has
full corporate power and authority to execute and deliver this Agreement and to
perform its obligations under and to consummate the transactions contemplated by
this Agreement, and that all corporate action of the Company necessary for such
execution, delivery and performance has been or will be duly and validly taken.
ARTICLE IV.
MISCELLANEOUS
4.1 GOVERNING LAW. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Texas,
without regard to conflicts of laws principles.
4.2 ENTIRE AGREEMENT; AMENDMENTS; ENFORCEMENT OF RIGHTS. This Agreement
---------------------------------------------------
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party. The
rights of the Company under this Agreement may be assigned by the Company.
4.3 SEVERABILITY. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
3
<PAGE>
4.4 HEADINGS. The headings used in this Agreement are used for
--------
convenience only and are not to be considered in construing or interpreting this
Agreement.
4.5 COUNTERPARTS. This Agreement may be executed by facsimile in two or
------------
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
4.6 CONSENT TO MERGER. Subject to Paxman's receipt of the aggregate
-----------------
purchase price for his DMC Shares (including all accrued, but unpaid dividends),
Paxman hereby consents to the Merger and approves the Merger Agreement in his
capacity as a holder of Series A Preferred Stock of Dogloo and agrees to execute
all documents reasonably required by Dogloo or DMC to evidence the same.
4.7 MUTUAL RELEASES.
---------------
a. Release by DMC, et. al. In consideration of Paxman's
----------------------
warranties, covenants and promises contained in this Agreement, subject to the
conditions set forth in Sections 1.1(i) and 1.1(ii) herein, and for other good
and sufficient consideration, receipt of which is hereby acknowledged, DMC,
Dogloo, Westar Capital, Enterprise Partners III, L.P., Enterprise Partners III
Associates, L.P. and HBI Financial (collectively, the "Other Parties"), for
themselves and their general and limited partners, officers, directors, agents
and employees, individually and in their corporate, partnership and other legal
capacities fully and forever release and discharge Paxman, his heirs, executors,
administrators, assigns, successors and spouses (collectively for this Section
4.7(a) "Paxman") from, and covenant not to sue or otherwise institute or cause
to be instituted any legal or administrative proceedings against Paxman with
respect to any and all liabilities, claims, demands, contracts, debts,
obligations and causes of action of every nature, kind and description in law,
equity, or otherwise, whether or not now known or ascertained, arising out of or
relating to any claim for Damages (which includes the term "Investors Damages")
(as such terms are defined in the Stock Purchase and Exchange Agreement dated as
of September 22, 1995 (the "Stock Agreement")) (other than any claim for Damages
that arises out of or is related to Paxman's intentional fraud or intentional
wrongdoing or the representations and warranties in Stock Agreement Sections
9.1(f)(Past Issuance of Stock)).
b. Release By Paxman. In consideration of the payments made under
-----------------
this Agreement, certain of which Paxman would not be entitled to receive but for
this Agreement, subject to the conditions set forth in Sections 1.1(i) and
1.1(ii) herein, and for other good and sufficient consideration, receipt of
which is hereby acknowledged, Paxman, for himself, his heirs, executors,
administrators, assigns, successors and spouses, fully and forever release and
discharge the Other Parties and the general and limited partners, officers,
directors, agents and employees of the Other Parties, individually and in their
corporate, partnership and other legal capacities (individually, a "releasees"
and collectively, "releasees") from, and covenant not to sue or otherwise
institute or cause to be instituted any legal or administrative proceedings
against releases with respect to any and all liabilities, claims, demands,
contracts, debts, obligations and causes of action of every nature, kind and
description, in
4
<PAGE>
law, equity, or otherwise, whether or not now known or ascertained,
(collectively for this Section 4.7(b) "Claims"), arising out of or relating to
the redemption of his DMC Shares or any set-offs taken against his shares of
capital stock of Dogloo under the Stock Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the Company and the Paxman have caused this Agreement
to be duly executed and delivered as of the date first written above.
DARRELL R. PAXMAN,
an individual
/s/ DARRELL R. PAXMAN
--------------------------------------
Address: 704-228th Ave. NE. Ste 286
---------------------------
Redmond, WA 98053
---------------------------
Facsimile: (425) 868-6538
---------------------------
THE COMPANY:
-----------
DOSKOCIL MANUFACTURING COMPANY, INC.,
a Texas corporation
By: /s/ DONALD J. FRITSCHEN
----------------------------------
Name: Donald J. Fritschen
---------------------------
Title: Chief Financial Officer
---------------------------
DOGLOO, INC.
By: /s/ MICHAEL J. FARMER
---------------------------------
Michael J. Farmer
Executive Vice President
WESTAR CAPITAL
By: Westar Capital Associates, a limited
partnership
Its: General Partner
By: /s/ ALAN B. SELLERS
------------------------------------
Alan B. Sellers
Its: General Partner
6
<PAGE>
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
----------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS III, ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
----------------------------------
Charles D. Martin
Its: General Partner
HBI FINANCIAL INC.
By: /s/ CHARLES E. PACKARD
----------------------------------
Charles E. Packard
Its: Executive Vice President
7
<PAGE>
Exhibit 10.6
DOSKOCIL MANUFACTURING COMPANY, INC.
$85,000,000
10 1/8% Series A Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
September 11, 1997
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
NATIONSBANC CAPITAL MARKETS, INC.
<PAGE>
$85,000,000
10 1/8% Series A Senior Subordinated Notes due 2007
of DOSKOCIL MANUFACTURING COMPANY, INC.
PURCHASE AGREEMENT
September 11, 1997
Donaldson, Lufkin & Jenrette Securities Corporation
NationsBanc Capital Markets, Inc.
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Doskocil Manufacturing Company, Inc., a Texas corporation (the
"Company"), proposes to issue and sell to Donaldson, Lufkin & Jenrette
-------
Securities Corporation ("DLJ") and NationsBanc Capital Markets, Inc.
---
("NationsBanc") (each an "Initial Purchaser" and, together, the "Initial
- ------------- ----------------- -------
Purchasers") an aggregate of $85,000,000 in principal amount of its 10% Series
- ----------
A Senior Subordinated Notes due 2007 (the "Series A Notes"), subject to the
--------------
terms and conditions set forth herein. The Series A Notes are to be issued
pursuant to the provisions of an indenture (the "Indenture"), to be dated as of
---------
the Closing Date (as defined below), between the Company and First Trust
National Association, as trustee (the "Trustee"). The Series A Notes and the
-------
Series B Notes (as defined below) issuable in exchange therefor are collectively
referred to herein as the "Notes." The Notes will be guaranteed (the
-----
"Guarantees") by future Subsidiaries of the Company as further provided in the
- -----------
Indenture. Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Offering Memorandum (as defined herein).
2
<PAGE>
1. Offering Memorandum. The Series A Notes will be offered and sold to
-------------------
the Initial Purchasers pursuant to one or more exemptions from the registration
requirements under the Securities Act of 1933, as amended (the "Act"). The
Company has prepared a preliminary offering memorandum, dated August 29, 1997
(the "Preliminary Offering Memorandum"), and a final offering memorandum, dated
-------------------------------
September 12, 1997 (the "Offering Memorandum"), each relating to the Series A
-------------------
Notes.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Series A Notes (and all
securities (other than the Series B Notes) issued in exchange therefor or in
substitution thereof) shall bear the following legend:
"THE NOTES (OR THEIR PREDECESSORS) EVIDENCED HEREBY WERE ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THE NOTES EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTES EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. THE HOLDER OF THE NOTES EVIDENCED HEREBY AGREES FOR THE
BENEFIT OF THE COMPANY THAT (A) SUCH NOTES MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (l)(a) INSIDE THE UNITED STATES TO A PERSON
WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED
STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 903 OR RULE 904 OF REGULATIONS UNDER THE SECURITIES ACT, OR (d) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY
SO REQUESTS), (2) TO THE
3
<PAGE>
COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE NOTES EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
2. Agreements to Sell and Purchase. On the basis of the
-------------------------------
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers agree,
severally and not jointly, to purchase from the Company, the principal amount of
Series A Notes set forth opposite the name of such Initial Purchaser on Schedule
A hereto at a purchase price equal to 97% of the principal amount thereof (the
"Purchase Price").
--------------
3. Terms of Offering. The Initial Purchasers have advised the Company
-----------------
that the Initial Purchasers will make offers (the "Exempt Resales") of the
--------------
Series A Notes purchased hereunder on the terms set forth in the Offering
Memorandum, as amended or supplemented, solely to (i) persons whom the Initial
Purchasers reasonably believe to be "qualified institutional buyers" as defined
in Rule 144A under the Act ("QIBs") and (ii) to persons permitted to purchase
----
the Series A Notes in offshore transactions in reliance upon Regulations under
the Act (each, a "Regulations Purchaser") (such persons specified in clauses
----------------------
(i) and (ii) being referred to herein as the "Eligible Purchasers"). The
-------------------
Initial Purchasers will offer the Series A Notes to Eligible Purchasers
initially at the offering price set forth on the cover of the Offering
Memorandum. Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Series A Notes will
have registration rights set forth in the registration rights agreement (the
"Registration Rights Agreement"), to be dated the Closing Date, substantially as
- ------------------------------
described in the Offering Memorandum and containing other customary and
reasonable provisions. Pursuant to the Registration Rights Agreement, the
Company will agree to file with the Securities and Exchange Commission (the
"Commission"), under the circumstances set forth therein, (i) a registration
- -----------
statement under the Act (the "Exchange Offer Registration Statement") relating
-------------------------------------
to the Company's 10% Series B Senior Subordinated Notes (the "Series B Notes"),
--------------
to be offered in exchange for the Series A Notes (such offer to exchange being
referred to as the "Exchange Offer") and/or
--------------
4
<PAGE>
(ii) a shelf registration statement pursuant to Rule 415 under the Act (the
"Shelf Registration Statement" and, together with the Exchange Offer
- -----------------------------
Registration Statement, the "Registration Statements") relating to the resale by
-----------------------
certain holders of the Series A Notes and use its best efforts to cause such
Registration Statements to be declared and remain effective and usable for the
periods specified in the Registration Rights Agreement and to consummate the
Exchange Offer. This Agreement, the Indenture, the Notes, the Registration
Rights Agreement, the Agreement and Plan of Merger, to be dated as of September
19, 1997 (the "Merger Agreement"), between the Company and Dogloo, Inc., a
----------------
California corporation ("Dogloo"), and the Credit Agreement, to be dated as of
------
or prior to the Closing Date (the "New Credit Facility"), among the Company, DLJ
-------------------
and NationsBanc, as arrangers, certain lending parties thereto and NationsBank
of Texas, N.A., as administrative agent, are hereinafter sometimes referred to
collectively as the "Operative Documents."
-------------------
4. Delivery and Payment.
--------------------
(a) Delivery of, and payment of the Purchase Price for, the Series A
Notes shall be made at such location as may be mutually acceptable to the
parties hereto. Such delivery and payment shall be made at 9:00 a.m., New York
City time, on the fourth business day following the date of this Agreement, or
at such other time as shall be agreed upon by the Initial Purchasers and the
Company. The time and date of such delivery and the payment are herein called
the "Closing Date."
------------
(b) One or more of the Series A Notes in the definitive global form,
registered in the name of Cede & Co., as nominee of the Depository Trust Company
("DTC"), having an aggregate principal amount corresponding to the aggregate
---
principal amount of the Series A Notes (collectively, the "Global Note"), shall
-----------
be delivered by the Company to the Initial Purchasers (or as the Initial
Purchasers direct), in each case with any transfer taxes thereon duly paid by
the Company against payment by the Initial Purchasers of the Purchase Price
thereof by wire transfer in same day funds to the order of the Company. The
Global Note shall be made available to the Initial Purchasers for inspection not
later than 9:30 a.m., New York City time, on the business day immediately
preceding the Closing Date.
5. Agreements of the Company. The Company hereby agrees with each
-------------------------
Initial Purchaser as follows:
5
<PAGE>
(a) To advise the Initial Purchasers promptly and, if requested by an
Initial Purchaser, confirm such advice in writing, (i) of the issuance by any
state securities commission of any stop order suspending the qualification or
exemption from qualification of any Series A Notes for offering or sale in any
jurisdiction designated by an Initial Purchaser pursuant to Section 5(e) hereof,
or the initiation of any proceeding by any state securities commission or any
other federal or state regulatory authority for such purpose and (ii) of the
happening of any event during the period referred to in Section 5(d) below that
makes any statement of a material fact made in the Offering Memorandum untrue or
that requires any additions to or changes in the Offering Memorandum in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Company shall use its best efforts to prevent the
issuance of any stop order or order suspending the qualification or exemption of
any Series A Notes under any state securities or Blue Sky laws and, if at any
time any state securities commission or other federal or state regulatory
authority shall issue an order suspending the qualification or exemption of any
Series A Notes under any state securities or Blue Sky laws, the Company shall
use its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish the Initial Purchasers and those persons identified by
the Initial Purchasers to the Company, without charge, as many copies of the
Offering Memorandum, and any amendments or supplements thereto, as the Initial
Purchasers may reasonably request. Subject to the Initial Purchasers' compli
ance with their representations and warranties and agreements set forth in
Section 7 hereof, the Company consents to the use of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments and supplements
thereto, by the Initial Purchasers in connection with Exempt Resales.
(c) During the period referred to in Section 5(d) below, not to make
any amendment or supplement to the Offering Memorandum of which the Initial
Purchasers shall not previously have been advised or to which the Initial
Purchasers shall reasonably object after being so advised.
(d) If, after the date hereof during such period prior to the date on
which the Exchange Offer is consummated as in your reasonable judgment you are
required to deliver the Offering Memorandum in connection with Exempt Resales by
you, any event shall occur as a result of which it becomes necessary to amend or
supplement the Offering Memorandum in order to make the statements therein, in
the light of the circumstances as of the date the Offering Memorandum is
delivered to an Eligible Purchaser, not misleading, or if it is necessary to
amend
6
<PAGE>
or supplement the Offering Memorandum to comply with any applicable law,
promptly to prepare an appropriate amendment or supplement to such Offering
Memorandum so that the statements therein, as so amended or supplemented, will
not, in the light of the circumstances when it is so delivered, be misleading,
or so that such Offering Memorandum, as so amended or supplemented, will comply
with applicable law, and to furnish to the Initial Purchasers and such other
persons as the Initial Purchasers may designate such number of copies thereof as
the Initial Purchasers may reasonably request.
(e) Prior to the sale of all the Series A Notes pursuant to Exempt
Resales as contemplated hereby, to cooperate with the Initial Purchasers and
counsel to the Initial Purchasers in connection with the registration or
qualification of the Series A Notes for offer and sale to the Initial Purchasers
and pursuant to Exempt Resales under the securities or Blue Sky laws of such
jurisdictions as the Initial Purchasers may reasonably request and to continue
such qualification in effect so long as required for Exempt Resales and to file
such consents to service of process or other documents as may be necessary in
order to effect such registration or qualification; provided, however, that the
Company shall not be required in connection therewith to register or qualify as
a foreign corporation in any jurisdiction in which it is not now so qualified or
to take any action that would subject it to service or process or taxation other
than as to matters and transactions relating to Exempt Resales, in any
jurisdiction in which it is not now so subject.
(f) So long as the Notes are outstanding, to furnish to the Initial
Purchasers as soon as available copies of all reports or other communications
furnished by the Company to its security holders or furnished to or filed with
the Commission or any national securities exchange on which any class of
securities of the Company is listed and such other publicly available
information concerning the Company and/or its subsidiaries as the Initial
Purchasers may reasonably request.
(g) For so long as any of the Series A Notes remain outstanding and
during any period in which the Company is not subject to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to make
------------
available to any holder of Series A Notes in connection with any sale thereof
and any prospective purchaser of such Series A Notes from such holder, upon
request, the information ("Rule 144A Information") required by Rule 144A(d)(4)
---------------------
under the Act.
(h) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be
7
<PAGE>
paid all expenses incident to performance of the obligations of the Company
under this Agreement, including: (i) all fees and expenses in connection with
the prepara tion, printing and distribution of the Preliminary Offering
Memorandum, the Offering Memorandum and all amendments and supplements thereto
(including financial statements) prior to or during the period specified in
Section 5(d), including the mailing and delivering of copies thereof to the
Initial Purchasers and persons designated by them as specified herein, (ii) all
costs and expenses related to the issuance and delivery of the Series A Notes to
the Initial Purchasers and pursuant to Exempt Resales, including any transfer or
other taxes payable thereon, (iii) all costs of printing or reproduction of any
agreements or documents in connection with the offering, purchase, sale or
delivery of the Series A Notes, (iv) all expenses in connection with the
registration or qualification of the Series A Notes for offer and sale under the
securities or Blue Sky laws of the several states and all costs of printing or
producing any preliminary and supplemental Blue Sky memoranda in connection
therewith (including the filing fees and reasonable fees and disbursements of
counsel for the Initial Purchasers in connection with such registration or
qualification and memoranda relating thereto), (v) the cost of printing
certificates representing the Series A Notes, (vi) all expenses and listing fees
in connection with the application for quotation of the Series A Notes in the
National Association of Securities Dealers, Inc. ("NASD") Automated Quotation
----
System - PORTAL ("PORTAL"), (vii) all fees and expenses of the Trustee and
------
Trustee's counsel in connection with the Indenture and the Notes, (viii) all
costs and charges of any transfer agent, registrar and/or depositary (including
DTC), (ix) any fees charged by rating agencies for the rating of the Notes, (x)
all costs and expenses of the Exchange Offer and any Registration Statement and
(xi) all other costs and expenses incident to the performance of the obligations
of the Company hereunder for which provision is not otherwise made in this
Section 5.
(i) To use its best efforts to effect the inclusion of the Series A
Notes in PORTAL and to maintain the listing of the Series A Notes on PORTAL for
so long as the Series A Notes are outstanding.
(j) To use its best efforts to obtain the approval of DTC for "book-
entry" transfer of the Notes, and to comply with all of its agreements set forth
in the representation letters of the Company to DTC relating to the approval of
the Notes by DTC for "book entry" transfer.
(k) During the period beginning on the date hereof and continuing to
and including the Closing Date, not to offer, sell, contract to sell or
otherwise transfer or dispose of any debt securities of the Company or any
warrants,
8
<PAGE>
rights or options to purchase or otherwise acquire debt securities of the
Company substantially similar to the Notes (other than the Notes) without the
prior written consent of DLJ.
(l) Not to, and not to permit any of its affiliates (as such term is
defined in Rule 501(b) under the Act) to, sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in the Act)
that could be expected to be integrated with the sale of the Series A Notes to
the Initial Purchasers or pursuant to Exempt Resales in a manner that would
require the registration of any such sale of the Series A Notes under the Act.
(m) Except in connection with the Exchange Offer or the filing of the
Shelf Registration Statement, as the case may be, not to, and not to authorize
or knowingly permit any person acting on its behalf to, 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 1933 Act) or in any manner involving a public offering
within the meaning of Section 4(2) of the Act.
(n) To use its reasonable efforts to do and perform all things
required or necessary to be done and performed under this Agreement by it prior
to the Closing Date and to satisfy all conditions precedent to the delivery of
the Series A Notes.
6. Representations and Warranties of the Company. As of the date
---------------------------------------------
hereof, the Company represents and warrants to each Initial Purchaser that:
(a) The Preliminary Offering Memorandum and the Offering Memorandum
do not, and any supplement or amendment to them 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 the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not apply
to statements in or omissions from the Preliminary Offering Memorandum or the
Offering Memorandum (or any supplement or amendment thereto) based upon
information relating to the Initial Purchasers furnished to the Company in
writing by the Initial Purchasers expressly for use therein. The Company
acknowledges for all purposes of this Agreement that the last paragraph on the
cover page of the Preliminary Offering Memorandum and the Offering Memorandum,
the information contained in the first and third paragraphs under the caption
"Plan of Distribution"
9
<PAGE>
in the Preliminary Offering Memorandum and the Offering Memorandum, and the
information regarding stabilization on the inside front cover of the Preliminary
Offering Memorandum and the Offering Memorandum constitute the only information
relating to the Initial Purchasers furnished to the Company in writing by any
Initial Purchaser expressly for use in the Preliminary Offering Memorandum or
the Offering Memorandum (or any amendment or supplement thereto) and that the
Initial Purchasers shall not be deemed to have provided any other information
(and therefore are not responsible for any such statement or omission)
pertaining to any arrangement or agreement with respect to any party other than
the Initial Purchasers. No contract or document that would be required to be
described in the Offering Memorandum if the Offering Memorandum were contained
in a registration statement on Form S-1 filed under the Act is not so described.
No stop order preventing the use of the Preliminary Offering Memorandum or the
Offering Memorandum, or any amendment or supplement thereto, or any order
asserting that any of the transactions contemplated by this Agreement are
subject to the registration requirements of the Act, has been issued.
(b) Each of the Company and Dogloo has been duly organized, is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation and has full corporate power and authority to carry on its
business and to own, lease and operate its properties as described in the
Preliminary Offering Memorandum and the Offering Memorandum. The Company has
the requisite corporate power and authority to authorize the offering of the
Notes, and each of the Company and Dogloo has the requisite corporate power and
authority to execute, deliver and perform its obligations under each Operative
Document to which it is a party. Each of the Company and Dogloo is duly
qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which such qualification is required, except
where the failure to be so qualified or in good standing would not (i) have a
material adverse effect on the business, financial condition or results of
operations of the Company and Dogloo, taken as a whole, (ii) materially
interfere with or materially adversely affect the issuance or marketability of
the Series A Notes pursuant hereto or (iii) adversely affect in any manner the
validity of this Agreement or the other Operative Documents (the events referred
to in clauses (i) through (iii), a "Material Adverse Effect"). Neither the
-----------------------
Company nor Dogloo has any subsidiaries.
(c) The authorized, issued and outstanding capital stock of the
Company upon the consummation of the Transactions (as defined in the Offering
Memorandum) will be as set forth in the Offering Memorandum under "Pro Forma
10
<PAGE>
Capitalization." All of the shares of issued and outstanding capital stock of
the Company have been and, upon consummation of the Transactions, will be duly
authorized and validly issued and are and, upon consummation of the
Transactions, will be fully paid, nonassessable and not subject to any
preemptive or similar rights.
(d) This Agreement has been duly authorized, executed and delivered by
the Company and, assuming the due execution and delivery by the Initial
Purchasers, is a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except (i) as the enforceability
thereof may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, (ii) for general principles of equity (regardless of whether
enforcement is brought in a proceeding at law or in equity) and (iii)
limitations of applicable law regarding the enforceability of any rights to
contribution or indemnification.
(e) The Indenture has or will have been on or before the Closing Date
duly authorized by the Company and, on the Closing Date, will have been validly
executed and delivered by the Company. When the Indenture has been duly
executed and delivered by the Company, the Indenture will be a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms (assuming the due execution and delivery of the Indenture by the Trustee)
except (i) as the enforceability thereof may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, (ii) for general principles of
equity (regardless of whether enforcement is brought in a proceeding at law or
in equity) and (iii) the waiver as to stay, extension or usury laws may not be
enforceable.
(f) The Series A Notes have or will have been on or before the Closing
Date duly authorized and, on the Closing Date, will have been validly executed
and delivered by the Company. When the Series A Notes have been issued,
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 this Agreement, the Series A Notes will be entitled to the benefits of
the Indenture and will be valid and binding obligations of the Company,
enforceable in accordance with their terms except (i) as the enforceability
thereof may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, (ii) for general principles of equity (regardless of whether
enforcement is brought in a proceeding at law or in equity) and (iii) the waiver
as to stay, extension or usury laws may not be enforceable. The
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Series A Notes, when authenticated, executed and delivered, will conform in all
material respects to the description thereof contained in the Offering
Memorandum.
(g) The Series B Notes will have been duly authorized by the Company
on or before the Closing Date. When the Series B Notes are executed and
authenticated in accordance with the provisions of the Indenture and delivered
in exchange for Series A Notes in accordance with the Indenture and the Exchange
Offer, the Series B Notes will be entitled to the benefits of the Indenture and
will be the valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, except (i) as the enforceability
thereof may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, (ii) for general principles of equity (regardless of whether
enforcement is brought in a proceeding at law or in equity) and (iii) the waiver
as to stay, extension or usury laws may not be enforceable.
(h) The Registration Rights Agreement has or will have been on or
before the Closing Date duly authorized by the Company and, on the Closing Date,
will have been duly executed and delivered by the Company. When the
Registration Rights Agreement has been duly executed and delivered by the
Company, the Registration Rights Agreement will be a valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms
(assuming the due execution and delivery of the Registration Rights Agreement by
the Initial Purchasers) except (i) as the enforceability thereof may be limited
by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally, (ii) for general
principles of equity (regardless of whether enforcement is brought in a
proceeding at law or in equity) and (iii) limitations of applicable law
regarding the enforceability of any rights to contribution or indemnification.
The Registration Rights Agreement conforms to the description thereof in the
Offering Memorandum.
(i) The Merger Agreement will have been duly authorized, executed and
delivered by the Company and Dogloo and will be a valid and binding agreement of
the Company and Dogloo on or before the Closing Date, enforceable against each
of them in accordance with its terms, except (i) as the enforceability thereof
may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and (ii)
for general principles of equity (regardless of whether enforcement is brought
in a proceeding at law or in equity). On or before the Closing Date, the merger
of Dogloo with and into the Company as contemplated by the Merger
12
<PAGE>
Agreement (the "Merger") will have been approved by stockholders of the Company
------
and Dogloo holding the requisite number of shares to approve the Merger. The
Merger Agreement conforms to the description thereof in the Offering Memorandum.
(j) The transactions comprising the Recapitalization (as defined in
the Offering Memorandum) conform to the description thereof in the Offering
Memorandum.
(k) Neither the Company nor Dogloo (i) is in violation of its
respective charter or by-laws, or (ii)(a) before giving effect to the
transactions contemplated by this Agreement and the other Transactions is, or
(b) assuming that the Transactions occur as contemplated by the Offering
Memorandum will be, in default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan agreement, mortgage,
lease or other agreement or instrument that is material to the Company and
Dogloo, taken as a whole, to which the Company or Dogloo is a party or by which
the Company, Dogloo or any of their respective property is bound, except for any
such violations and defaults as would not, singly or in the aggregate, have a
Material Adverse Effect. There exists no condition that, with notice, the
passage of time or otherwise, would constitute a default under any such document
or instrument, except for any such defaults or violations as would not, singly
or in the aggregate, have a Material Adverse Effect, and except for indebtedness
and other obligations that will be repaid in connection with the Transactions.
(l) The execution, delivery and performance by the Company and Dogloo
of each Operative Agreement to which either of them is a party, the issuance and
sale of the Series A Notes as contemplated by this Agreement and the Offering
Memorandum and the consummation of the transactions contemplated by this
Agreement, each other Operative Document and the Offering Memorandum will not
(i) require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such as may
be required under the securities or Blue Sky laws of the various states or as
previously have been made or obtained and assuming the accuracy of the
representations and warranties of the Initial Purchasers in Section 7 hereof),
or (ii) violate the charter or by-laws of the Company or Dogloo, or (iii)
constitute a breach of any of the terms or provisions of, or a default under, or
cause an acceleration of any obligation under, or result in the imposition or
creation of (or the obligation to create or impose) a Lien with respect to, any
material indenture, loan agreement, mortgage, lease or other material agreement
or instrument to which the Company or Dogloo is a party
13
<PAGE>
or by which the Company or Dogloo or their respective property is subject,
except for indebtedness and other obligations that will be repaid in connection
with the Transactions, or (iv) violate or conflict with any applicable law or
any rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over the Company, Dogloo or their respective
property (assuming the accuracy of the representations and warranties of the
Initial Purchasers in Section 7 hereof), or (v) result in the termination or
revocation of any permit (as defined below) of the Company or Dogloo or result
in any other impairment of the rights of the holder of any such permit, except,
in the case of clause (i), (iii), (iv) or (v) above, for such conflicts or
violations as would not, singly or in the aggregate, have a Material Adverse
Effect.
(m) The Company and Dogloo have good title in fee simple to all real
property and good title to all personal property owned by them which is material
to the business of the Company and Dogloo taken as a whole, in each case free
and clear of all liens, encumbrances, pledges, claims, security interests,
mortgages, assessments, easements, rights of way, covenants, restrictions,
rights of first refusal, defects in title, encroachments and other burdens or
adverse claims (collectively, "Liens"), except such as are Liens permitted under
-----
the debt instruments (including the Indenture) described in the Offering
Memorandum or that will be repaid in connection with the Transactions, or such
as do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and Dogloo or which would not, singly or in the aggregate, have a
Material Adverse Effect. Any real property and buildings held under lease by
the Company or Dogloo are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not materially interfere
with the use made and proposed to be made of such property and buildings by the
Company and Dogloo, except as described in the Offering Memorandum or which
would not, singly or in the aggregate, have a Material Adverse Effect.
(n) There is no legal or governmental proceeding pending or, to the
Company's knowledge, threatened to which the Company or Dogloo is bound or would
reasonably be expected to be a party or to which any of their respective
property is or would reasonably be expected to be subject, except for any such
proceedings as would not, singly or in the aggregate, have a Material Adverse
Effect.
(o) To the Company's knowledge, no action has been taken and no law,
statute, rule or regulation or order has been enacted, adopted or issued by
14
<PAGE>
any governmental agency or body which prevents the execution, delivery and
performance of any of the Operative Documents, the consummation of any of the
transactions contemplated thereunder or the issuance of the Series A Notes, or
suspends the sale of the Series A Notes in any jurisdiction referred to in
Section 5(e). To the Company's knowledge, no injunction, restraining order or
other order or relief of any nature by a federal or state court or other
tribunal of competent jurisdiction has been issued with respect to the Company
or Dogloo which would prevent or suspend the issuance or sale of the Series A
Notes in any jurisdiction referred to in Section 5(e) or the consummation of any
transaction contemplated by the Operative Documents.
(p) Except as would not, singly or in the aggregate, have a Material
Adverse Effect, (i) neither the Company nor Dogloo is in violation of any
Federal, state or local laws or regulations relating to pollution or protection
of human health or the environment ("Environmental Laws"), which violation
------------------
includes, but is not limited to, noncompliance with or lack of any permits (as
defined below) or other governmental authorizations; and (ii) (A) neither the
Company nor Dogloo has received any communication, whether from a governmental
authority or otherwise, alleging any such violation or noncompliance, and there
are no circumstances, either past, present or that are reasonably foreseeable,
that are reasonably likely to lead to such violation in the future, (B) there is
no pending or, to the Company's knowledge, threatened claim, action,
investigation or notice by any person or entity alleging potential liability for
investigatory, cleanup, or governmental response costs, or natural resources or
property damages, or personal injuries, attorney's fees or penalties relating to
any actual, alleged or, to the Company's knowledge, threatened pollution or
contamination, or any circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law (collectively, "Environmental
-------------
Claims"), and (C) there are no past or present actions, activities,
- ------
circumstances, conditions, events or incidents, that could reasonably be
expected to form the basis of any Environmental Claim against the Company or
Dogloo or against any person or entity whose liability for any Environmental
Claim the Company or Dogloo has retained or assumed either contractually or by
operation of law. In the ordinary course of its business, each of the Company
and Dogloo, where required or appropriate, has conducted environmental
investigations of, and has reviewed information regarding, its business
properties and operations; on the basis of such review, the Company has
reasonably concluded that such associated costs and liabilities are not likely
to have a Material Adverse Effect.
(q) Except for the Initial Purchasers, there are no contracts,
agreements or understandings between the Company or Dogloo and any person
15
<PAGE>
granting such person the right to require the Company or Dogloo to include
securities held by such person in any Registration Statement.
(r) Except as would not be unlawful, neither the Company nor Dogloo
has (i) taken, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Notes or (ii) since the date of the Preliminary Offering Memorandum (A) sold,
bid for, purchased or paid any person any compensation for soliciting purchases
of the Notes or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(s) Except for the Initial Purchasers, there are no contracts,
agreements or understandings between the Company or Dogloo and any person that
would give rise to a valid claim against the Company, Dogloo or any Initial
Purchaser for a brokerage commission, finder's fee or like payment in connection
with the issuance, purchase and sale of the Notes.
(t) The Company has no knowledge of any actionable violation by the
Company or Dogloo of any Federal, state or local law relating to employment
practices, discrimination in the hiring, promotion or pay of employees or any
applicable wage or hour laws, or of any provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA") or the rules and regulations promulgated
thereunder, except for any such violation as would not, singly or in the
aggregate, have a Material Adverse Effect. There is (A) no significant unfair
labor practice complaint pending against the Company or Dogloo or, to the best
knowledge of the Company, threatened against either of them, before the National
Labor Relations Board or any state or local labor relations board, and no
significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is pending against the Company or
Dogloo or, to the knowledge of the Company, threatened against either of them,
(B) no labor strike, dispute, slowdown or stoppage ("Labor Dispute") in which
the Company or Dogloo is involved nor, to the best knowledge of the Company, is
any Labor Dispute imminent, other than routine disciplinary and grievance
matters, and the Company is not aware of any existing or imminent Labor Dispute
by the employees of any of its or Dogloo's principal suppliers, manufacturers or
contractors, and (C) no question concerning union representation within the
meaning of the National Labor Relations Act existing with respect to the
employees of the Company or Dogloo and, to the knowledge of the Company, no
union organizing activities with respect to such employees are
16
<PAGE>
taking place, except with respect to any matter specified in clause (A), (B), or
(C) above as would not, singly or in the aggregate, have a Material Adverse
Effect.
(u) Each of the Company and Dogloo has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals ("permits")
-------
of, and has made all filings with and notice to, all governmental or regulatory
authorities and self-regulatory organizations and all courts and other
tribunals, including, without limitation, under any applicable Environmental
Laws, as are necessary to own, lease, license and operate its respective
properties and to conduct its business, except where the failure to have any
such permit or to make any such filing or notice would not, singly or in the
aggregate, have a Material Adverse Effect. Each such permit is valid and in
full force and effect and each of the Company and Dogloo is in compliance with
all the terms and conditions of its respective permits and with the rules and
regulations of the authorities and governing bodies having jurisdiction with
respect thereto; no event has occurred (including the receipt of any notice from
any authority or governing body) which allows or, after notice or elapse of time
or both, would allow revocation, suspension or termination of any such permit,
or results or, after notice or lapse of time or both, would result in any other
impairment of the rights of the holder of any such permit; and such permits
contain no restrictions that are unduly burdensome to the Company or Dogloo,
except, in each case, where such failure to be valid and in full force and
effect or to be in compliance, the occurrence of any such event or the presence
of any such restriction would not, singly or in the aggregate, have a Material
Adverse Effect.
(v) Except as otherwise disclosed in the Offering Memorandum or as
would not, singly or in the aggregate, have a Material Adverse Effect, each of
the Company and Dogloo owns or possesses all patents, patent rights, licenses,
inventions, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names, in each case to the extent disclosed
in the Offering Memorandum as being material to the business of the Company or
Dogloo, as applicable (collectively, the "Intellectual Property"), presently
---------------------
employed by it in connection with the businesses now operated by it, and
neither the Company nor Dogloo has received any notice of infringement of or
conflict with asserted rights of others with respect to any of the foregoing.
The use of such Intellectual Property in connection with the business and
operations of the Company and Dogloo does not infringe on the rights of any
person except as would not, singly or in the aggregate, have a Material Adverse
Effect.
17
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(w) The accountants, Ernst & Young LLP, KPMG Peat Marwick LLP, and
Grant Thornton LLP, that have certified the financial statements and related
notes included in the Preliminary Offering Memorandum and the Offering
Memorandum are independent public accountants with respect to the Company (as
for Ernst & Young LLP and KPMG Peat Marwick LLP) and Dogloo (as for Ernst &
Young LLP and Grant Thornton LLP) as required by the Act and the Exchange Act.
The respective historical financial statements of the Company and Dogloo,
together with the related notes, included in the Preliminary Offering Memorandum
and the Offering Memorandum comply as to form in all material respects with the
requirements applicable to registration statements on Form S-1 under the Act.
(x) The respective historical financial statements of the Company and
Dogloo, together with related notes forming part of the Preliminary Offering
Memorandum and the Offering Memorandum (and any amendment or supplement
thereto), present fairly the consolidated financial position, results of
operations and changes in financial position of the Company and Dogloo,
respectively, on the basis stated in the Preliminary Offering Memorandum and
the Offering Memorandum at the respective dates or for the respective periods to
which they apply; such statements and related notes have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the other
financial and statistical information and data included in the Preliminary
Offering Memorandum and the Offering Memorandum (and any amendment or supplement
thereto) are presented and prepared on a basis consistent with such financial
statements and the books and records of the Company and Dogloo, respectively.
(y) The pro forma financial statements and related notes thereto
included in the Preliminary Offering Memorandum and the Offering Memorandum have
been prepared on a basis consistent with the historical financial statements of
the Company and Dogloo and give effect to assumptions made on a reasonable basis
and in good faith and present fairly the historical and proposed transactions
contemplated by the Preliminary Offering Memorandum and the Offering
Memorandum; and such pro forma financial statements and related notes comply as
to form in all material respects with the requirements applicable to pro forma
financial statements included in registration statements on Form S-1 under the
Act. The other pro forma financial and statistical information and data included
in the Preliminary Offering Memorandum and the Offering Memorandum are, in all
material respects, presented and prepared on a basis consistent with such pro
forma financial statements.
18
<PAGE>
(z) The projected amounts of operating synergies and other cost
savings resulting from the Merger included in the Offering Memorandum were
determined by the Company with a reasonable basis and in good faith and the
assumptions used in the determination of the amounts of such projected operating
synergies and other cost reductions are all those that the Company believes are
significant in projecting the amounts of such synergies and other cost
reductions.
(aa) Neither the Company nor Dogloo is and, after giving effect to the
offering and sale of the Series A Notes and the application of the net proceeds
thereof as described in the Offering Memorandum, the Company will not be, an
"investment company," as such term is defined in the Investment Company Act of
1940, as amended.
(ab) Neither the Company, Dogloo nor any agent acting on behalf of
either of them has taken, and none of them will take, any action that might
cause this Agreement or the issuance or sale of the Series A Notes to violate
Regulation G (12 C.F.R. Part 207), 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.
(ac) Since the respective dates as of which information is given in
the Offering Memorandum, other than as set forth or contemplated in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there has not occurred any material adverse change
or any development that might reasonably be expected to involve a prospective
material adverse change in the condition, financial or otherwise, or the
earnings, business, management or operations of the Company and Dogloo, taken as
a whole, (ii) there has not been any material adverse change or any development
that might reasonably be expected to involve a prospective material adverse
change in the capital stock or a prospective material increase in the long-term
debt of the Company or Dogloo and (iii) neither the Company nor Dogloo has
incurred any liability or obligation, direct or contingent, that is material to
the Company and Dogloo, taken as a whole.
(ad) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, contains all the information specified in, and
meeting the requirements of, Rule 144A(d)(4) under the Act.
(ae) No form of general solicitation or general advertising (within
the meaning of Regulation D under the Act) was or will be used by the
19
<PAGE>
Company, Dogloo or any of their respective representatives (other than the
Initial Purchasers, as to whom the Company and Dogloo make no representation) in
connection with the offer and sale of the Series A Notes contemplated hereby.
No securities of the same class as the Series A Notes have been issued and sold
by the Company within the six-month period immediately prior to the date hereof.
(af) 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
hereby or for the Exempt Resales, assuming the accuracy of the Initial
Purchasers' representations and warranties and agreements set forth in Section 7
hereof.
(ag) The Company, Dogloo and their respective affiliates and all
persons acting on their behalf (other than the Initial Purchasers, as to whom
the Company and Dogloo make no representation) have complied with and will
comply with the offering restrictions requirements of Regulation S under the Act
in connection with any offering of the Series A Notes outside the United States.
(ah) Assuming the accuracy of the Initial Purchasers' representations,
warranties and agreements set forth in Section 7 hereof, prior to the
effectiveness of any Registration Statement, the Indenture is not required to
be qualified under the TIA.
(ai) The Company and Dogloo each maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles 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 differences.
(aj) Except as would not, singly or in the aggregate, have a Material
Adverse Effect, (a) all Tax returns required to be filed by the Company or
Dogloo have been filed and all such returns are true, complete, and correct in
all material respects, and (b) all Taxes that are due or claimed to be due from
the Company or Dogloo have been paid other than those (i) currently payable
without penalty or interest or (ii) being contested in good faith and by
appropriate proceedings and for which adequate reserves have been established
in accordance with generally accepted accounting principles. For purposes of
this Agreement, the term
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<PAGE>
"Tax" and "Taxes" shall mean all Federal, state, local and foreign taxes, and
other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto.
(ak) Immediately after and after giving effect to the offering of the
Series A Notes as contemplated hereby, the use of proceeds therefrom as
described in the Offering Memorandum and the consummation of the Merger and the
other transactions contemplated by the Offering Memorandum, (i) the present fair
salable value of the Company's assets shall be more than the amount that will be
required to pay its debts (including contingent and unliquidated debts) as they
become absolute and matured, (ii) the Company's assets, at a fair valuation,
shall be greater than the sum of its debts (including contingent and
unliquidated debts), (iii) the Company shall not be engaged in a business or
transaction for which its remaining assets are unreasonably small in relation to
such business or transaction, and (iv) the Company shall not intend to incur or
believe that it will incur debts beyond its ability to pay such debts as they
become absolute and matured.
(al) Except as would not, singly or in the aggregate, have a Material
Adverse Effect, neither the Company nor Dogloo, nor any director, officer,
agent, employee or other person associated with or acting on behalf of either of
them has used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity; made any
direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977; or is in violation of
any Federal "fraud and abuse legislation" or Federal "anti-kickback law."
(am) Each certificate signed by any officer of the Company or Dogloo
and delivered to the Initial Purchasers or counsel for the Initial Purchasers in
connection with this Agreement, the Notes, the Indenture or the Registration
Rights Agreement on or prior to the Closing Date shall be deemed to be a
representation and warranty of the Company or Dogloo, as applicable, to the
Initial Purchasers as to the matters covered thereby.
The Company acknowledges that the Initial Purchasers and, for purposes of
the opinions to be delivered to the Initial Purchasers pursuant to Section 9
hereof, counsel to the Company and counsel to the Initial Purchasers, will rely
upon the accuracy and truth of the foregoing representations and hereby consent
to such reliance.
21
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7. Initial Purchasers' Representations and Warranties. Each of the
--------------------------------------------------
Initial Purchasers, severally and not jointly, represents and warrants to the
Company and agrees that:
(a) Such Initial Purchaser is a QIB with such knowledge and
experience in financial and business matters as is necessary in order to
evaluate the merits and risks of an investment in the Series A Notes.
(b) Such Initial Purchaser (A) is not acquiring the Series A Notes
with a view to any distribution thereof or with any present intention of
offering or selling any of the Series A Notes in a transaction that would
violate the Act or the securities laws of any state of the United States or any
other applicable jurisdiction and (B) will be reoffering and reselling the
Series A Notes only to (x) QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A and (y) in offshore
transactions in reliance upon Regulation S under the Act.
(c) Such Initial Purchaser represents and warrants that (i) no form
of general solicitation or general advertising (within the meaning of Regulation
D under the Act) has been or will be used by such Initial Purchaser or any of
its representatives in connection with the offer and sale of the Series A Notes
pursuant hereto, and (ii) it has not and will not solicit offers for or offer to
sell Series A Notes in any manner involving a public offering within the meaning
of Section 4(2) of the Act.
(d) Such Initial Purchaser agrees that, in connection with Exempt
Resales, such Initial Purchaser will solicit offers to buy the Series A Notes
only from, and will offer to sell the Series A Notes only to, Eligible
Purchasers. Each Initial Purchaser further agrees that it will offer to sell
the Series A Notes only to, and will solicit offers to buy the Series A Notes
only from (1)(A) QIBs who, in purchasing the Series A Notes will be deemed to
have represented and agreed that (x) 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 and (y) they
acknowledge that the seller of such Series A Notes may be relying on the
exemption from the provisions of Section 5 of the Act provided by Rule 144A
thereunder and that such Series A Notes will not have been registered under the
Act and (B) Regulation S Purchasers who, in purchasing the Series A Notes will
be deemed to have represented and agreed that their purchase of Series A Notes
pursuant to Regulation S is not part of a plan or a scheme to evade the
registration provisions of the Act and (2) Eligible Purchasers that agree
22
<PAGE>
that (x) Series A Notes purchased by them may be resold, pledged or otherwise
transferred within the time period referred to under Rule 144(k) (taking into
account the provisions of Rule 144(d) under the Act, if applicable) under the
Act, as in effect on the date of the transfer of such Series A Notes, only (I)
to the Company or any of its subsidiaries, (II) to a person whom the seller
reasonably believes is a QIB purchasing for its own account or for the account
of a QIB in a transaction meeting the requirements of Rule 144A under the Act,
(III) in an offshore transaction (as defined in Rule 902 under the Act) meeting
the requirements of Rule 904 of the Act, (IV) in a transaction meeting the
requirements of Rule 144 under the Act, (V) in accordance with another
exception from the registration requirements of the Act (and based upon an
opinion of counsel acceptable to the Company) or (VI) pursuant to an effective
registration statement and, in each case, in accordance with the applicable
securities laws of any state of the United States or any other acceptable
jurisdiction and (y) they will deliver to each person to whom such Series A
Notes or an interest therein is transferred a notice substantially to the effect
of the foregoing.
The Initial Purchasers acknowledge that the Company and, for purposes of
the opinions to be delivered to each Initial Purchaser pursuant to Section 9
hereof, counsel to the Company and counsel to the Initial Purchasers will rely
upon the accuracy and truth of the foregoing representations and the Initial
Purchasers hereby consent to such reliance.
8. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless the Initial
Purchasers, their directors, their officers and each person, if any, who
controls an Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with defending or investigating any
matter, including any action that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Offering Memorandum (or any
amendment or supplement thereto), the Preliminary Offering Memorandum or any
Rule 144A Information provided by the Company to any holder or prospective
purchaser of Series A Notes pursuant to Section 5(g) hereof or caused by 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,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to an Initial
23
<PAGE>
Purchaser furnished in writing to the Company by such Initial Purchaser
expressly for use in the Preliminary Offering Memorandum or the Offering
Memorandum.
(b) Each Initial Purchaser agrees to indemnify and hold harmless the
Company, its directors and officers and each person who controls (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company,
to the same extent as the foregoing indemnity from the Company but only with
reference to information relating to such Initial Purchaser furnished in writing
to the Company by such Initial Purchaser expressly for use in the Preliminary
Offering Memorandum or the Offering Memorandum.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
-----------------
against whom such indemnity may be sought (the "indemnifying party") in writing
------------------
(provided that the failure to give such notice shall not relieve the
--------
indemnifying party of its obligations under this Section 8 unless and only to
the extent that the indemnifying party is materially prejudiced by the failure
to notify) and the indemnifying party shall assume promptly the defense of such
action, including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all reasonable fees and expenses of such
counsel, as incurred (except that in the case of any action in respect of which
indemnity may be sought pursuant to both Sections 8(a) and 8(b), an Initial
Purchaser shall not be required to assume the defense of such action pursuant to
this Section 8(c), but may employ separate counsel and participate in the
defense thereof, but the fees and expenses of such counsel, except as provided
below, shall be at the expense of such Initial Purchaser). Any indemnified
party shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (i) the employment of
such counsel shall have been specifically authorized in writing by the
indemnifying party, (ii) the indemnifying party shall have failed promptly to
assume the defense of such action or employ counsel reasonably satisfactory to
the indemnified party or (iii) the named parties to any such action (including
any impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising
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<PAGE>
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by
DLJ, in the case of the parties indemnified pursuant to Section 8(a), and by the
Company, in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action (i) effected with its written consent or
(ii) effected without its written consent if the settlement is entered into more
than 10 business days after such indemnifying party shall have received a
request from the indemnified party for reimbursement for the fees and expenses
of counsel (in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or fault,
culpability or failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party, or is insufficient in respect
of any losses, claims, damages, liabilities or judgments referred to herein,
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, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and any of the Initial Purchasers, on the other hand,
from the offering of the Series A Notes or (ii) if the allocation provided by
clause 8(d)(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
8(d)(i) above but also the relative fault of the Company and any Initial
Purchaser in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company and any
of the Initial Purchasers shall be deemed to be in the same proportion as the
total net
25
<PAGE>
proceeds from the offering of the Series A Notes (before deducting expenses but
after deducting discounts and commissions received by the Initial Purchasers)
received by the Company, and the total discounts and commission received by such
Initial Purchaser bear to the total price to investors of the Series A Notes, in
each case as set forth in the table on the cover page of the Offering
Memorandum. The relative fault of the Company and any of the Initial Purchasers
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or an
Initial Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Initial Purchasers agree that it would not be just
and equitable if 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. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter that
could have given rise to such losses, claims, damages, liabilities or judgments.
Notwithstanding the provisions of this Section 8, no Initial Purchaser (and its
related indemnified parties) shall be required to contribute any amount in
excess of the amount by which the total discounts and fees received by such
Initial Purchaser in connection with the sale of Series A Notes pursuant to this
Agreement exceeds the amount of any damages which such Initial Purchaser (and
any related indemnified party) 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 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Initial Purchasers'
obligations to contribute pursuant to this Section 8(d) are several in
proportion to the respective principal amount of Series A Notes purchased by
each of the Initial Purchasers hereunder, and not joint.
(e) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
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<PAGE>
9. Conditions of Initial Purchasers' Obligations. The obligations of
---------------------------------------------
the Initial Purchasers to purchase the Series A Notes under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and
Dogloo contained in this Agreement shall be true and correct on the date hereof
and on the Closing Date with the same force and effect as if made on and as of
the Closing Date.
(b) The Initial Purchasers shall have received on the Closing
Date a certificate dated the Closing Date, signed by the President and the Chief
Financial Officer of the Company, confirming, as of the Closing Date, the
matters set forth in paragraphs (a), (c), (d) and (m) of this Section 9.
(c) Since the respective dates as of which information is given
in the Offering Memorandum, other than as set forth or contemplated in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there shall not have occurred any
change or any development involving a prospective change in the condition,
financial or otherwise, or the earnings, business, management or operations of
the Company and Dogloo, taken as a whole, (ii) there shall not have been any
change or any development involving a prospective change in the capital stock or
increase in the long-term debt of the Company or Dogloo and (iii) neither the
Company nor Dogloo shall have incurred any material liability or obligation,
direct or contingent, the effect of which, in any such case described in clause
9(c)(i), 9(c)(ii) or 9(c)(iii), in your good faith judgment, would have a
Material Adverse Effect.
(d) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the issuance or
sale of any of the Series A Notes or otherwise have a Material Adverse Effect;
no action, suit or proceeding shall be pending against or, to the knowledge of
the Company, threatened against, the Company or Dogloo before any court or
arbitrator or any governmental body, agency or official which would reasonably
be expected to prohibit, interfere with or adversely affect the issuance or sale
of the Notes or otherwise have a Material Adverse Effect; and no stop order,
injunction, restraining order, or order of any nature preventing the use of the
Offering Memorandum, or any amendment or supplement thereto, or any order
asserting that any of the transactions contemplated by this Agreement are
subject to the registration requirements of the Act shall have been issued.
27
<PAGE>
(e) On the Closing Date, the Initial Purchasers shall have
received:
A. An opinion, dated the Closing Date, of O'Melveny &
Myers LLP, special counsel for the Company, substantially to the effect that:
(1) Assuming the due authorization, execution and delivery
of the Indenture by the Company and the Trustee, the Indenture is
a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except (i) as may be
limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium or other similar laws affecting the
rights of creditors generally, (ii) for the effect of general
principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the
possible unavailability of specific performance or injunctive
relief regardless of whether enforcement is brought in a
proceeding at law or in equity and (iii) the waiver as to stay,
extension or usury laws may not be enforceable.
(2) Assuming the due authorization of the Series A Notes by
the Company, 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 this
Agreement, the Series A 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 (i) as may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or
other similar laws affecting the rights of creditors generally,
(ii) for the effect of general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good
faith and fair dealing and the possible unavailability of specific
performance or injunctive relief regardless of whether enforcement
is brought in a proceeding at law or in equity and (iii) the
waiver as to stay, extension or usury laws may not be enforceable.
(3) Assuming the due authorization of the Series B Notes by
the Company, when executed and authenticated in accordance with
the provisions of the Indenture and delivered in
28
<PAGE>
exchange for Series A Notes in accordance with the Indenture and
the Exchange Offer, the Series B 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 (i) as may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or
other similar laws affecting the rights of creditors generally,
(ii) for the effect of general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good
faith and fair dealing and the possible unavailability of
specific performance or injunctive relief regardless of whether
enforcement is brought in a proceeding at law or in equity and
(iii) the waiver as to stay, extension or usury laws may not be
enforceable.
(4) Assuming the due authorization, execution and delivery
of the Registration Rights Agreement by the Company and the
Initial Purchasers, the Registration Rights Agreement is a valid
and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except (i) as may be
limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium or other similar laws affecting the
rights of creditors generally, (ii) for the effect of general
principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the
possible unavailability of specific performance or injunctive
relief regardless of whether enforcement is brought in a
proceeding at law or in equity and (iii) no option need be
expressed as to the validity binding nature of enforceability of
the provisions of Section 7 of the Registrations Rights
Agreement.
(5) Based solely on such counsel's review of good standing
certificates issued by the applicable governmental authorities in
the states of California and Indiana, respectively, the Company
is duly qualified and in good standing as a foreign corporation
authorized to do business in the states of California and
Indiana.
(6) The statements in the Offering Memorandum under the
captions "The Doskocil Recapitalization," "The Merger,"
"Management--Employment and Other Arrangements," "Certain
29
<PAGE>
Relationships and Related Transactions" and "Description of
Notes," insofar as such statements constitute a summary of the
legal matters, documents or proceedings referred to therein,
fairly summarize the information called for with respect to such
legal matters, documents and proceedings.
(7) The execution and delivery of and performance by the
Company of this Agreement, the Indenture and the Registration
Rights Agreement, the issuance and sale of the Series A Notes as
contemplated by this Agreement and the consummation of the
transactions contemplated by this Agreement, the Indenture and
the Registration Rights Agreement (but otherwise excluding the
Transactions, including, without limitation, the use of proceeds
from the offering of the Notes and the New Credit Facility as
described in the Offering Memorandum under "Use of Proceeds") do
not violate, breach or result in a default under any loan or
credit agreement or any other material agreement, lease or
instrument to which the Company or Dogloo is a party or by which
either of them or their respective properties may be bound that
will not be repaid in connection with the issuance of the Series
A Notes and which is listed on the certificate of Donald
Fritschen, Chief Financial Officer of the Company, attached to
such opinion or on the certificate of Robert Polentz, Chief
Financial Officer of Dogloo, attached to such opinion
(collectively, the "Other Agreements") or (ii) violate any United
----------------
States federal, New York or California statute or regulation that
such counsel has, in the exercise of customary professional
diligence, recognized as applicable to the Company or Dogloo or
to transactions of the type contemplated by the Purchase
Agreement except that no opinion need be expressed with regard to
any Blue Sky or securities laws of any jurisdiction or (iii)
result in the creation of any Lien upon any of the properties or
assets of the Company or Dogloo under any mortgage, deed of
trust, pledge or security interest of any nature under or
pursuant to any Other Agreement (other than pursuant to the New
Credit Facility and the other Loan Documents (as defined in the
New Credit Facility)) upon, or with respect to, any of the
properties now owned by the Company or Dogloo, except for such
conflicts or violations as would not, singly or in the aggregate,
have a Material Adverse
30
<PAGE>
Effect and except for indebtedness and other obligations that
will be repaid in connection with the Transactions.
(8) No order, consent, permit or approval of any New York,
California or federal governmental authority that such counsel
has, in the exercise of customary professional diligence,
recognized as applicable to the Company is required on the part
of the Company for the execution and delivery of, and performance
of its obligations under this Agreement, the Indenture, the Notes
and the Registration Rights Agreement that are required to be
performed on or before the Closing Date except in each case as
have been obtained or made prior to the Closing Date and except
that no opinion need be expressed with regard to any consents,
authorizations, orders or approvals under the Blue Sky or
securities laws of any jurisdiction.
(9) To such counsel's actual knowledge, there is no legal
or governmental proceeding pending or threatened which would be
required to be described in the Offering Memorandum if the
Offering Memorandum were a prospectus included in a registration
statement on Form S-1 and is not so described.
(10) Neither the Company nor Dogloo is and, after giving
effect to the offering and sale of the Series A Notes and the
application of the net proceeds thereof as described in the
Offering Memorandum, the Company will not be, an "investment
company," as such term is defined in the Investment Company Act
of 1940, as amended.
(11) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, complied with the
requirements of Rule 144A(d)(4) under the Act.
(12) No registration under the Act of the Series A Notes or
qualification of the Indenture under the TIA is required for the
sale of the Series A Notes to the Initial Purchasers as
contemplated by this Agreement or for the Exempt Resales,
assuming (i) the accuracy of, and compliance with, the Initial
Purchaser's representations and agreements contained in Section 7
of this Agreement and (ii) the accuracy of the representations
and agreements
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<PAGE>
of the Company set forth in this Agreement and (iii) that the
offer, sale and delivery of the Series A Notes have been made as
contemplated by this Agreement and the Offering Memorandum.
Such counsel may state that such opinions are limited to matters
governed by the Federal laws of the United States of America and the laws of the
States of New York and California; may assume the validity of the matters set
forth in the opinion of Liddell, Sapp, Zivley, Hill & LaBoon LLP, to be
delivered to the Initial Purchasers on the Closing Date pursuant to Section
9(e)B; and may include in its opinion customary qualifications and assumptions
reasonably satisfactory to the Initial Purchasers and their counsel.
In addition, O'Melveny & Myers LLP shall state that in connection with
such counsel's participation in the preparation of the Preliminary Offering
Memorandum and the Offering Memorandum, such counsel has not independently
verified the accuracy, completeness or fairness of the statements contained
therein, and the limitations inherent in the examination made by such counsel
and the knowledge available to such counsel are such that such counsel is unable
to assume, and such counsel does not assume any responsibility for, such
accuracy, complete ness or fairness. However, on the basis of such counsel's
review and participation in conferences in connection with the preparation of
the Preliminary Offering Memorandum and the Offering Memorandum, and relying as
to materiality to a large extent upon opinions of officers and other
representatives of the Company and Dogloo, such counsel does not believe that
the Offering Memorandum (as amended or supplemented, if applicable) as of its
date or as of the Closing Date contained any untrue statement of a material fact
or omitted 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 (it being understood that such counsel need not make any statement
with respect to the financial statements (including the pro forma financial
information) and the notes thereto and the schedules and other financial and
statistical data included in the Offering Memorandum).
B. An opinion, dated the Closing Date, from Liddell, Sapp,
Zivley, Hill & LaBoon, LLP, special Texas counsel for the Company, substantially
to the effect that:
(1) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of Texas
and has full corporate power and authority to carry on its business
and to own, lease and operate its properties as
32
<PAGE>
described in the Offerng Memorandum. The Company has the
requisite corporate power and authority to execute, deliver and
perform its obligations under each Operative Document to which it
is a party.
(2) All of the outstanding shares of capital stock of the
Company have duly authorized and validly issued and are fully
paid and non-assessable and not subject to any preemptive or
similar rights.
(3) Each of this Agreement, the Indenture and the
Registration Rights Agreement has been duly authorized, executed
and delivered by the Company.
(4) The Series A Notes have been duly authorized, executed
and delivered by the Company. The Series B Notes have been duly
authorized by the Company.
(5) The execution, delivery and performance by the Company
of each Operative Document to which it is a party, the issuance
and sale of the Series A Notes as contemplated by this Agreement
and the consummation of the transactions contemplated by this
Agreement, each other Operative Document and the Offering
Memorandum will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court
or governmental body or agency in the State of Texas (except such
as may be required under the securities or Blue Sky laws of such
state), or (ii) violate the charter or bylaws of the Company,
except in the case of clause (i) above for such conflicts or
violations as would not, singly or in the aggregate, have a
Material Adverse Effect.
Such counsel may state that such opinions are limited to matters
governed by the Federal laws of the United States of America and the laws of the
State of Texas and may include in its opinion customary qualifications and
assumptions reasonably satisfactory to the Initial Purchasers and their counsel.
(f) The Initial Purchasers shall have received on the Closing
Date an opinion, dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom
33
<PAGE>
LLP, special counsel for the Initial Purchasers, in form and substance
reasonably satisfactory to the Initial Purchasers.
(g) The Initial Purchasers shall have received an opinion from
Houlihan Lokey Howard & Zukin Financial Advisors (satisfactory to the Initial
Purchasers and their counsel) dated the Closing Date, to the effect that,
immediately after and after giving effect to the Offering and the New Credit
Facility and the application of the net proceeds therefrom as described in the
Offering Memorandum, with respect to the Company on a consolidated basis, (i) on
a pro forma basis the fair value and present fair saleable value of the
Company's assets would exceed the Company's stated liabilities and identified
contingent liabilities; (ii) the Company should be able to pay its debts as they
become absolute and mature; and (iii) the capital remaining in the Company after
the consummation of the Transactions would be unreasonably small for the
business in which the Company is engaged, as management has indicated it is now
conducted and is proposed to be conducted following the consummation of the
Transactions.
(h) The Initial Purchasers shall have received (i) at the time
this Agreement is executed, letters dated the date hereof in form and substance
satisfactory to the Initial Purchasers from Ernst & Young LLP, KPMG Peat Marwick
LLP and Grant Thornton LLP, independent public accountants, and (ii) at the
Closing Date a letter dated the Closing Date from Ernst & Young LLP, in each
case containing the information and statements of the type ordinarily included
in accountants' "comfort letters" to the Initial Purchasers with respect to the
financial statements and certain financial information contained in the Offering
Memorandum.
(i) The Series A Notes shall have been approved by the NASD for
trading and duly listed in PORTAL.
(j) The Company shall have executed the Registration Rights
Agreement and the Initial Purchasers shall have received an original copy
thereof, duly executed by the Company.
(k) The Company and the Trustee shall have executed the
Indenture and the Initial Purchasers shall have received an original copy
thereof, duly executed by the Company and the Trustee.
(l) Concurrently with the offering of the Series A Notes as
contemplated hereby and by the Offering Memorandum, (i) the Merger will become
effective, (ii) the New Credit Facility will become effective, and (ii) the
Company
34
<PAGE>
will use the proceeds from the offering of the Series A Notes and from the New
Credit Facility in the manner described in the Offering Memorandum under the
caption "Use of Proceeds" (including the repayment in full of all the Company's
obligations under the Bridge Notes (as defined in the Offering Memorandum) and
the New Credit Facility, which will thereupon be cancelled and no longer
outstanding or available). The Initial Purchasers acknowledge that certain of
the capital stock redemptions included as part of the Transactions will not be
effected concurrently with the offering of the Series A Notes, but with respect
to such Transactions, the Company hereby covenants to use proceeds from the
offering of the Series A Notes and from the New Credit Facility in the manner
described in the Offering Memorandum under the caption "Use of Proceeds."
(m) The Company shall not have failed at or prior to the Closing
Date to perform or comply with any of the agreements herein contained and
required to be performed or complied with by the Company at or prior to the
Closing Date.
10. Effectiveness of Agreement and Termination. This Agreement shall
------------------------------------------
become effective upon the delivery of this Agreement by the parties hereto.
This Agreement may be terminated at any time prior to the Closing Date
by the Initial Purchasers by written notice to the Company if any of the
following has occurred: (i) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions or
in the financial markets of the United States or elsewhere that, in the Initial
Purchasers' judgment, is material and adverse and would, in the Initial
Purchasers' judgment, make it impracticable to market the Series A Notes on the
terms and in the manner contemplated in the Offering Memorandum, (ii) the
suspension or material limitation of trading in securities on the New York Stock
Exchange, the American Stock Exchange, the Chicago Board of Options Exchange,
the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq
National Market, (iii) the suspension of trading of any securities of the
Company on any exchange or in the over-the-counter market, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
your opinion materially and adversely affects, or will materially and adversely
affect, the business, prospects, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole, (v) the declaration of a
banking moratorium by either federal or New York State authorities or (vi) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in your opinion has a material
35
<PAGE>
adverse affect on the financial markets in the United States and would, in the
Initial Purchasers' judgment, make it impracticable to market the Series A Notes
on the terms and in the manner contemplated in the Offering Memorandum.
If on the Closing Date any of the Initial Purchasers shall fail or
refuse to purchase the Series A Notes which it has agreed to purchase hereunder
on such date and the aggregate principal amount of the Series A Notes which such
defaulting Initial Purchaser agreed but failed or refused to purchase is not
more than one-tenth of the aggregate principal amount of the Series A Notes to
be purchased on such date by all Initial Purchasers, each non-defaulting Initial
Purchaser shall be obligated to purchase the Series A Notes which such
defaulting Initial Purchaser or Initial Purchasers, as the case may be, agreed
but failed or refused to purchase on such date; provided that in no event shall
the aggregate principal amount of the Series A Notes which any Initial Purchaser
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 10 by an amount in excess of one-ninth of such principal amount of
the Series A Notes without the written consent of such Initial Purchaser. If on
the Closing Date any Initial Purchaser or Initial Purchasers shall fail or
refuse to purchase the Series A Notes and the aggregate principal amount of the
Series A Notes with respect to which such default occurs is more than one-tenth
of the aggregate principal amount of the Series A Notes to be purchased by all
Initial Purchasers and arrangements satisfactory to the Initial Purchasers and
the Company for purchase of such Series A Notes are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Initial Purchaser and the Company. In any such case which
does not result in termination of this Agreement, either you or the Company
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, to the Offering
Memorandum or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting Initial Purchaser
from liability in respect of any default of any such Initial Purchaser under
this Agreement.
11. Miscellaneous. Notices given pursuant to any provision of this
-------------
Agreement shall be addressed as follows: (i) if to the Company, to Doskocil
Manufacturing Company, Inc., 4209 Barnett, Arlington, Texas 76017, Attention:
Chief Financial Officer, with a copy to O'Melveny & Myers LLP, 610 Newport
Center Drive, Suite 1700, Newport Beach, California 92660, Attention: Joseph J.
Herron, Esq., (ii) if to any Initial Purchasers, c/o Donaldson, Lufkin &
Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, with a copy to Skadden, Arps, Slate, Meagher &
Flom LLP at 300 South Grand Avenue, Suite 3400, Los Angeles, California 90071,
Attention:
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<PAGE>
Nick P. Saggese, Esq. or (iii) in any case to such other address as the person
to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, Dogloo and the Initial
Purchasers set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Series A Notes, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of an Initial Purchaser, the officers
or directors of an Initial Purchaser, any person controlling an Initial
Purchaser, the Company, Dogloo, the officers or directors of the Company or
Dogloo, or any person controlling the Company or Dogloo, (ii) acceptance of the
Series A Notes and payment for them hereunder and (iii) termination of this
Agreement.
If for any reason the Series A Notes are not delivered by or on behalf
of the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10), the Company agrees to reimburse the
Initial Purchasers for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(h) hereof. The Company also
agrees to reimburse the Initial Purchasers, their respective directors and
officers and any person controlling either of the Initial Purchasers for any and
all fees and expenses (including, without limitation, the fees and disbursements
of counsel) incurred by them in connection with enforcing their rights
hereunder.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the parties hereto and their
respective successors and the officers and directors and other persons referred
to in Section 8, 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 Initial Purchaser merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
37
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Initial Purchasers.
Very truly yours,
DOSKOCIL MANUFACTURING COMPANY, INC.
By: /s/ Donald J Fritschen
---------------------------------------
Name: Donald J Fritschen
Title: Vice President and CFO
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC CAPITAL MARKETS, INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:_______________________________________
Name:
Title:
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Initial Purchasers.
Very truly yours,
DOSKOCIL MANUFACTURING COMPANY, INC.
By:_______________________________________
Name:
Title:
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC CAPITAL MARKETS, INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Donald S. Kingsley
----------------------------------------
Name: Donald S. Kingsley
Title: Vice President
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount
Initial Purchaser of Notes
----------------- ----------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation........................ $59,500,000
NationsBanc Capital Markets, Inc............... $25,500,000
===========
Total...................................... $85,000,000
</TABLE>
<PAGE>
Exhibit 10.7
______________________________________________________________
REGISTRATION RIGHTS AGREEMENT
DATED AS OF SEPTEMBER 19, 1997
BY AND AMONG
DOSKOCIL MANUFACTURING COMPANY, INC.
AS ISSUER
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
AND
NATIONSBANC CAPITAL MARKETS, INC.
AS INITIAL PURCHASERS
______________________________________________________________
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of September 19, 1997, among DOSKOCIL MANUFACTURING COMPANY,
INC., a Texas corporation (the "Issuer"), and DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION and NATIONSBANC CAPITAL MARKETS, INC. (collectively, the
"Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated
September 11, 1997, among the Issuer and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Issuer to the Initial Purchasers
of $85,000,000 aggregate principal amount of 10 1/8% Senior Subordinated Notes
due 2007 (the "Notes"). In order to induce the Initial Purchasers to enter into
the Purchase Agreement, the Issuer has agreed to provide to the Initial
Purchasers and their respective direct and indirect transferees, among other
things, the registration rights for the Notes set forth in this Agreement. The
execution of this Agreement is a condition to the closing of the transactions
contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the
following meanings (and, unless otherwise indicated, capitalized terms used
herein without definition shall have the respective meanings ascribed to them by
the Purchase Agreement):
Applicable Period: See Section 2(b) hereof.
-----------------
controlling person: See Section 7 hereof.
------------------
Effectiveness Period: See Section 3(a) hereof.
--------------------
Effectiveness Target Date: See Section 4(a)(ii) hereof.
-------------------------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the SEC promulgated thereunder.
1
<PAGE>
Exchange Notes: See Section 2(a) hereof.
--------------
Exchange Offer: See Section 2(a) hereof.
--------------
Exchange Offer Registration Statement: See Section 2(a) hereof.
-------------------------------------
Holder: Any holder of Transfer Restricted Securities.
------
indemnified party: See Section 7 hereof.
-----------------
Indemnified Person: See Section 7 hereof.
------------------
indemnifying person: See Section 7 hereof.
-------------------
Indenture: The Indenture, dated as of the date hereof, by and between
---------
the Issuer and First Trust National Association, 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 Purchasers: See the introductory paragraphs to this
------------------
Agreement.
Inspectors: See Section 5(m) hereof.
----------
Issue Date: As defined in the Offering Memorandum.
----------
Issuer: See the introductory paragraphs to this Agreement.
------
Liquidated Damages: See Section 4(a) hereof.
------------------
Notes: See the introductory paragraphs to this Agreement.
-----
Offering Memorandum: The final Offering Memorandum dated September
-------------------
12, 1997 related to the sale of the Notes.
Participating Broker-Dealer: See Section 2(b) hereof.
---------------------------
Person or person: An individual, trustee, corporation, partnership,
------ ------
joint stock company, trust, unincorporated association, union, business
association, limited liability company, limited liability partnership, firm or
other legal entity.
2
<PAGE>
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Exchange Notes and/or the Transfer Restricted Securities (as applicable),
covered by such Registration Statement, and all other amendments and supplements
to the Prospectus, including posteffective amendments, and all material
incorporated by reference or deemed to be incorporated by reference in such
Prospectus.
Records: See Section 5(m) hereof.
-------
Registration Default: See Section 4(a)(iv) hereof.
--------------------
Registration Statement: Any registration statement of the Issuer,
----------------------
including, but not limited to, the Exchange Offer Registration Statement or a
registration statement of the Issuer that otherwise covers any of the Transfer
Restricted 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 promulgated pursuant to the Securities Act, as
--------
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
Rule 144A: Rule 144A promulgated pursuant to the Securities Act, as
---------
currently in effect, as such rule may be amended from time to time, or any simi
lar rule or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated pursuant to the Securities Act, as
--------
such rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the SEC promulgated thereunder.
3
<PAGE>
Shelf Notice: See Section 2(c) hereof.
------------
Shelf Registration Statement: See Section 3(a) hereof.
----------------------------
TIA: The Trust Indenture Act of 1939, as amended, and the rules
---
and regulations of the SEC promulgated thereunder.
Transfer Restricted Securities: The Notes upon original issuance
------------------------------
thereof and at all times subsequent thereto, until in the case of any such
Notes, the earliest to occur of, the date on which (i) a Registration Statement
covering such Notes has been declared effective by the SEC and such Notes have
been disposed of in accordance with such effective Registration Statement, (ii)
such Notes are sold in compliance with Rule 144 or are eligible for sale under
Rule 144(k) or (iii) such Notes cease to be outstanding (including, without
limitation, upon an exchange of such Notes for Exchange Notes in the Exchange
Offer).
Trustee: The trustee under the Indenture and, if existent, under any
-------
indenture governing the Exchange Notes.
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of the Issuer are sold to an underwriter for reoffering to the
public.
2. Exchange Offer
--------------
(a) The Issuer agrees to file with the SEC within 60 days after the
Issue Date a registration statement under the Securities Act with respect to an
offer to exchange (the "Exchange Offer") any and all of the Transfer Restricted
Securities for a like aggregate principal amount of debt securities of the
Issuer (the "Exchange Notes"), which Exchange Notes will be (i) substantially
identical in all material respects to the Notes, except that such Exchange
Notes will not contain terms with respect to transfer restrictions, and (ii)
entitled to the benefits of the Indenture or a trust indenture which is
identical to the Indenture (other than such changes to the Indenture or any such
identical trust indenture as are necessary to comply with any requirements of
the SEC to effect or maintain the qualification thereof under the TIA), and
which, in either case, has been qualified under the TIA, and (iii) registered
pursuant to an effective Registration Statement in compliance with the
Securities Act. The Exchange Offer will be registered pursuant to the
Securities Act on an appropriate form of Registration Statement (the "Exchange
Offer Registration Statement"), and will comply with all applicable tender offer
rules and regulations promulgated pursuant to the Exchange Act and shall be duly
registered or qualified
4
<PAGE>
pursuant to all applicable state securities or Blue Sky laws, except as would
subject the Issuer to general taxation where it is not currently subject. The
Exchange Offer shall not be subject to any condition, other than that the
Exchange Offer does not violate any applicable law, policy or interpretation of
the staff of the SEC. No securities shall be included in the Exchange Offer
Registration Statement other than the Transfer Restricted Securities and the
Exchange Notes. The Issuer agrees (x) to use its best efforts to cause such
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 180 days after the Issue Date; (y) to keep the Exchange
Offer open for not less than 20 business days (or such longer period required by
applicable law) after the date that the notice of the Exchange Offer referred to
below is mailed to Holders; and (z) to use its best efforts to consummate the
Exchange Offer within 30 days after the Effectiveness Target Date. As promptly
as practicable after the Exchange Offer Registration Statement is declared
effective, the Issuer will commence the offer of Exchange Notes in exchange for
properly tendered Notes. For each Note validly tendered pursuant to the
Exchange Offer, the holder of such Note will receive the Exchange Notes having a
principal amount at maturity equal to that of the tendered Note.
Each Holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Notes, and that such Holder is not an "affiliate" of the
Issuer within the meaning of Rule 405 of the Securities Act (or that if it is
such an affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable). Each Holder that
is not a Participating Broker-Dealer will be required to represent that it is
not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. Each Holder that (i) is a Participating BrokerDealer and (ii)
will receive Exchange Notes for its own account in exchange for the Transfer
Restricted Securities that it acquired as the result of market-making or other
trading activities will be required to acknowledge that it will deliver a
Prospectus as required by law in connection with any resale of such Exchange
Notes. The Issuer shall allow Participating Broker-Dealers and other persons,
if any, subject to prospectus delivery requirements to use the Prospectus
included in the Exchange Offer Registration Statement in connection with the
resale of the Exchange Notes. Upon consummation of the Exchange Offer in
accordance with this Agreement, the Issuer shall have no further obligation to
register Transfer Restricted Securities pursuant to Section 3 of this Agreement.
5
<PAGE>
(b) The Issuer shall include within the Exchange Offer Registration
Statement a section entitled "Plan of Distribution," reasonably acceptable to
the Initial Purchasers, which shall contain a summary statement of the positions
taken or policies made by the staff of the SEC with respect to the potential
"underwriter" status of any broker-dealer that is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such
broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"). 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 all Participating Broker-Dealers, and include a statement describing
the means by which Participating Broker-Dealers may resell the Exchange Notes.
The Issuer shall use its best efforts to keep the Exchange Offer
Registration Statement effective under the Securities Act and to amend and
supplement the Prospectus contained therein, in order to permit such Prospectus
to be lawfully delivered by all persons subject to the prospectus delivery
requirements of the Securities Act for a period of at least 180 days from the
consummation of the Exchange Offer (including such longer period if extended
pursuant to the last paragraph of Section 5 hereof) (the "Applicable Period").
In connection with the Exchange Offer, the Issuer shall:
(a) mail as promptly as practicable to each Holder a copy of the
Prospectus forming part of the Exchange Offer Registration Statement,
together with an appropriate letter of transmittal and related documents;
(b) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York; and
(c) 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.
As soon as practicable after the close of the Exchange Offer, the
Issuer shall:
(i) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Exchange Offer;
6
<PAGE>
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Notes so accepted for exchange; and
(iii) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes equal in principal amount to the Notes of
such Holder so accepted for exchange.
(c) If (1) prior to the consummation of the Exchange Offer, any
change in law or in the applicable interpretations of the staff of the SEC do
not permit the Issuer to effect the Exchange Offer, or (2) for any other reason
the Exchange Offer is not consummated within 210 days of the Issue Date, then
the Issuer shall as promptly as practicable deliver to the Holders and the
Trustee written notice thereof (the "Shelf Notice"), and the Issuer shall file a
Registration Statement pursuant to Section 3 hereof. Following the delivery of
a Shelf Notice to the Holders of Transfer Restricted Securities, the Issuer
shall not have any further obligation to conduct the Exchange Offer pursuant to
this Section 2, provided that the Issuer shall have the right, nonetheless, to
--------
proceed to consummate the Exchange Offer notwithstanding its obligations
pursuant to this Section 2(c) (and, upon such consummation, its obligations
herein with respect to a Shelf Registration Statement shall terminate).
3. Shelf Registration
------------------
If the Issuer is required to deliver a Shelf Notice as contemplated by
Section 2(c) hereof, then:
(a) Shelf Registration. The Issuer shall prepare and file with the
------------------
SEC, as promptly as practicable after such filing obligation arises, a
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 covering all of the Transfer Restricted Securities (the "Shelf
Registration Statement"). The Shelf Registration Statement shall be on Form S-
1 or another appropriate form permitting registration of the Transfer
Restricted Securities for resale by the Holders in the manner or manners
reasonably designated by the Holders of a majority in aggregate principal amount
of the outstanding Transfer Restricted Securities (including, without
limitation, an underwritten offering). The Issuer shall not permit any
securities other than the Transfer Restricted Securities to be included in the
Shelf Registration Statement. The Issuer shall use its best efforts to cause
the Shelf Registration Statement to be declared effective pursuant to the
Securities Act as promptly as practicable following the filing of such Shelf
Registration Statement and to keep the Shelf Registration Statement continuously
effective under the
7
<PAGE>
Securities Act until the earlier of (i) the date which is 24 months following
the Issue Date, (ii) the date that all Transfer Restricted Securities covered by
the Shelf Registration Statement have been sold in the manner set forth and as
contemplated in the Shelf Registration Statement or (iii) the date that there
ceases to be outstanding any Transfer Restricted Securities (the "Effectiveness
Period").
(b) Supplements and Amendments The Issuer shall use its best
--------------------------
efforts to keep the Shelf Registration Statement continuously effective during
the Effectiveness Period by supplementing and amending the Shelf Registration
Statement if required by the rules, regulations or instructions applicable to
the registration form used for such Shelf Registration Statement, or if
reasonably requested in writing timely received setting forth the reasons for
such request by the Holders of a majority in aggregate principal amount of the
Transfer Restricted Securities covered by such Registration Statement or by any
underwriter of such Transfer Restricted Securities.
4. Liquidated Damages
------------------
(a) The Issuer and the Initial Purchasers agree that the Holders of
Transfer Restricted Securities will suffer damages if the Issuer fails to
fulfill its obligations pursuant to Section 2 or Section 3 hereof and that it
would not be possible to ascertain the extent of such damages. Accordingly, in
the event of such failure by the Issuer to fulfill such obligations, the Issuer
hereby agrees to pay liquidated damages ("Liquidated Damages") to each Holder of
Transfer Restricted Securities under the circumstances and to the extent set
forth below:
(i) if neither the Exchange Offer Registration Statement or the
Shelf Registration Statement has been filed with the SEC on or prior to the
60th day following the Issue Date; or
(ii) if neither the Exchange Offer Registration Statement or the
Shelf Registration Statement is declared effective by the SEC on or prior
to the 180th day after the Issue Date (the "Effectiveness Target Date"); or
(iii) if an Exchange Offer Registration Statement becomes effective,
and the Issuer fails to consummate the Exchange Offer within 60 days of the
earlier of the effectiveness of such registration statement or the
Effectiveness Target Date; or
8
<PAGE>
(iv) the Shelf Registration Statement is declared effective by the
SEC and thereafter such Shelf Registration Statement ceases to be effective
or usable in connection with resales of Notes during the Effectiveness
Period;
(any of the foregoing, a "Registration Default"), then the Issuer shall pay
Liquidated Damages to each Holder, with respect to the first 90-day period
immediately following the occurrence of such Registration Default, in an amount
equal to $0.05 per week per $1,000 principal amount of Transfer Restricted
Securities 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 $0.05 per
week per $1,000 principal amount of Transfer Restricted Securities with respect
to each subsequent 90-day period, up to a maximum amount of Liquidated Damages
of $0.25 per week per $1,000 principal amount of Transfer Restricted Securities
(regardless of whether one or more than one Registration Default is
outstanding). Following the cure of any Registration Default relating to any
Transfer Restricted Securities, the accrual of Liquidated Damages with respect
to such Registration Default will cease. A Registration Default under clause
(i) above shall be cured on the date that either the Exchange Offer Registration
Statement or the Shelf Registration Statement 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 Shelf Registration
Statement 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 or (B) the Issuer delivers a Shelf Notice to the Holders of
Transfer Restricted Securities; and a Registration Default under clause (iv)
above shall be cured on the earlier of (A) the date the Shelf Registration
Statement is declared effective and is usable or (B) the Effectiveness Period
expires.
(b) The Issuer shall notify the Trustee within one business day after
each and every date on which a Registration Default first occurs. Accrued and
unpaid Liquidated Damages shall be paid by the Issuer to the Holders by wire
transfer of immediately available funds to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified on each interest payment date provided in the Indenture (whether or
not any interest is then payable on the Notes) and on each payment date provided
in the Indenture including, without limitation, whether upon redemption,
maturity (by acceleration or otherwise), purchase upon a change of control or
purchase upon a sale of assets. Each obligation to pay Liquidated Damages with
respect to any Registration Default shall be deemed to commence accruing on the
date of such Registration Default and to cease accruing when such Registration
Default has been cured. In no event shall
9
<PAGE>
the Issuer pay Liquidated Damages in excess of the applicable maximum weekly
amount set forth above, regardless of whether one or multiple Registration
Defaults exist.
(c) The parties hereto agree that the Liquidated Damages provided for
in this Section 4 constitute a reasonable estimate of the damages that will be
suffered by Holders by reason of the failure to file the Exchange Offer
Registration Statement or the Shelf Registration Statement, the failure of the
Exchange Offer Registration Statement or the Shelf Registration Statement to be
declared effective, the failure to consummate the Exchange Offer or the failure
of the Shelf Registration Statement to remain effective, as the case may be, in
accordance with this Agreement.
5. Registration Procedures
-----------------------
In connection with the registration of any Exchange Notes or Transfer
Restricted Securities pursuant to Sections 2 or 3 hereof, the Issuer shall
effect such registration to permit the sale of such Exchange Notes or Transfer
Restricted Securities (as applicable) in accordance with the intended method or
methods of disposition thereof, and pursuant thereto the Issuer shall:
(a) Prepare and file with the SEC, a Registration Statement or
Registration Statements as prescribed by Section 2 or Section 3 hereof, and to
use its best efforts to cause such Registration Statement to become effective
and remain effective as provided herein; provided that if (1) such filing is
--------
pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, before filing any
Registration Statement or Prospectus or any amendments or supplements thereto,
the Issuer shall furnish to and afford the Holders of the Transfer Restricted
Securities and each such Participating Broker-Dealer, as the case may be,
covered by such Registration Statement, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by reference
therein and all exhibits thereto) proposed to be filed. Such documents shall be
so furnished at least 3 business days prior to such filing, or such later date
as is reasonable under the circumstances. The Issuer shall not file any
Registration Statement or Prospectus or any amendments or supplements thereto in
respect of which the Holders, pursuant to this Agreement, must be afforded an
opportunity to review prior to the filing of such document, if the Holders of a
majority in aggregate
10
<PAGE>
principal amount of the Transfer Restricted Securities covered by such
Registration Statement, or such Participating Broker-Dealer, as the case may be,
their counsel, or the managing underwriters, if any, shall reasonably object in
writing received by the Issuer or its counsel within one business day prior to
the date of filing setting forth the reasons for objection.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration Statement or Exchange Offer Registration
Statement, as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period or the Applicable
Period, as the case may be, or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Registration Statement have been
sold; cause the related Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) under the Securities Act; and comply with the
applicable provisions of the Securities Act, the Exchange Act and the rules and
regulations of the SEC promulgated thereunder with respect to the disposition of
all securities covered by such Registration Statement, as so amended, or in such
Prospectus, as so supplemented, and with respect to the subsequent resale of any
Notes being sold by a Participating Broker-Dealer covered by any such
Prospectus; the Issuer shall be deemed not to have used its best efforts to keep
a Registration Statement effective during the Applicable Period or the
Effectiveness Period, as the case may be, if it voluntarily takes any action
that would result in selling Holders of the Transfer Restricted Securities
covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes
not being able to sell such Transfer Restricted Securities or such Exchange
Notes during such Period, unless (i) such action is required by applicable law,
or (ii) such action is taken by the Issuer in good faith and for valid business
reasons (not including avoidance of its obligations hereunder), including, but
not limited to, the acquisition or divestiture of assets.
(c) If (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, notify the selling Holders
of Transfer Restricted Securities, or each known Participating Broker-Dealer, as
the case may be, their counsel (if previously identified to the Issuer in
writing) and the managing underwriters, if any, as promptly as practicable and,
if requested, confirm such notice in writing, (i) when a Prospectus, any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when
11
<PAGE>
the same has become effective (including in any such written notice a statement
that any Holder may, upon request, obtain, without charge, one conformed copy of
such Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be incorporated by
reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any Prospectus or the initiation of any
proceedings for that purpose, (iii) if at any time a Prospectus is required by
the Securities Act to be delivered in connection with sales of the Transfer
Restricted Securities the representations and warranties of the Issuer
contained in any agreement (including any underwriting agreement) contemplated
by Section 5(l) hereof cease to be true and correct, (iv) of the receipt by the
Issuer of any notification with respect to the suspension of the qualification
or exemption from qualification of a Registration Statement or any of the
Transfer Restricted Securities or the Exchange Notes to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation of any proceeding for such purpose, (v) of the happening of any
material event or any material information becoming known that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (vi) of the Issuer's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) If (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, 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 and, if any such order is issued, to use its best efforts to obtain
the withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration Statement is filed pursuant to Section 3
hereof and if requested by the managing underwriters, if any, or the Holders of
a
12
<PAGE>
majority in aggregate principal amount of the Transfer Restricted Securities
being sold in connection with an underwritten offering, (i) as promptly as
practicable incorporate in a prospectus supplement or post-effective amendment
such information relating to underwriters, if any, any Holder of Transfer
Restricted Securities or the plan of distribution of the Transfer Restricted
Securities as the managing underwriter, if any, or such Holders may reasonably
request to be included therein, (ii) make all required filings of such
prospectus supplement or such post-effective amendment as soon as practicable
after the Issuer has received notification of the matters to be incorporated in
such prospectus supplement or post-effective amendment pursuant to clause (i),
and (iii) supplement or make amendments to such Registration Statement with such
information as is required in connection with any reasonable request made
pursuant to clause (i).
(f) If (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, furnish to each selling
Holder of Transfer Restricted Securities and to each such Participating Broker-
Dealer who so requests and to each managing underwriter, if any, without charge,
one conformed copy of the Registration Statement or Registration Statements and
each post-effective amendment thereto, including financial statements and
schedules, and, if requested, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, deliver to each selling
Holder, or each such Participating Broker-Dealer, as the case may be, its
counsel (if previously identified to the Issuer in writing), and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each form of preliminary Prospectus), and each amendment
or supplement thereto and any documents incorporated by reference therein, as
such Persons may reasonably request; and, subject to the last paragraph of this
Section 5 hereof, the Issuer hereby consents to the use of such Prospectus and
each amendment or supplement thereto by each of the selling Holders or, during
the Applicable Period, each such Participating Broker-Dealer, as the case may
be, and their underwriters or agents, if any, and dealers, if any, in connection
with the offering and sale of the Transfer Restricted Securities covered by or
the sale by Partici-
13
<PAGE>
pating Broker-Dealers of the Exchange Notes pursuant to such Prospectus and any
amendment or supplement thereto.
(h) Prior to any public offering of Transfer Restricted Securities or
any delivery of a Prospectus contained in the Exchange Offer Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes
during the Applicable Period, use its best efforts to register or qualify, and
to cooperate with the selling Holders of Transfer Restricted Securities or each
such Participating Broker-Dealer, as the case may be, the underwriters, if any,
and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Transfer Restricted Securities for offer and sale under the securities or Blue
Sky laws of such jurisdictions as any selling Holder, Participating Broker-
Dealer, or the managing underwriters reasonably request in writing; keep each
such registration or qualification (or exemption therefrom), effective during
the period such Registration Statement is required to be kept effective and do
any and all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Exchange Notes held by Participating
Broker-Dealers or the Transfer Restricted Securities covered by the applicable
Registration Statement; provided that the Issuer shall not be required to (A)
--------
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or (C) subject itself to taxation in any such jurisdiction
where it is not then so subject.
(i) If a Shelf Registration Statement is filed pursuant to Section 3
hereof, cooperate with the selling Holders of Transfer Restricted Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted 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
Transfer Restricted Securities to be in such denominations and registered in
such names as the managing underwriters, if any, or Holders may reasonably
request at least two business days prior to any sale of the Transfer Restricted
Securities.
(j) If (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, upon the occurrence of any
event contemplated by paragraph 5(c)(v) or 5(c)(vi) above, as promptly as
practicable prepare and (subject to Section
14
<PAGE>
5(a) hereof), file with the SEC, at the expense of the Issuer, a supplement or
post-effective amendment to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, or file any other required document so that, as thereafter
delivered to the purchasers of the Transfer Restricted Securities being sold
thereunder or to the purchasers of the Exchange Notes to whom such Prospectus
will be delivered by a Participating Broker-Dealer, any such Prospectus will not
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) Prior to the effective date of the first Registration Statement
relating to the Transfer Restricted Securities, (i) provide the Trustee with
certificates for the Transfer Restricted Securities in a form eligible for
deposit with DTC and (ii) provide a CUSIP number for the Transfer Restricted
Securities.
(l) In connection with an underwritten offering of Transfer
Restricted Securities pursuant to a Shelf Registration Statement, enter into an
underwriting agreement as is customary in underwritten offerings and take all
other customary and appropriate actions as are reasonably requested by the
managing underwriters in order to expedite or facilitate the registration or the
disposition of such Transfer Restricted Securities, and in such connection, (i)
make such representations and warranties to the underwriters, with respect to
the business of the Issuer and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, as are customarily made by issuers to underwriters in
underwritten offerings; (ii) obtain opinions of counsel to the Issuer and
updates thereof in form and substance reasonably satisfactory to the managing
underwriters, addressed to the underwriters covering the matters customarily
covered in opinions requested in underwritten offerings and such other matters
as may be reasonably requested by underwriters; (iii) obtain "cold comfort"
letters and updates thereof in form and substance reasonably satisfactory to the
managing underwriters from the independent certified public accountants of the
Issuer (and, if necessary, any other independent certified public accountants of
any subsidiary of the Issuer or of any business acquired by it for which
financial statements and financial data are, or are required to be, included in
the Registration Statement), addressed to each of the underwriters, such letters
to be in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings and such other
matters as are reasonably requested by underwriters as permitted by Statement on
------------
Auditing Standards No. 72; and (iv) if an underwriting agreement is entered
- -------------------------
into, the same shall contain indemnification provisions and
15
<PAGE>
procedures no less favorable than those set forth in Section 7 hereof with
respect to all parties to be indemnified pursuant to said Section. The above
shall be done at each closing under such underwriting agreement, or as and to
the extent required thereunder.
(m) If (1) a Shelf Registration Statement is filed pursuant to
Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes during the Applicable Period, make available for
inspection by any selling Holder of such Transfer Restricted Securities being
sold, or each such Participating Broker-Dealer, as the case may be, any
underwriter participating in any such disposition of Transfer Restricted
Securities, if any, and any attorney, accountant or other agent retained by any
such selling Holder or each such Participating Broker-Dealer, as the case may
be, or underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Issuer and its
subsidiaries (collectively, the "Records"), as shall be reasonably necessary to
enable them to exercise any applicable due diligence responsibilities, and cause
the officers, directors and employees of the Issuer and its subsidiaries to
supply all relevant information reasonably requested by any such Inspector in
connection with such Registration Statement. Records which the Issuer
determines, in good faith, to be confidential and any Records which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors, unless
(i) the release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction or (ii) the information in such Records
has been made generally available to the public, other than as a result of the
disclosure or failure to safeguard by such Inspector.
(n) Provide an indenture trustee for the Transfer Restricted
Securities or the Exchange Notes, as the case may be, and cause the Indenture to
be qualified under the TIA not later than the effective date of the Exchange
Offer or the first Registration Statement relating to the Transfer Restricted
Securities; and in connection therewith, cooperate with the trustee under any
such indenture and the Holders of the Transfer Restricted Securities, 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 customary 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.
16
<PAGE>
(o) Comply with all applicable rules and regulations of the SEC and,
as soon as reasonably practicable after the effective date of the applicable
Registration Statement, make generally available to the holders of Exchange
Notes and the Holders, if any, a consolidated earning statement of the Issuer
(which need not be certified by an independent public accountant) that satisfies
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
(p) If an Exchange Offer is to be consummated, upon delivery of the
Transfer Restricted Securities by Holders to the Issuer (or to such other Person
as directed by the Issuer), in exchange for the Exchange Notes, the Issuer
shall, where appropriate, mark or cause to be marked on such Transfer Restricted
Securities that such Transfer Restricted Securities are being cancelled in
exchange for the Exchange Notes; in no event shall such Transfer Restricted
Securities be marked as paid or otherwise satisfied.
(q) Cooperate with each seller of Transfer Restricted Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Transfer Restricted Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD").
(r) Use its best efforts to take all other steps necessary to effect
the registration of the Transfer Restricted Securities covered by a Registration
Statement contemplated hereby.
(s) Use its best efforts to cause the Transfer Restricted Securities
or the Exchange Notes, as applicable, covered by an effective registration
statement required by Section 2 or Section 3 hereof to be rated by no more than
two rating agencies, if so requested by the Holders of a majority in aggregate
principal amount of Transfer Restricted Securities relating to such registration
statement or the managing underwriters in connection therewith, if any.
The Issuer may require each seller of Transfer Restricted Securities
or Participating Broker-Dealer as to which any registration is being effected to
furnish to the Issuer such information regarding such seller or Participating
Broker-Dealer and the distribution of such Transfer Restricted Securities or
Exchange Notes to be sold by such Participating Broker-Dealer, as the case may
be, as the Issuer may, from time to time, reasonably request. The Issuer may
exclude from such registration the Transfer Restricted Securities or Exchange
Notes of any seller or Participating Broker-Dealer, as the case may be, who
fails to furnish such
17
<PAGE>
information within a reasonable time after receiving such request. Each Holder
as to which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Issuer all information required to be disclosed in order to make
the information previously furnished to the Issuer by such Holder not materially
misleading.
Each Holder of Transfer Restricted Securities and each Participating
Broker-Dealer agrees by acquisition of such Transfer Restricted Securities or
Exchange Notes to be sold by such Participating Broker-Dealer, as the case may
be, that, upon receipt of any notice from the Issuer of the happening of any
event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi)
hereof, such Holder shall forthwith discontinue disposition of such Transfer
Restricted Securities covered by such Registration Statement or Prospectus or
such Exchange Notes to be sold by such Participating Broker-Dealer, as the case
may be, until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 5(j) hereof, or until it is advised in
writing by the Issuer that the use of the applicable Prospectus may be resumed,
and has received copies of any amendments or supplements thereto.
6. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuer shall be borne by the Issuer,
whether or not the Exchange Offer or a Shelf Registration Statement is filed or
becomes effective, including, without limitation, (i) all registration and
filing fees (including, without limitation, (A) fees with respect to filings
required to be made with the NASD in connection with an underwritten offering
and (B) fees and expenses of compliance with state securities or Blue Sky laws
(including, without limitation, reasonable fees and disbursements of counsel in
connection with Blue Sky qualifications of the Transfer Restricted Securities or
Exchange Notes), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Transfer Restricted Securities or Exchange Notes 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 Transfer Restricted Securities or Exchange Securities to be sold
by any Participating Broker-Dealer during the Applicable Period, by the Holders
of a majority in aggregate principal amount of the Transfer Restricted
Securities included in any Registration Statement or of such Exchange
Securities, as the case may be), (iii) fees and disbursements of counsel for the
Issuer, (iv) fees and disbursements of all independent certified public
accountants referred to in Section 5(l)(iii) hereof (including, without
limitation, the expenses of any special audit and
18
<PAGE>
"cold comfort" letters required by or incident to such performance), (v) the
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, (vi) rating agency fees, (vii) fees and
expenses of all other Persons retained by the Issuer, (viii) internal expenses
of the Issuer (including, without limitation, all salaries and expenses of
officers and employees of the Issuer performing legal or accounting duties),
(ix) the expense of any annual audit and (x) the fees and expenses incurred in
connection with the listing of the securities to be registered on any securities
exchange. Nothing contained in this Section 6 shall create an obligation on the
part of the Issuer to pay or reimburse any Holder for any underwriting
commission or discount attributable to any such Holder's Transfer Restricted
Securities included in an underwritten offering pursuant to a Registration
Statement filed in accordance with the terms of this Agreement, or to guarantee
such Holder any profit or proceeds from the sale of such Notes.
(b) In connection with any Shelf Registration Statement hereunder,
the Issuer shall reimburse the Holders of the Transfer Restricted Securities
being registered in such registration for the reasonable fees and disbursements
of not more than one counsel chosen by the Holders of a majority in aggregate
principal amount of the Transfer Restricted Securities to be included in such
Registration Statement and other reasonable out-of-pocket expenses of the
Holders of Transfer Restricted Securities reasonably incurred in connection with
the registration of the Transfer Restricted Securities.
7. Indemnification
---------------
The Issuer agrees to indemnify and hold harmless (i) each of the
Purchasers, each Holder of Transfer Restricted Securities, each Holder of
Exchange Securities and each Participating Broker-Dealer, (ii) each person, if
any, who controls (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) any such Person (any of the persons referred to
in this clause (ii) being hereinafter referred to as a "controlling person"),
and (iii) the respective officers, directors, partners, employees,
representatives and agents of any of such Person or any controlling person (any
person referred to in clause (i), (ii) or (iii) may hereinafter be referred to
as an "Indemnified Person") to the fullest extent lawful, from and against any
and all losses, claims, damages, liabilities, judgments, actions and expenses
(including, without limitation, and as incurred, reimbursement of all
reasonable costs of investigating, preparing, pursuing or defending any claim or
action, or any investigation or proceeding by any governmental agency or body,
commenced or threatened, including the reasonable fees and expenses of counsel
to any Indemni-
19
<PAGE>
fied Person) directly or indirectly caused by, related to, based upon, arising
out of or in connection with any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement or Prospectus (as
amended or supplemented if the Issuer shall have furnished any amendments or
supplements thereto) or any preliminary Prospectus, or caused by, arising out of
or based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages or liabilities are caused by (i) any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any Indemnified
Person furnished to the Issuer or any underwriter in writing by such
Indemnified Person or on behalf of such Indemnified Person with such Indemnified
Person's written authorization expressly for use therein, or (ii) any untrue
statement contained in or omission from a preliminary Prospectus if a copy of
the Prospectus (as then amended or supplemented, if the Issuer shall have
furnished to or on behalf of the Holder participating in the distribution
relating to the relevant Registration Statement any amendments or supplements
thereto) was not sent or given by or on behalf of such Holder to the person
asserting any such losses, liabilities, claims, damages or expenses who
purchased Securities, if such is required by law at or prior to the written
confirmation of the sale of such Securities to such person and the untrue
statement contained in or omission from such preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented). The
Issuer shall notify the Holders promptly upon becoming aware thereof of the
institution, threat or assertion of any claim, proceeding (including any
governmental investigation) or litigation of which it shall have become aware in
connection with the matters addressed by this Agreement which involves the
Issuer or an Indemnified Person.
In connection with any Registration Statement in which a Holder of
Transfer Restricted Securities is participating, such Holder of Transfer
Restricted Securities agrees, severally and not jointly, to indemnify and hold
harmless the Issuer and its directors, officers, partners, employees,
representatives and agents and each person who controls the Issuer within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
to the same extent as the foregoing indemnity from the Issuer to each
Indemnified Person, but only with reference to information relating to such
Indemnified Person and furnished to the Issuer in writing by such Indemnified
Person or on behalf of such Indemnified Person with such Indemnified Person's
written authorization expressly for use in any Registration Statement or
Prospectus, any amendment or supplement thereto, or any preliminary Prospectus.
The liability of any Indemnified Person pursuant to this paragraph shall
20
<PAGE>
in no event exceed the net proceeds received by such Indemnified Person from
sales of Transfer Restricted Securities giving rise to such obligations.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
person") in writing, and the indemnifying person, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party, unless (i) the indemnifying person
and the indemnified party shall have mutually agreed in writing to the contrary,
(ii) the indemnifying person shall have failed promptly to assume the defense
and employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
such indemnified party and the indemnifying person, or any affiliate of the
indemnifying person and such indemnified party shall have been reasonably
advised by counsel that either (x) there may be one or more legal defenses
available to it which are different from or additional to those available to the
indemnifying person or such affiliate of the indemnifying person and counsel for
an indemnified person shall have advised such indemnified person that it may not
be adequately represented with respect to such different or additional legal
defenses or (y) a conflict may exist between such indemnified party and the
indemnifying person or such affiliate of the indemnifying person (in which case
the indemnifying person shall not have the right to assume the defense of such
action on behalf of such indemnified party), it being understood, however, that
the indemnifying person shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all such indemnified parties, which firm shall be
reasonably satisfactory to the indemnifying parties. Such separate firm for
sellers of Transfer Restricted Securities shall be designated in writing by
those indemnified parties who sold a majority in outstanding aggregate principal
amount of Transfer Restricted Securities sold by all such indemnified parties,
and any such separate firm for the Issuer, its directors, its officers and such
control persons of the Issuer shall be designated in writing by the Issuer.
The indemnifying person shall not be liable for any
21
<PAGE>
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying person agrees to indemnify any indemnified party from and against
any loss or liability by reason of such settlement or judgment to the extent of
such indemnifying party's indemnification obligation hereunder. No indemnifying
person shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
If the indemnification provided for in the first and second paragraphs
of this Section 7 is unavailable to an indemnified party in respect of any
losses, claims, damages, liabilities, or expenses referred to therein (other
than by reason of the exceptions provided therein), then each indemnifying
person under such paragraphs, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities, or expenses (i)
in such proportion as is appropriate to reflect the relative benefits received
by the indemnified party on the one hand and the indemnifying person(s) on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities, or expenses 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 indemnifying person(s)
and the indemnified party, as well as any other relevant equitable
considerations. The relative fault of the Issuer on the one hand and any
Indemnified Persons on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Issuer or by such Indemnified Persons and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
--- ----
(even if such indemnified parties were treated as one entity for such purpose)
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred
22
<PAGE>
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, in no event
shall an Indemnified Person be required to contribute any amount in excess of
the amount by which proceeds received by such Indemnified Person from sales of
Transfer Restricted Securities or Exchange Securities exceeds the amount of any
damages that such Indemnified Person 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 7
will be in addition to any liability which the indemnifying parties may
otherwise have to the indemnified parties referred to above. The Indemnified
Persons' obligations to contribute pursuant to this Section 7 are several in
proportion to the respective principal amount of Securities sold by each of the
Indemnified Persons hereunder and not joint.
8. Rules 144 and 144A
------------------
The Issuer covenants that it will file the reports required to be
filed by it pursuant to the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder in a timely manner and, if at any
time the Issuer is not required to file such reports, it will, upon the
reasonable request of any Holder of Transfer Restricted Securities, make
available information required by Rule 144 and Rule 144A under the Securities
Act in order to permit sales pursuant to Rule 144 and Rule 144A. The Issuer
further covenants that it will take such further action as any Holder of
Transfer Restricted Securities may reasonably request, all to the extent
required from time to time to enable such Holder to sell Transfer Restricted
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 and Rule 144A, or (b) any similar
rule or regulation hereafter adopted by the SEC.
9. Underwritten Registrations
--------------------------
(a) If any of the Transfer Restricted Securities covered by any Shelf
Registration Statement 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
23
<PAGE>
of such Transfer Restricted Securities included in such offering and shall be
reasonably acceptable to the Issuer.
No Holder of Transfer Restricted Securities may participate in any
underwritten registration hereunder, unless such Holder (a) agrees to sell such
Holder's Transfer Restricted Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
(b) Each Holder of Transfer Restricted Securities agrees, if
requested (pursuant to a timely written notice) by the managing underwriters in
an underwritten offering or by a placement agent in a private offering of the
Issuer's debt securities, not to effect any private sale or distribution
(including a sale pursuant to Rule 144(k) or Rule 144A under the Securities Act,
but excluding non-public sales to any of its affiliates, officers, directors,
employees and controlling persons), of any of the Notes except pursuant to an
Exchange Offer, during the period beginning 10 days prior to, and ending 90 days
after, the closing date of the underwritten offering.
The foregoing provisions shall not apply to any Holder of Transfer
Restricted Securities if such Holder is prevented by applicable statute or
regulation from entering into any such agreement.
The Issuer agrees, without the written consent of the managing
underwriters in an underwritten offering of Transfer Restricted Securities
covered by a Registration Statement filed pursuant to Section 3 hereof, not to
effect any public or private sale or distribution of its respective debt
securities, including a sale pursuant to Regulation D or Rule 144A under the
Securities Act, during the period beginning 10 days prior to, and ending 90 days
after, the closing date of each underwritten offering made pursuant to such
Registration Statement (provided, however, that such period shall be extended by
-------- -------
the number of days from and including the date of the giving of any notice
pursuant to Section 5(c)(v) or (c)(vi) hereof to and including the date when
each seller of Transfer Restricted Securities covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 5(j) hereof).
24
<PAGE>
10. Miscellaneous
-------------
(a) Remedies. In the event of a breach by the Issuer of any of its
--------
obligations under this Agreement, each Holder of Transfer Restricted Securities,
in addition to being entitled to exercise all rights provided herein, in the
Indenture or, in the case of the Initial 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 Issuer agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by the Issuer 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 Issuer has not, as of the date
--------------------------
hereof, and the Issuer shall not, after the date of this Agreement, enter into
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the Holders of Transfer Restricted Securities in this
Agreement or otherwise conflicts with the provisions hereof. The Issuer will
not enter into any agreement with respect to any of its securities which will
grant to any Person piggyback registration rights with respect to a
Registration Statement.
(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 or departures from the provisions
hereof may not be given, unless the Issuer has obtained the written consent of
Holders of at least a majority of the then outstanding aggregate principal
amount of Transfer Restricted Securities. Notwithstanding the foregoing, a
waiver or consent to or departure 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, impair, limit or compromise the rights of other Holders may
be given by Holders of at least a majority in aggregate principal amount of the
Transfer Restricted 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,
registered first-class mail, next-day air courier or telecopier:
25
<PAGE>
(i) if to a Holder of Transfer Restricted Securities, at the most
current address given by the Trustee to the Issuer;
(ii) if to the Issuer, Doskocil Manufacturing Company, Inc., 4209
Barnett, Arlington, Texas, Attention: Donald J. Fritschen, with a copy to
O'Melveny & Myers LLP, 610 Newport Center Drive, Newport Beach, California
92660, Attention: J. Jay Herron, Esq., and
(iii) if to any Initial Purchasers, c/o Donaldson, Lufkin & Jenrette
Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, with a copy to Skadden, Arps, Slate,
Meagher & Flom LLP at 300 South Grand Avenue, Suite 3400, Los Angeles,
California 90071, Attention: Nick P. Saggese, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a nationally recognized next-day air courier, if made
by next-day air courier; and when receipt is acknowledged by the addressee, if
telecopied on a business day on such business day, if not on a business day, on
the first business day thereafter.
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
hereto, including, without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities. The Issuer
agrees that the Holders of the Notes shall be third-party creditor beneficiaries
to the agreements made hereunder by the Initial Purchasers and the Issuer, and
each Holder shall have the right to enforce such agreements directly to the
extent it deems such enforcement necessary or advisable to protect its rights
hereunder.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
26
<PAGE>
(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, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(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 hereto 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, together with the Purchase
----------------
Agreement, is intended by the parties hereto 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 and therein.
(k) Notes Held by the Issuer or its Affiliates. Whenever the consent
------------------------------------------
or approval of Holders of a specified percentage of Transfer Restricted
Securities is required hereunder, Transfer Restricted Securities held by the
Issuer or its affiliates (as such term is defined in Rule 405 under the
Securities Act) (other than the Initial Purchasers or subsequent Holders of
Transfer Restricted Securities or Exchange Notes if such subsequent Holders are
deemed to be affiliates solely by reason of their holdings of such Transfer
Restricted Securities or Exchange Notes), shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
27
<PAGE>
(l) Survival. This Agreement is intended to survive the
--------
consummation of the transactions contemplated by the Purchase Agreement. The
indemnification and contribution obligations under section 7 of this Agreement
shall survive the termination of the Issuer's obligations under sections 2 and 3
of this Agreement.
28
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DOSKOCIL MANUFACTURING COMPANY, INC.
By: /s/ Donald J. Fritschen
------------------------------
Name: Donald J. Fritschen
Title: Chief Financial Officer
The foregoing Registration Rights
Agreement is hereby confirmed and
accepted as of the date first
above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC CAPITAL MARKETS, INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: _____________________________
Name:
Title:
29
<PAGE>
EXHIBIT 10.8
Confidentiality, Non-Competition
and Non-Solicitation Agreement
THIS CONFIDENTIALITY, NON-COMPETITION AND NON-SOLICITATION AGREEMENT (this
"Agreement") is made as of July 1, 1997 by and among Benjamin L. Doskocil, Sr.
and Mary Frances Doskocil (together "Sellers"), and Doskocil Manufacturing
Company, Inc., a Texas corporation ("DMC").
WHEREAS, DMC, Sellers, Enterprise Partners III, L.P., a Delaware limited
partnership ("EPIII"), Enterprise Partners III Associates, L.P., a Delaware
limited partnership ("EPIIIA"), Enterprise Partners IV, L.P., a Delaware limited
partnership ("EPIV"), Enterprise Partners IV Associates, L.P., a Delaware
limited partnership ("EPIVA," together with EPIII, EPIIIA and EPIV, the "EP
Funds"), Enterprise Management Partners Corporation, a California corporation
("EMPC"), Enterprise Partners Texas Company, L.L.C., a Texas limited liability
company and wholly-owned subsidiary of EMPC ("EP Texas," together with EMPC and
EP Funds, the "Buyers"), and Spectrum Polymers, Ltd. ("Spectrum" and, together
with DMC, the "Company") are parties to a Recapitalization Agreement dated July
1, 1997 (the "Recapitalization Agreement"), pursuant to which the Company is
being recapitalized;
WHEREAS, Sellers' management contributions to the Company have been
uniquely valuable and involve proprietary information that would be
competitively unfair to make available to any competitor of the Company in the
United States or in any other country in which the Company is currently doing or
proposing to do business.
WHEREAS, in order to induce Enterprise to enter into the Recapitalization
Agreement and consummate the transactions contemplated thereunder, and for the
cash consideration being paid hereunder, Sellers have agreed to maintain certain
information as confidential, not to compete with the Company and not to solicit
employees of the Company without first obtaining the consent of DMC, all in
accordance with the terms set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Defined Terms. Capitalized terms used herein but not otherwise defined
-------------
shall have the meanings set forth in the Recapitalization Agreement.
2. Consideration. As consideration for entering into this Agreement, DMC
-------------
hereby pays to the Sellers $10,000 by wire transfer of immediately available
funds to such account or accounts designated in writing by Sellers.
3. Confidentiality. For a period of three years from and after the
---------------
Closing Date, Sellers shall not disclose to any person, or use or otherwise
exploit for his or her own benefit or for the benefit of anyone other than the
Company, any Confidential Information (as
1
<PAGE>
defined below). Sellers shall have no obligation to keep confidential any
Confidential Information if and to the extent disclosure thereof is specifically
required by law, judicial or governmental order or other legal process;
provided, however, that in the event such disclosure is required, Sellers shall,
to the extent reasonably practicable, provide DMC with reasonably prompt notice
of such requirement, prior to making any disclosure, so that DMC may seek an
appropriate protective order or waive compliance with this provision with
respect to such disclosure. For purposes of this Agreement, "Confidential
Information" shall mean any confidential information with respect to the conduct
or details of the businesses of the Company including, without limitation,
methods of operation, customer lists, products (existing and proposed), prices,
fees, costs, plans, designs, technology, inventions, trade secrets, know-how,
software, marketing methods, policies, personnel, suppliers, competitors,
markets or other specialized information or proprietary matters of the Company.
The term "Confidential Information" does not include, and there shall be no
obligation hereunder with respect to, information that (a) is generally
available to the public on the date of this Agreement or (b) becomes generally
available to the public other than as a result of a disclosure by either Seller
in violation of this Agreement.
4. Non-Competition.
---------------
(a) Subject to the other provisions of this Section 4, for a period
of five years from and after the Closing Date (the "Noncompetition Term"),
without the prior written consent of DMC, Sellers shall neither (i) knowingly
participate as a stockholder, proprietor, partner, trustee, consultant,
employee, director, officer, lender, or investor in an entity which directly
competes (whether as a manufacturer, distributor or seller) in the United States
or in any other country in which the Company is currently doing business with
the businesses currently conducted or currently proposed to be conducted and the
products currently manufactured or currently proposed to be manufactured by the
Company (each a "Competing Entity") nor (ii) knowingly fund (including by loan,
investment, forbearance, gift or otherwise) any person, including any current or
future employee of the Company or any relative of Sellers, in a Competing
Entity.
(b) Nothing contained herein shall limit the right of either Seller
to hold and make investments in securities of any corporation or limited
partnership that is registered on a national securities exchange or admitted to
trading privileges thereon or actively traded in a generally recognize over-the-
counter market, provided such Seller's equity interest therein does not exceed
5% of the total outstanding shares or interests in such corporation or
partnership.
(c) If, during any period within the Noncompetition Term, either
Seller is not in compliance with the terms of this Section 4, the Company shall
be entitled to, among other remedies, compliance by such Seller with the terms
of this Section 4 for an additional period equal to the period of such
noncompliance. For purposes of this Agreement, the term "Noncompetition Term"
shall also include such additional period.
2
<PAGE>
(d) Each of the Sellers hereby acknowledges that the geographic
boundaries, scope of prohibited activities and the time duration of the
provisions of this Section 4 are reasonable and are no broader than are
necessary to protect the legitimate business interests of the Company.
5. Non-Solicitation and Non-Interference. During the Noncompetition Term,
-------------------------------------
neither Seller shall, directly or indirectly, (a) solicit the employment of any
current or future employee of the Company without the prior written consent of
DMC, (b) request, induce or attempt to influence any employee of the Company to
terminate his or her employment with the Company, or (c) request, induce or
attempt to influence any supplier or customer of the Company to terminate its
relationship with the Company; provided, however, that this Agreement shall not
prohibit (i) any advertisement or general solicitation that is not specifically
targeted at employees of the Company, and (ii) solicitation of the employment of
any former employee of the Company who either resigned from the Company at least
one year prior to such solicitation or was terminated by the Company at least
one year prior to such solicitation. Notwithstanding the foregoing, the persons
listed on Appendix A shall not be subject to the non-solicitation covenants set
forth in clauses (a) and (b) of this Section 5.
6. Injunctive Relief. Each Seller acknowledges that the breach of any of
-----------------
the agreements contained herein, including, without limitation, any of the
confidentiality, non-competition and non-solicitation covenants specified in
Sections 3 through 5, may give rise to irreparable injury to the Company,
inadequately compensable in money damages. Accordingly, the Company shall be
entitled to injunctive relief to prevent or cure breaches or threatened breaches
of the provisions of this Agreement and to enforce specific performance of the
terms and provisions hereof in any court of competent jurisdiction, in addition
to any other legal or equitable remedies which may be available. Sellers waive
any requirements for the posting of a bond in connection with the issuance of
such an injunction. Each Seller further acknowledges and agrees that his or her
experience and capabilities are such that he or she can obtain employment in
business activities which are of a different or noncompeting nature with his or
her activities as an employee of the Company; and that the enforcement of a
remedy hereunder by way of injunction shall not prevent such Seller from earning
a reasonable livelihood. Each Seller further acknowledges and agrees that the
covenants contained herein are necessary for the protection of the Company's
legitimate business interests and are reasonable in scope and content.
7. Miscellaneous.
-------------
(a) Amendment and Waiver. This Agreement may be amended and any
--------------------
provision of this Agreement may be waived, provided that any such amendment or
waiver will be binding upon a party only if such amendment or waiver is set
forth in a writing executed by DMC and Sellers.
(b) Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given upon the earlier of delivery thereof if by
hand or upon receipt if sent by mail (registered or certified mail, postage
prepaid, return receipt requested)
3
<PAGE>
or on the second next business day after deposit if sent by a recognized
overnight delivery service or upon transmission if sent by telecopy or facsimile
transmission (with request of assurance of receipt in a manner customary for
communication of such type) as follows:
(i) If to the Company, to:
Doskocil Manufacturing Company, Inc.
4209 Barnett
Arlington, Texas 76017
Attention: President
Facsimile No.: (817) 465-5686
with copies to:
O'Melveny & Myers
610 Newport Center Drive
17th Floor
Newport Beach, California 92660
Attention: J. Jay Herron
Facsimile No.: (714) 669-6994
(ii) If to Sellers, to:
Benjamin L. Doskocil, Sr.
5306 Mansfield Road
Arlington, Texas 76017
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby
Facsimile No.: (214) 746-7777
(c) Entire Agreement. This Agreement and the documents referred to
----------------
herein contain the entire agreement between the parties and supersede any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.
(d) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
4
<PAGE>
(e) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Texas without regard to the
conflicts-of-laws rules thereof.
(f) Jurisdiction and Venue. The parties hereto agree that any suit,
----------------------
action or proceeding arising out of or relating to this Agreement shall be
instituted only in a court of competent jurisdiction sitting in Tarrant County,
Texas. Each party waives any objection it may have now or hereafter to the
laying of the venue of any such suit, action or proceeding, and irrevocably
submits to the jurisdiction of any such court in any such suit, action or
proceeding.
(g) Headings. The article and section headings contained in this
--------
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect in any way the meaning or interpretation of
this Agreement.
(h) Severability and Reformation. Whenever possible, each provision
----------------------------
of this Agreement will be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
Notwithstanding the foregoing, in the event a court of competent jurisdiction
should decline to enforce the provisions of Section 4 hereof, such Section 4
shall be deemed to be modified or reformed to restrict each Seller's competition
with the Company or its subsidiaries to the maximum extent, as to time,
geography and business scope, which the court shall find enforceable.
(i) Successors and Assigns. This Agreement and the rights and duties
----------------------
hereunder shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
DOSKOCIL MANUFACTURING COMPANY, INC.
By: /s/ DONALD J. FRITSCHEN
-------------------------------------
Name: Donald J. Fritschen
-----------------------------------
Title: Vice President
----------------------------------
/s/ BENJAMIN L. DOSKOCIL, SR
----------------------------------------
Benjamin L. Doskocil, Sr.
/s/ MARY FRANCES DOSKOCIL
----------------------------------------
Mary Frances Doskocil
6
<PAGE>
Appendix A
Jahron (Ronnie) Fleener
7
<PAGE>
July 1, 1997 EXHIBIT 10.9
Benjamin L. Doskocil, Sr.
5306 Mansfield Road
Arlington, Texas 76017
Dear Ben:
We are delighted that you will continue to be involved with Doskocil
Manufacturing Company, Inc. (the "Company") after the recapitalization. The
purpose of this letter is to set forth certain terms of your association with
the Company. Capitalized terms used herein, but not otherwise defined, shall
have the meanings set forth in the Recapitalization Agreement dated July 1, 1997
by and among Enterprise Partners III, L.P., Enterprise Partners Associates,
L.P., Enterprise Partners IV, L.P., Enterprise Partners IV Associates, L.P,
Enterprise Management Partners Corporation, EP Texas Company LLC, Benjamin L.
Doskocil, Sr., Mary Frances Doskocil, Bed Rock International, Inc., Doskocil
Manufacturing Company, Inc. and Spectrum Polymers, Ltd.
At and after the Closing Date, you shall, until determined otherwise
by the Board of Directors, be the Chairman of the Board of the Company and shall
have the responsibilities outlined in this letter. You shall also, by execution
and delivery of this letter, be deemed to have resigned as President and Chief
Executive Officer of the Company and your compensation from the Company and as
an employee or officer of Spectrum Polymers, Ltd. shall cease, except as
otherwise set forth herein.
We request your attendance in person or by telephone at all regularly
scheduled meetings of the Company's Board of Directors. You shall receive
$2,000 for your attendance at any such regularly scheduled meeting except that
you shall receive no compensation for any telephonic meeting that lasts
approximately one-half hour or less.
The Company desires that you provide consulting services to the
Company from time to time, the nature and scope of such services to be mutually
agreed between you and the Company. When, as requested by the Company, you
provide such services, you will receive a cash fee of $2,000 per day. The
Company's engagement of Bemar Construction or any other entity controlled by you
shall not be considered consulting services provided by you as contemplated
hereby unless specifically so designated in writing by the Chief Executive
Officer of the Company.
<PAGE>
Page 2 - Mr Benjamin L. Doakocil, Sr.
The Company would like you to act as an "Ambassador" for the Company
when your schedule permits. As such, the Company would like you to attend trade
shows that benefit the Company. The Company will pay the travel costs for you
and your wife, including without limitation food, lodging and first class air
fare, for attendance at such trade shows. You and your wife will be reimbursed
for all out-of-pocket travel costs for attending such trade shows.
Any consulting services you provide will be as an independent
contractor and you will not be eligible for benefits generally available to
employees of the Company except as otherwise provided for in this letter. While
a director of the Company, you will be entitled to continue your health
insurance in accordance with the plan and Company policies as may from time to
time in effect.
Since you will remain a significant shareholder of the Company, you
will not be eligible to participate in any stock option or similar program made
available to other outside directors, provided that the Company also will not
permit any other directors of the Company having an association or affiliation
with Westar Capital, L.P. or Enterprise Partners, L.P. or their affiliates from
participating in such programs unless, provided that you are then a director,
you also participate on comparable basis in such program.
We request that as soon as convenient after the Closing Date, you
relocate your office into space leased by Bemar Construction. When convenient
in the future, the Company understands you plan to move your office off the
Doskocil campus. The Company will be pleased to pay for the reasonable costs of
your off campus relocation. Your assistant, Ms. Ronnie Flener, may choose to
resign and accompany you; otherwise, she will be reassigned to a comparable
position with the Company, and while an employee she shall receive no less than
her current salary without regard to any special bonus she may receive from the
Company prior to the Closing.
<PAGE>
Page 3 - Mr. Benjamin L. Doskocil, Sr.
Very truly yours
Doskocil Holdings Inc.
By: /s/ LARRY E. REMBOLD
--------------------------
Larry E. Rembold
President
Acknowledged and Agreed to:
/s/ BENJAMIN L. DOSKOCIL, SR
- -----------------------------
Benjamin L. Doskocil, Sr.
Dated: July 1, 1997
-------------
<PAGE>
EXHIBIT 10.10
================================================================================
$110,000,000
CREDIT AGREEMENT
AMONG
DOSKOCIL MANUFACTURING COMPANY, INC.
CERTAIN LENDERS NAMED HEREIN
AND
NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE AGENT
NATIONSBANC CAPITAL MARKETS, INC., AS ARRANGER
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION, AS ARRANGER
September 19, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
Definitions
-----------
Section 1.1 Defined Terms............................................ 1
-------------
Section 1.2 Amendments and Renewals.................................. 27
-----------------------
Section 1.3 Construction............................................. 27
------------
ARTICLE 2
Advances
--------
Section 2.1 The Advances............................................. 27
------------
Section 2.2 Manner of Borrowing and Disbursement..................... 28
------------------------------------
Section 2.3 Interest................................................. 31
--------
Section 2.4 Fees..................................................... 33
----
Section 2.5 Prepayments.............................................. 33
-----------
Section 2.6 Reduction of Revolving Credit Commitment................. 35
----------------------------------------
Section 2.7 Non-Receipt of Funds by the Administrative Agent......... 36
------------------------------------------------
Section 2.8 Payment of Principal of Advances......................... 36
--------------------------------
Section 2.9 Reimbursement............................................ 38
-------------
Section 2.10 Manner of Payment........................................ 39
-----------------
Section 2.11 LIBOR Lending Offices.................................... 40
---------------------
Section 2.12 Sharing of Payments...................................... 40
-------------------
Section 2.13 Calculation of LIBOR Rate................................ 41
-------------------------
Section 2.14 Taxes.................................................... 41
-----
Section 2.15 Letters of Credit........................................ 44
-----------------
ARTICLE 3
Conditions Precedent
--------------------
Section 3.1 Conditions Precedent to the Initial Advances and the
----------------------------------------------------
Initial Letters of Credit............................... 50
-------------------------
Section 3.2 Conditions Precedent to All Advances and Letters of
---------------------------------------------------
Credit.................................................. 53
------
Section 3.3 Conditions Precedent to Conversions and Continuations.... 54
-----------------------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 4
Representations and Warranties
------------------------------
Section 4.1 Representations and Warranties........................... 55
------------------------------
Section 4.2 Survival of Representations and Warranties, etc.......... 62
-----------------------------------------------
ARTICLE 5
General Covenants
-----------------
Section 5.1 Preservation of Existence and Similar Matters............ 63
---------------------------------------------
Section 5.2 Business; Compliance with Applicable Law................. 63
----------------------------------------
Section 5.3 Maintenance of Properties................................ 63
-------------------------
Section 5.4 Accounting Methods and Financial Records................. 63
----------------------------------------
Section 5.5 Insurance................................................ 63
---------
Section 5.6 Payment of Taxes and Claims.............................. 64
---------------------------
Section 5.7 Visits and Inspections................................... 64
----------------------
Section 5.8 Use of Proceeds.......................................... 64
---------------
Section 5.9 Indemnity................................................ 64
---------
Section 5.10 Environmental Law Compliance............................. 66
----------------------------
Section 5.11 Further Assurances....................................... 67
------------------
Section 5.12 Subsidiaries............................................. 67
------------
ARTICLE 6
Information Covenants
---------------------
Section 6.1 Monthly Financial Statements and Information............. 68
--------------------------------------------
Section 6.2 Quarterly Financial Statements and Information........... 68
----------------------------------------------
Section 6.3 Annual Financial Statements and Information;
--------------------------------------------
Certificate of No Default............................... 68
-------------------------
Section 6.4 Compliance Certificate................................... 69
----------------------
Section 6.5 Copies of Other Reports and Notices...................... 69
-----------------------------------
Section 6.6 Notice of Litigation, Default and Other Matters.......... 70
-----------------------------------------------
Section 6.7 ERISA Reporting Requirements............................. 70
----------------------------
ARTICLE 7
Negative Covenants
------------------
Section 7.1 Indebtedness............................................. 72
------------
Section 7.2 Liens.................................................... 73
-----
Section 7.3 Investments.............................................. 73
-----------
Section 7.4 Liquidation, Merger...................................... 74
-------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 7.5 Sales of Assets.......................................... 74
---------------
Section 7.6 Acquisitions............................................. 75
------------
Section 7.7 Capital Expenditures..................................... 75
--------------------
Section 7.8 Restricted Payments...................................... 75
-------------------
Section 7.9 Affiliate Transactions................................... 76
----------------------
Section 7.10 Compliance with ERISA.................................... 76
---------------------
Section 7.11 Maximum Leverage Ratio................................... 76
----------------------
Section 7.12 Minimum Fixed Charge Coverage Ratio...................... 77
-----------------------------------
Section 7.13 Interest Coverage Ratio.................................. 77
-----------------------
Section 7.14 Sale or Discount of Receivables.......................... 77
-------------------------------
Section 7.15 Business................................................. 77
--------
Section 7.16 Fiscal Year.............................................. 77
-----------
Section 7.17 Amendment of Organizational Documents.................... 77
-------------------------------------
Section 7.18 Amendments and Waivers of Subordinated Debt.............. 78
-------------------------------------------
ARTICLE 8
Default
-------
Section 8.1 Events of Default........................................ 78
-----------------
Section 8.2 Remedies................................................. 81
--------
ARTICLE 9
Changes in Circumstances
------------------------
Section 9.1 LIBOR Basis Determination Inadequate..................... 82
------------------------------------
Section 9.2 Illegality............................................... 82
----------
Section 9.3 Increased Costs.......................................... 83
---------------
Section 9.4 Effect On Base Rate Advances............................. 84
----------------------------
Section 9.5 Capital Adequacy......................................... 84
----------------
Section 9.6 Replacement Lender....................................... 85
------------------
ARTICLE 10
Agreement Among Lenders
-----------------------
Section 10.1 Agreement Among Lenders.................................. 85
-----------------------
Section 10.2 Lender Credit Decision................................... 88
----------------------
Section 10.3 Benefits of Article...................................... 88
-------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 11
Miscellaneous
-------------
Section 11.1 Notices.................................................. 89
-------
Section 11.2 Expenses................................................. 90
--------
Section 11.3 Waivers.................................................. 90
-------
Section 11.4 Calculation by the Lenders Conclusive and Binding........ 91
-------------------------------------------------
Section 11.5 Set-Off.................................................. 91
-------
Section 11.6 Assignment............................................... 91
----------
Section 11.7 Counterparts............................................. 93
------------
Section 11.8 Severability............................................. 93
------------
Section 11.9 Interest and Charges..................................... 93
--------------------
Section 11.10 Headings................................................. 94
--------
Section 11.11 Amendment and Waiver..................................... 94
--------------------
Section 11.12 Exception to Covenants................................... 95
----------------------
Section 11.13 No Liability of Issuing Bank............................. 95
----------------------------
Section 11.14 Confidentiality.......................................... 95
---------------
Section 11.15 No Novation.............................................. 96
-----------
Section 11.16 Governing Law............................................ 96
-------------
Section 11.17 Waiver of Jury Trial..................................... 96
--------------------
Section 11.18 Entire Agreement......................................... 96
----------------
</TABLE>
iv
<PAGE>
Schedules and Exhibits
- ----------------------
Schedule 1: LIBOR Lending Offices
Schedule 2: Existing Liens
Schedule 3: Existing Litigation
Schedule 4: Subsidiaries
Schedule 5: Existing Investments
Schedule 6: Existing Indebtedness
Schedule 7: Qualification and Good Standing
Schedule 8: Labor Relations
Schedule 9: EBIT Special Adjustments
Exhibit A: Revolving Credit Note
Exhibit B: Facility A Term Loan Note
Exhibit C: Facility B Term Loan Note
Exhibit D: General Security Agreement
Exhibit E: Intellectual Property Security Agreement and Assignment
Exhibit F: Compliance Certificate
Exhibit G: Assignment Agreement
Exhibit H: Subsidiary Guaranty
Exhibit I: Notice of Borrowing
Exhibit J-1: Leasehold Deed of Trust
Exhibit J-2: Fee Simple Deed of Trust
Exhibit K: Landlord's Waiver
Exhibit L: Swing Line Note
v
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT is dated as of September 19, 1997, among DOSKOCIL
MANUFACTURING COMPANY, INC., a Texas corporation (the "Borrower"), the Lenders
from time to time party hereto, and NATIONSBANK OF TEXAS, N.A., a national
banking association, as administrative agent for the Lenders.
BACKGROUND
----------
The Lenders have been requested to provide the Borrower funds to (a)
consummate the Dogloo Transaction (as hereinafter defined) (b) refinance a
portion of the existing debt of the Borrower and Dogloo (as hereinafter
defined), including, but not limited to, the debt of the Borrower outstanding
pursuant to the terms of that certain Credit Agreement, dated as of July 1,
1997, among the Borrower, the lenders party thereto, and NationsBank of Texas,
N.A., as the Administrative Agent (the "Existing Credit Agreement") and the
Bridge Notes (as hereinafter defined), (c) pay certain fees and expenses related
to the Dogloo Transaction, and (d) finance the ongoing working capital and
general corporate requirements of the Borrower and its Subsidiaries (as
hereinafter defined). The Lenders have agreed to provide such financing,
subject to the terms and conditions set forth below.
In consideration of the mutual covenants and agreements contained herein,
and other good and valuable consideration hereby acknowledged, the parties
hereto agree as follows:
ARTICLE 1
Definitions
-----------
Section 1.1 Defined Terms. For purposes of this Agreement:
-------------
"Account" has the meaning assigned to such term in the UCC.
-------
"Acquisition" means any transaction pursuant to which the Borrower or any
-----------
of its Subsidiaries, (a) whether by means of a capital contribution or purchase
or other acquisition of stock or other securities or other equity participation
or interest, (i) acquires more than 50% of the equity interest in any Person
pursuant to a solicitation by the Borrower or such Subsidiary of tenders of
equity securities of such Person, or through one or more negotiated block,
market, private or other transactions, or a combination of any of the foregoing,
or (ii) makes any corporation a Subsidiary of the Borrower or such Subsidiary,
or causes any corporation, other than a Subsidiary of the Borrower or such
Subsidiary, to be merged into the Borrower or such Subsidiary (or agrees to be
merged into any other corporation other than a wholly-owned Subsidiary
(excluding directors' qualifying shares) of the Borrower or
1
<PAGE>
such Subsidiary), or (b) purchases all or substantially all of the business or
assets of any Person or of any operating division of any Person.
"Acquisition Consideration" means the consideration given by the Borrower
-------------------------
or any of its Subsidiaries for an Acquisition, including but not limited to the
fair market value of any cash, property, stock or services given and the amount
of any Indebtedness assumed or incurred by the Borrower or any Subsidiary of the
Borrower in connection with such Acquisition.
"Administrative Agent" means NationsBank of Texas, N.A., a national banking
--------------------
association, as administrative agent for Lenders, or such successor
administrative agent appointed pursuant to Section 10.1(b) hereof.
---------------
"Administrative Agent Fee Letter" has the meaning specified in Section
------------------------------- -------
2.4(b) hereof.
- ------
"Advance" means any amount advanced by the Lenders to the Borrower pursuant
-------
to Article 2 hereof on the occasion of any borrowing.
---------
"Affiliate" means, as applied to any Person, any other Person that,
---------
directly or indirectly, through one or more Persons, Controls or is Controlled
By or Under Common Control with, such Person.
"Agreement" means this Credit Agreement, as amended, modified, supplemented
---------
or restated from time to time.
"Agreement Date" means the date of this Agreement.
--------------
"Applicable Base Rate Margin" means the following per annum percentages,
---------------------------
applicable in the following situations:
<TABLE>
<CAPTION>
Facility A Term Facility B
Loan Advances and Term Loan
Applicability Revolving Advances Advances
- -------------- ------------------ -----------
<S> <C> <C>
(a) Initial Pricing Period 0.750% 1.250%
----------------------
(b) Subsequent Pricing Period
-------------------------
(1) The Leverage Ratio is greater than or 0.750% 1.250%
equal to 4.50 to 1
(2) The Leverage Ratio is less than 4.50 to 0.500% 1.000%
1 but greater than or equal to 3.50 to 1
(3) The Leverage Ratio is less than 3.50 to 1 0.000% 0.500%
</TABLE>
2
<PAGE>
During the Subsequent Pricing Period, the Applicable Base Rate Margin payable by
the Borrower on the Base Rate Advances outstanding hereunder shall be subject to
reduction or increase, as applicable and as set forth in the table above, on a
quarterly basis according to the performance of the Borrower as tested by using
the Leverage Ratio calculated as of the end of each fiscal quarter; provided,
--------
that each adjustment in the Base Rate Basis as a result of a change in the
Applicable Base Rate Margin shall be effective with respect to Base Rate
Advances (i) made following receipt by the Administrative Agent of the financial
statements required to be delivered pursuant to Section 6.2 or 6.3 hereof, as
----------- ---
applicable, for each such fiscal quarter, and the corresponding Compliance
Certificate required pursuant to Section 6.4 hereof, on the date of making such
-----------
Base Rate Advance and (ii) outstanding on the date of receipt of such financial
statements and Compliance Certificate referred to in clause (i) immediately
preceding, on the date which is two Business Days following the date of receipt
of such financial statements and Compliance Certificate. If such financial
statements and Compliance Certificate are not received by the Administrative
Agent by the date required, the Applicable Base Rate Margin shall be determined
as if the Leverage Ratio is greater than 4.50 to 1 until such time as such
financial statements and Compliance Certificate are received.
"Applicable Environmental Laws" means applicable laws pertaining to health
-----------------------------
or the environment, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended from time
to time, "CERCLA"), the Resource Conservation and Recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended from time to time, "RCRA").
"Applicable Law" means (a) in respect of any Person, all provisions of
--------------
constitutions, statutes, rules, regulations and final orders of governmental
bodies or regulatory agencies applicable to such Person and its properties,
including, without limiting the foregoing, all orders and decrees of all
Tribunals in proceedings or actions to which the Person in question is a party,
and (b) in respect of contracts relating to interest or finance charges that are
made or performed in the State of Texas, "Applicable Law" shall mean the laws of
the United States of America, including without limitation 12 USC (S)(S) 85 and
86, as amended from time to time, and any other statute of the United States of
America now or at any time hereafter prescribing the maximum rates of interest
on loans and extensions of credit, and the laws of the State of Texas.
"Applicable LIBOR Rate Margin" means the following per annum percentages,
----------------------------
applicable in the following situations:
3
<PAGE>
<TABLE>
<CAPTION>
Facility A Term
Loan Advances and Facility B Term
Applicability Revolving Advances Loan Advances
- ------------- ------------------ --------------
<S> <C> <C>
(a) Initial Pricing Period 2.250% 2.750%
----------------------
(b) Subsequent Pricing Period
-------------------------
(1) The Leverage Ratio is greater 2.250% 2.750%
than or equal to 4.50 to 1
(2) The Leverage Ratio is less than 2.000% 2.500%
4.50 to 1 but greater than or
equal to 3.50 to 1
(3) The Leverage Ratio is less than 1.500% 2.000%
3.50 to 1
</TABLE>
During the Subsequent Pricing Period, the Applicable LIBOR Rate Margin payable
by the Borrower on the LIBOR Advances outstanding hereunder shall be subject to
reduction or increase, as applicable and as set forth in the table above, on a
quarterly basis according to the performance of the Borrower as tested by using
the Leverage Ratio calculated as of the end of each fiscal quarter; provided,
--------
that each adjustment in the LIBOR Basis as a result of a change in the
Applicable LIBOR Rate Margin shall be effective with respect to LIBOR Advances
(i) made following receipt by the Administrative Agent of the financial
statements required to be delivered pursuant to Section 6.2 or 6.3 hereof, as
----------- ---
applicable, for each such fiscal quarter, and the corresponding Compliance
Certificate required pursuant to Section 6.4 hereof, on the date of making such
-----------
LIBOR Advance and (ii) outstanding on the date of receipt of such financial
statements and Compliance Certificate referred to in clause (i) immediately
preceding, on the date which is two Business Days following the date of receipt
of such financial statements and Compliance Certificate. If such financial
statements and Compliance Certificate are not received by the Administrative
Agent by the date required, the Applicable LIBOR Rate Margin shall be determined
as if the Leverage Ratio is greater than 4.50 to 1 until such time as such
financial statements and Compliance Certificate are received.
"Applicable Specified Percentage" means the Revolving Credit Specified
-------------------------------
Percentage, the Facility A Term Loan Specified Percentage, the Facility B Term
Loan Specified Percentage or the Total Specified Percentage, as applicable in
the context used.
"Assignees" means any assignee of a Lender pursuant to an Assignment
---------
Agreement and shall have the meaning ascribed thereto in Section 11.6 hereof.
------------
"Assignment Agreement" has the meaning specified in Section 11.6 hereof.
-------------------- ------------
"Authorized Signatory" means such senior personnel of the Borrower or the
--------------------
Parent as may be duly authorized and designated in writing by the Borrower or
the Parent to execute
4
<PAGE>
documents, agreements and instruments on behalf of the Borrower or the Parent,
and to request Advances and Letters of Credit hereunder.
"Base Rate Advance" means any Advance bearing interest at the Base Rate
-----------------
Basis.
"Base Rate Basis" means, for any day, a per annum interest rate equal to
---------------
the higher of (a) the sum of (i) 0.50% plus (ii) the Federal Funds Rate on such
day plus (iii) the Applicable Base Rate Margin or (b) the sum of (i) the Prime
Rate on such day plus (ii) the Applicable Base Rate Margin. The Base Rate Basis
shall be adjusted automatically without notice as of the opening of business on
the effective date of each change in the Prime Rate or Federal Funds Rate, as
applicable, to account for such change.
"Basle Accord" means the proposals for risk-based capital framework
------------
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital Management
and Capital Standards" dated July 1988, as amended, modified, and supplemented
and in effect from time to time or any replacement thereof.
"Borrowing Base" means, at the time in question, an amount equal to the sum
--------------
of (a) 80% of Eligible Accounts plus (b) 50% of Eligible Inventory.
"Bridge Notes" means those certain senior subordinated increasing rate
------------
notes of the Borrower issued by the Borrower in connection with the Doskocil
Transaction in an aggregate principal amount of $32,500,000.00.
"Business Day" means a day on which commercial banks are open (a) for the
------------
transaction of business in Dallas, Texas, and (b) with respect to any LIBOR
Advance, for the transaction of international business (including dealings in
U.S. Dollar deposits) in London, England.
"Capital Expenditures" means, for any period, expenditures made by the
--------------------
Borrower and its Subsidiaries to acquire or construct fixed assets, plant and
equipment (including renewals, improvements and replacements during such period
and the aggregate amount of items leased or acquired under Capitalized Lease
Obligations at the cost of the item) computed in accordance with GAAP,
consistently applied; provided, however, notwithstanding the foregoing, Capital
-------- -------
Expenditures shall not include any such expenditures to the extent that they are
made in conjunction with an Acquisition and are included as Acquisition
Consideration. For the purpose of this definition, the purchase price of
equipment which is acquired concurrently or in conjunction with the trade-in of
existing equipment owned by the Borrower or any of its Subsidiaries or with
insurance proceeds shall be included in Capital Expenditures only to the extent
of the gross amount of such purchase price less the credit granted by the seller
of such equipment being traded in at such time or the amount of such proceeds,
as the case may be, and the purchase price of equipment which is acquired in
connection with the sale or other disposition of capital assets which have been
replaced or superseded shall be included in Capital Expenditures only to the
extent of the
5
<PAGE>
gross amount of such purchase price less any cash received from such sale or
other disposition.
"Capitalized Lease Obligations" means that portion of any obligation of the
-----------------------------
Borrower or any Subsidiary of the Borrower as lessee under a lease which at the
time would be required to be capitalized on a balance sheet of the Borrower or
such Subsidiary prepared in accordance with GAAP.
"Cash and Cash Equivalents" means with respect to the Borrower and each
-------------------------
Subsidiary of the Borrower (a) cash, (b) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (c) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000, (d) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (b) and (c) entered into with any financial institution
meeting the qualifications specified in clause (c) above, (e) commercial paper
issued by any Lender or the parent corporation of any Lender, and commercial
paper rated A-1 or the equivalent thereof by Standard & Poor's Ratings Group, a
Division of McGraw-Hill, Inc., a New York corporation, or P-1 or the equivalent
thereof by Moody's Investors Service, Inc., and in each case maturing within six
months after the date of acquisition, and (f) a readily redeemable "money market
mutual fund" advised by a bank described in clause (iii) hereof, or an
investment advisor registered under Section 203 of the Investment Advisors Act
of 1940, that has and maintains an investment policy limiting its investments
primarily to instruments of the types described in clauses (a) through (e)
hereof and having on the date of such Investment total assets of at least
$200,000,000.00.
"Change of Control" means the occurrence of any of the following events
-----------------
after the Agreement Date: (a) any Person or any Persons acting together which
would constitute a "group" (a "Group") for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor provision thereto, other than the Specified Investors, shall
beneficially own (as defined in Rule 13d-3 of the Securities and Exchange
Commission under the Exchange Act or any successor provision thereto) at least
51% of the aggregate Voting Power of the Borrower; (b) during any period of
twenty-four consecutive months, individuals who at the beginning of such period
constituted the Board of Directors of the Borrower (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Borrower was approved by a vote of a
majority of the directors of the Borrower then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Borrower then in office; (c)(i) prior
to the occurrence of a public offering of the Borrower's common stock, the
Specified Investors shall fail to own at least 50% of the aggregate Voting Power
of the Borrower or (ii) from and after the occurrence of a public offering of
the Borrower's common stock, the Specified Investors shall fail to own
6
<PAGE>
at least 30% of the aggregate Voting Power of the Borrower; or (d) any "Change
of Control", "Change in Control" or similar event or circumstance, however
defined or designated, under any agreement or document governing any
Institutional Debt.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral" means any collateral hereafter granted by any Person to the
----------
Administrative Agent for the benefit of the Lenders to secure the Obligations.
"Collateral Document" means any document under which Collateral is granted
-------------------
and any document related thereto.
"Commitments" means, collectively, the Revolving Credit Commitment, the
-----------
Facility A Term Loan Commitment and the Facility B Term Loan Commitment, as
reduced from time to time in the case of the Revolving Credit Commitment
pursuant to Section 2.6 hereof.
-----------
"Compliance Certificate" means a certificate, signed by an Authorized
----------------------
Signatory, in substantially the form of Exhibit F, appropriately completed.
---------
"Control" or "Controlled By" or "Under Common Control" means possession,
------- ------------- --------------------
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of voting securities, by contract or
otherwise); provided, however, that in any event any Person which beneficially
owns, directly or indirectly, 10% or more (in number of votes) of the securities
having ordinary voting power for the election of directors of a corporation
shall be conclusively presumed to control such corporation, except that Benjamin
L. Doskocil, Sr. shall not be deemed to control the Borrower by reason of such
voting power so long as he is the beneficial owner, directly or indirectly, of
no more than 15% of such voting power.
"Controlled Group" means as of the applicable date, as to any Person not an
----------------
individual, all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) which are under common control with
such Person and which, together with such Person, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code; provided, however,
that the Subsidiaries of the Borrower shall be deemed to be members of the
Borrower's Controlled Group.
"Creditor" means a creditor of the Borrower or any Subsidiary of the
--------
Borrower and shall not include any Affiliate of any such creditor.
"Debtor Relief Laws" means any applicable liquidation, conservatorship,
------------------
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief Laws affecting the rights of creditors generally from time to time
in effect.
7
<PAGE>
"Deed of Trust" means any leasehold or fee simple Deed of Trust or
-------------
Mortgage, as applicable, relating to the real property and improvements leased
and owned by the Borrower and each Domestic Subsidiary of the Borrower, in
substantially the form set forth in Exhibit J-1 and Exhibit J-2.
----------- -----------
"Default" means an Event of Default and/or any of the events specified in
-------
Section 8.1, regardless of whether there shall have occurred any passage of time
- -----------
or giving of notice that would be necessary in order to constitute such event an
Event of Default.
"Default Rate" means a simple per annum interest rate equal to (a) with
------------
respect to Base Rate Advances the lesser of (i) the Highest Lawful Rate or (ii)
the Base Rate Basis then in effect plus 2.00% or (b) with respect to LIBOR
Advances, the lesser of (i) the Highest Lawful Rate or (ii) the LIBOR Basis then
in effect plus 2.00%.
"Determining Lenders" means, on any date of determination, any combination
-------------------
of Lenders whose Total Specified Percentages result in exposure to such Lenders
equal to more than 50% of the sum of (a) the sum of (i) all outstanding
Revolving Credit Advances on such date, plus (ii) the Unused Portion on such
date, plus (b) all outstanding Facility A Term Loan Advances on such date, plus
(c) all outstanding Facility B Term Loan Advances on such date.
"Dividend" means, as to any Person, (a) any declaration or payment of any
--------
dividend (other than a stock dividend) on, or the making of any distribution on
account of, any Equity Interests of such Person and (b) any purchase,
redemption, or other acquisition or retirement for value of any Equity Interests
of such Person.
"Dogloo" means Dogloo, Inc., a California corporation.
------
"Dogloo Merger" means the merger of Dogloo with and into the Borrower
-------------
through the exchange of Equity Interests of the Borrower for all outstanding
Equity Interests of Dogloo, with the Borrower being the surviving corporation.
"Dogloo Transaction" means, collectively, (a) the Dogloo Merger, (b) the
------------------
issuance by the Borrower of the Senior Subordinated Notes, (c) the Dogloo
Transaction Restricted Payments, and (c) the refinancing of all existing
Indebtedness of Dogloo and the Borrower, including but limited to all
Indebtedness in respect of the Existing Credit Agreement and the Bridge Notes.
"Dogloo Transaction Documents" means all agreements, documents and
----------------------------
instruments executed in connection with or related to the Dogloo Transaction.
"Dogloo Transaction Restricted Payments" means (a) the redemption of Common
--------------------------------------
Stock of the Borrower for an aggregate amount not to exceed $11,000,000, (b) the
redemption of Series A Preferred Stock of the Borrower for an aggregate amount
not to exceed $7,000,000 plus accrued dividends thereon, (c) the redemption of
Series B Preferred
8
<PAGE>
Stock of the Borrower for an aggregate amount not to exceed $12,652,000 plus
accrued dividends thereon, (d) the redemption of Series C Preferred Stock of the
Borrower for an aggregate amount not to exceed $3,474,000 plus accrued dividends
thereon, (e) the payment of accrued dividends on Series C Preferred Stock of the
Borrower that are not redeemed in connection with the Doskocil Transaction not
to exceed $1,576,000, (f) payments to certain shareholders (including option
holders) and employees of Dogloo in connection with the Dogloo Transaction not
to exceed $730,000 in aggregate amount, and (g) payments to Westar Capital of a
transaction advisory fee incurred in connection with the 1995 Dogloo
recapitalization not to exceed $450,000.
"Dollar" or "$" means the lawful currency of the United States of America.
------ -
"Domestic Subsidiary" means any Subsidiary of the Borrower other than a
-------------------
Foreign Subsidiary.
"Doskocil Transaction" has the meaning given to such term in the Existing
--------------------
Credit Agreement.
"Doskocil Transaction Documents" has the meaning given to such term in the
------------------------------
Existing Credit Agreement.
"EBIT" means, for any period, determined in accordance with GAAP on a
----
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) Pretax
Net Income (excluding therefrom, to the extent included in determining Pretax
Net Income, any items of extraordinary gain, including net gains on the sale of
assets other than asset sales in the ordinary course of business, and adding
thereto, to the extent included in determining Pretax Net Income, any items of
extraordinary loss, including net losses on the sale of assets other than asset
sales in the ordinary course of business), plus (b) interest expense (including
interest expense pursuant to Capitalized Lease Obligations), plus (c) EBIT
Special Adjustments.
"EBIT Special Adjustments" means an amount equal to the sum of (a)
------------------------
management fees in favor of Westar Capital recorded as a one-time charge in
August, 1997, up to a maximum of $450,000, plus (b) relocation costs relating to
the integration of the Borrower and Dogloo, up to a maximum of $825,000, plus
(c) transaction fees and expenses related to the Doskocil Transaction and the
Dogloo Transaction, plus (d) those items set forth on Schedule 9 hereto to the
----------
extent they are required to be expensed rather than capitalized, plus (e)
excluding any management fees referred to in clause (a) above, any excess of
management fees in favor of Westar Capital L.L.C. accrued during any period over
such fees paid in such period, minus (f) excluding any management fees referred
to in clause (a) above, any excess of management fees in favor of Westar Capital
L.L.C. paid during any period over such fees accrued during such period; but
excluding any component of the foregoing not deducted in calculating Pretax Net
Income.
9
<PAGE>
"EBITDA" means, for any period, determined in accordance with GAAP on a
------
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) EBIT
plus (b) depreciation, amortization and other non-cash charges (to the extent
included in determining EBIT).
"Eligible Accounts" means at the time of any determination thereof, each
-----------------
Account as to which the following requirements have been fulfilled to the
reasonable satisfaction of the Administrative Agent:
(a) The Borrower or any Subsidiary of the Borrower has lawful and
absolute title to such Account;
(b) Such Account is a valid, legally enforceable obligation of the
Person who is obligated under such Account (the "account debtor") for goods
or services delivered or rendered to such Person;
(c) If such Account and other Accounts are owed by a Creditor of the
Borrower or any Subsidiary of the Borrower, the amount of all such Accounts
included as Eligible Accounts shall be the amount by which all such
Accounts exceeds the aggregate accounts payable owed by the Borrower or
such Subsidiary to such Creditor;
(d) There has been excluded from such Account any portion that is
subject to any asserted dispute, offset, discount, counterclaim or other
claim or defense on the part of the account debtor or to any asserted claim
on the part of the account debtor denying liability under such Account;
(e) The Borrower or any Subsidiary of the Borrower has full and
unqualified right to assign and grant a security interest in such Account
to Administrative Agent as security for the Obligations;
(f) Such Account is evidenced by an invoice rendered to the account
debtor (and is not evidenced by chattel paper, promissory note or other
instrument payable to the Borrower or any Subsidiary of the Borrower) and
is not the result of a conditional sales contract or agreement;
(g) Such Account has not been due and payable for more than 90 days
from the invoice date; provided, that no Accounts from an account debtor
shall constitute Eligible Accounts if 15% or more of the aggregate dollar
amount of all Accounts (excluding the Kmart Receivable) owed to the
Borrower or any Subsidiary of the Borrower by such account debtor have been
due and payable for 90 days or more from their respective invoice dates
unless the payments of such Accounts are insured in a manner satisfactory
to the Administrative Agent;
10
<PAGE>
(h) No account debtor in respect of such Account is (i) primarily
conducting business in and organized under the laws of any jurisdiction
located outside the United States of America or Canada unless the payments
of such Accounts are (A) insured in a manner satisfactory to the
Administrative Agent or (B) supported in full by an irrevocable letter of
credit, (ii) the subject of a proceeding under any Debtor Relief Laws or
(iii) a Tribunal;
(i) No account debtor in respect of such Account is (i) an Affiliate
of the Borrower or any Subsidiary or (ii) an employee of the Borrower or
any Subsidiary of the Borrower; and
(j) Such Account is (i) subject to a fully perfected first priority
security interest in favor of Administrative Agent pursuant to the Loan
Documents, prior to the rights of, and enforceable as such against, any
other Person (including holders of a purchase money security interest) and
(ii) not subject to any Lien in favor of any other Person other than
Permitted Collateral Liens.
"Eligible Assignee" means (a) any Lender; (b) a commercial bank organized
-----------------
under the laws of the United States, or any state thereof, and having total
assets in excess of $1,000,000,000; (c) a savings and loan association or
savings bank organized under the laws of the United States, or any state
thereof, having total assets in excess of $500,000,000, and not in receivership
or conservatorship; (d) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development, or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, provided that such bank is acting through a
branch or agency located in the country in which it is organized or another
country which is described in this clause; and (e) the central bank of any
country which is a member of the Organization for Economic Cooperation and
Development; (f) a finance company, insurance company or other financial
institution or fund (whether a corporation, partnership, trust or other entity)
that is engaged in making, purchasing or otherwise investing in commercial loans
in the ordinary course of its business and having a combined capital and surplus
or total assets of at least $100,000,000, (g) any other entity (other than a
natural person) that is an "accredited investor" (as defined in Regulation D
under the Securities Act of 1933) which extends credit or buys loans as one of
its businesses, and (h) any other entity approved by both the Borrower and the
Administrative Agent, provided that, no Affiliate of the Borrower shall qualify
as an Eligible Assignee.
"Eligible Inventory" means, at the time of any determination thereof, each
------------------
item of Inventory (excluding 50% of work-in-process inventory, obsolete
Inventory, Inventory on consignment and Inventory used for demonstrations and
display) valued at the lower of cost or market value (allocated on a first-in,
first-out basis), as to which the following requirements have been fulfilled to
the reasonable satisfaction of the Administrative Agent:
(a) Borrower or any Subsidiary has lawful and absolute title to such
Inventory;
11
<PAGE>
(b) Such Inventory is not defective or unmerchantable goods;
(c) Such Inventory is located in the United States of America in a
facility owned by the Borrower or, if leased, for which the Administrative
Agent has received a Landlord's Waiver;
(d) Such Inventory is (a) subject to a fully perfected first priority
security interest in favor of Administrative Agent pursuant to the Loan
Documents, prior to the rights of, and enforceable as such against, any
other Person (including holders of a purchase money security interest) and
(b) not subject to any Lien in favor of any other Person other than
Permitted Collateral Liens; and
(e) The sale of such Inventory by Administrative Agent (or its
successors or assigns) upon an Event of Default is not subject to any
Necessary Authorization restriction or limitation.
"Enterprise" means Enterprise Partners III, L.P., a Delaware limited
----------
partnership, and its Affiliates party to the Doskocil Transaction Documents as
"Buyers", or any other Affiliate thereof acceptable to the Determining Lenders.
"Equity" means shares of capital stock or partnership, profits, capital or
------
member interest, or options, warrants or any other right to subscribe for or
otherwise acquire capital stock or a partnership, profits, capital or member
interest, of the Borrower or any Subsidiary of the Borrower.
"Equity Interest" means, as to any Person, the equity interests in such
---------------
Person, including, without limitation, the shares of each class of capital stock
in any Person that is a corporation, and each class of partnership interest
(including, without limitation, general, limited and preference units) in any
Person that is a partnership, and each class of member interest in any Person
that is a limited liability company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and any regulation promulgated thereunder.
"ERISA Event" means, with respect to the Borrower and its Subsidiaries, (a)
-----------
a Reportable Event (other than a Reportable Event not subject to the provision
for 30-day notice to the PBGC pursuant to regulations issued under Section 4043
of ERISA), (b) the withdrawal of any such Person or any member of its Controlled
Group from a Plan subject to Title IV of ERISA during a plan year in which it
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate under Section 4041(c) of ERISA, (d)
the institution of proceedings to terminate a Plan by the PBGC, (e) the failure
to make required contributions which could result in the imposition of a lien
under Section 412 of the Code or Section 302 of ERISA, or (f) any other event or
condition which might reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan or the
12
<PAGE>
imposition of any liability under Title IV of ERISA other than PBGC premiums due
but not delinquent under Section 4007 of ERISA.
"Event of Default" means any of the events specified in Section 8.1,
---------------- -----------
provided that any requirement for notice or lapse of time has been satisfied.
"Excess Cash Flow" means, with respect to the Borrower and its Subsidiaries
----------------
on a consolidated basis, the remainder of (i) Net Operating Cash Flow, minus
(ii) the cash portion of any Acquisition Consideration, minus (iii) voluntary
prepayments of Indebtedness which cannot be reborrowed, in each case for the
four fiscal quarters immediately preceding the date of calculation.
"Excluded Matters" has the meaning specified in Section 5.9(a) hereof.
---------------- --------------
"Facility A Term Loan Advance" means an Advance made pursuant to Section
---------------------------- -------
2.1(b) hereof.
- ------
"Facility A Term Loan Commitment" means $45,000,000 as terminated pursuant
-------------------------------
to Section 2.1(b) hereof.
--------------
"Facility A Term Loan Maturity Date" means September 30, 2003, or the
----------------------------------
earlier date of acceleration of the Facility A Term Loan Advances pursuant to
Section 8.2 hereof.
- -----------
"Facility A Term Loan Notes" means the promissory notes of the Borrower
--------------------------
evidencing Facility A Term Loan Advances hereunder, substantially in the form of
Exhibit B hereto, together with any extension, renewal or amendment thereof, or
- ---------
substitution therefor.
"Facility A Term Loan Specified Percentage" means, as to any Lender, the
-----------------------------------------
percentage indicated beside its name on the signature pages hereof as its
Facility A Term Loan Specified Percentage, or as adjusted or specified in any
amendment to this Agreement or in any Assignment Agreement.
"Facility B Term Loan Advance" means an Advance made pursuant to Section
---------------------------- -------
2.1(c) hereof.
- ------
"Facility B Term Loan Commitment" means $37,500,000 as terminated pursuant
-------------------------------
to Section 2.1(c) hereof.
--------------
"Facility B Term Loan Maturity Date" means September 30, 2004, or the
----------------------------------
earlier date of acceleration of the Facility B Term Loan Advances pursuant to
Section 8.2 hereof.
- -----------
"Facility B Term Loan Notes" means the promissory notes of the Borrower
--------------------------
evidencing Facility B Term Loan Advances hereunder, substantially in the form of
Exhibit C hereto, together with any extension, renewal or amendment thereof, or
- ---------
substitution therefor.
13
<PAGE>
"Facility B Term Loan Specified Percentage" means, as to any Lender, the
-----------------------------------------
percentage indicated beside its name on the signature pages hereof as its
Facility B Term Loan Specified Percentage, or as adjusted or specified in any
amendment to this Agreement or in any Assignment Agreement.
"Federal Funds Rate" means, for any day, the rate per annum equal to the
------------------
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average of the quotations for
the day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"Fixed Charges" means, for any date of calculation, calculated for Borrower
-------------
and its Subsidiaries on a consolidated basis, the sum of, without duplication,
(a) scheduled principal payments in respect of Indebtedness, plus (b) cash
interest expense (including interest expense pursuant to Capitalized Lease
Obligations).
"Fixed Charge Coverage Ratio" means the ratio of Pretax Cash Flow to Fixed
---------------------------
Charges, calculated (a) for December 31, 1997, from the day after the Agreement
Date to December 31, 1997, (b) for March 31, 1998, from the day after the
Agreement Date to March 31, 1998, (c) for June 30, 1998, from the day after the
Agreement Date to June 30, 1998, and (d) for each fiscal quarter thereafter, for
the four consecutive fiscal quarters ending on the date of calculation.
"Foreign Subsidiary" means any Subsidiary of the Borrower which is not
------------------
organized under the laws of any state of the United States of America or the
District of Columbia.
"GAAP" means generally accepted accounting principles applied on a
----
consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants, or their successors
which are applicable in the circumstances as of the date in question. The
requirement that such principles be applied on a consistent basis shall mean
that the accounting principles applied in a current period are comparable in all
material respects to those applied in a preceding period.
"General Security Agreement" means a security agreement relating to all
--------------------------
personal property assets of the Borrower and its Domestic Subsidiaries,
substantially in the form of Exhibit D hereto, as amended, modified, renewed,
---------
supplemented or restated from time to time.
"Guarantor" means each direct and indirect Subsidiary of the Borrower,
---------
other than any Foreign Subsidiary.
14
<PAGE>
"Guaranty" or "Guaranteed", means (a) as applied to an obligation of
-------- ----------
another Person, (i) a guaranty, direct or indirect, in any manner, of any part
or all of such obligation, and (ii) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of nonperformance) of any
part or all of such obligation, including, without limiting the foregoing, any
reimbursement obligations with respect to amounts which may be drawn by
beneficiaries of outstanding letters of credit and (b) an agreement, direct or
indirect, contingent or otherwise, to maintain the net worth, working capital,
earnings or other financial performance of another Person; provided, however,
Guaranty does not mean (y) the endorsement of instruments for collection or
deposit in the ordinary course of business and (z) customary indemnities given
in connection with asset sales in the ordinary course of business.
"Highest Lawful Rate" means at the particular time in question the maximum
-------------------
rate of interest which, under Applicable Law, the Lenders are then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of the
effective time of each change in the Highest Lawful Rate without notice to the
Borrower.
"Indebtedness" means, with respect to any Person, without duplication, (a)
------------
all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations under conditional
sale or other title retention agreements relating to property or assets
purchased by such Person, (d) all obligations issued or assumed as the deferred
purchase price of property or services (excluding trade accounts payable in the
ordinary course of business), (e) all obligations secured by any Lien on any
property or asset owned by such Person, whether or not the obligation secured
thereby shall have been assumed, (f) to the extent not otherwise included, all
Capitalized Lease Obligations of such Person, all obligations in respect of
letters of credit, bankers' acceptances and similar instruments, and all
obligations under Interest Hedge Agreements, (g) all preferred stock issued by
such Person and required by the terms thereof to be redeemed, or for which
mandatory sinking fund payments are due, by a fixed date, and (h) any Guaranty
of such Person of any obligation of another Person constituting obligations of a
type set forth above.
"Indemnified Matters" has the meaning specified in Section 5.9(a) hereof.
------------------- --------------
"Indemnitees" has the meaning specified in Section 5.9(a) hereof.
----------- --------------
"Initial Pricing Period" means the period from and including the Agreement
----------------------
Date to and including the Rate Adjustment Date.
"Institutional Debt" means unsecured Indebtedness for borrowed money which
------------------
may be raised by the Borrower after the Agreement Date in the private placement
or public debt markets, and shall include Subordinated Debt issued after the
Agreement Date. For the
15
<PAGE>
avoidance of doubt, the Bridge Notes and the Senior Subordinated Notes are not
Institutional Debt for purposes hereof.
"Intellectual Property Security Agreement" means the security agreement and
----------------------------------------
assignment relating to all intellectual property of the Borrower and its
Domestic Subsidiaries substantially in the form of Exhibit E hereto, as amended,
---------
modified, renewed, supplemented or restated from time to time.
"Interest Coverage Ratio" means the ratio of (a) EBITDA to (b) interest
-----------------------
expense of the Borrower and its Subsidiaries (including interest expense
pursuant to Capitalized Lease Obligations), calculated (a) for December 31,
1997, from the day after the Agreement Date to December 31, 1997, (b) for March
31, 1998, from the day after the Agreement Date to March 31, 1998, (c) for June
30, 1998, from the day after the Agreement Date to June 30, 1998, and (d) for
each fiscal quarter thereafter, for the four consecutive fiscal quarters
immediately ending on the date of calculation.
"Interest Hedge Agreements" means 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 to, dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap, swap or
collar protection agreements, and forward rate currency or interest rate
options, as the same may be amended or modified and in effect from time to time,
and any and all cancellations, buy backs, reversals, terminations or assignments
of any of the foregoing.
"Interest Period" means the period beginning on the day any LIBOR Advance
---------------
is made and ending one, two, three or six months thereafter (as the Borrower
shall select); provided, however, that all of the foregoing provisions are
-------- -------
subject to the following:
(i) if any Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall be extended to the next
succeeding Business Day, unless, with respect to a LIBOR Advance, the
result of such extension would be to extend such Interest Period into
another calendar month, in which event such Interest Period shall end on
the immediately preceding Business Day;
(ii) any Interest Period with respect to a LIBOR Advance that begins
on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of a calendar
month;
(iii) the Borrower may not select any Interest Period which ends
after the date of a scheduled principal payment on the Advances unless,
after giving effect to such selection, the aggregate unpaid principal
amount of the LIBOR Advances for which Interest Periods end after such
scheduled principal payment shall be equal to or
16
<PAGE>
less than the principal amount to which the Advances or Term Loan
Commitments are required to be reduced after such scheduled principal
payment is made;
(iv) the Borrower may not select any Interest Period in respect of
LIBOR Advances having an aggregate amount less than $1,000,000; and
(v) there shall be outstanding at any one time no more than eight
Interest Periods in the aggregate.
"Investment" means any acquisition of all or substantially all assets of
----------
any Person, or any direct or indirect purchase or other acquisition of, or
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, advance (other than loans or advances to
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution to, or
investment in any other Person, including without limitation the purchase of
accounts receivable of any other Person that are not current assets or do not
arise in the ordinary course of business.
"Issuing Bank" means NationsBank of Texas, N.A., a national banking
------------
association, in its capacity as issuer of the Letters of Credit.
"Kmart Receivable" means amounts owed to the Borrower in respect of that
----------------
certain Consignment Agreement, dated July 12, 1993, between Kmart Corporation
and the Borrower.
"Landlord's Waiver" has the meaning specified in Section 3.1(m) hereof.
----------------- --------------
"Law" means any statute, law, ordinance, regulation, rule, order, writ,
---
injunction, or decree of any Tribunal.
"Lender" means each financial institution shown on the signature pages
------
hereof so long as such financial institution maintains a portion of the
Commitments or is owed any part of the Obligations (including the Administrative
Agent in its individual capacity), and each Assignee that hereafter becomes a
party hereto pursuant to Section 11.6 hereof, subject to the limitations set
------------
forth therein.
"L/C Related Documents" has the meaning specified in Section 2.15(e)
--------------------- ---------------
hereof.
"Letter of Credit" has the meaning specified in Section 2.15(a) hereof.
---------------- ---------------
"Letter of Credit Agreement" has the meaning specified in Section 2.15(b)
-------------------------- ---------------
hereof.
"Letter of Credit Facility" has the meaning specified in Section 2.15(a)
------------------------- ---------------
hereof.
17
<PAGE>
"Leverage Ratio" means, for any date of calculation, the ratio of Total
--------------
Debt as of the date of determination to EBITDA calculated for the four
consecutive fiscal quarters immediately preceding the date of calculation;
provided, however, notwithstanding the above, for purposes of determination of
- -------- -------
the Leverage Ratio (a) at December 31, 1997, the EBITDA component thereof shall
be equal to the product of (i) EBITDA for the immediately preceding two fiscal
quarters multiplied by (ii) 2.00, (b) at March 31, 1998, the EBITDA component
thereof shall be equal to the product of (i) EBITDA for the immediately
preceding three fiscal quarters multiplied by (ii) 1.33, and (c) the EBITDA
component thereof shall also be calculated as if the Dogloo Merger had occurred
effective July 1, 1997. For purpose of calculation of the Leverage Ratio only,
with respect to assets not owned at all times during the four fiscal quarters
immediately preceding the date of calculation of EBITDA, there shall be (i)
included in EBITDA the proforma EBITDA of any assets acquired during any such
four fiscal quarters for the twelve months preceding the date of calculation and
(ii) excluded from EBITDA the EBITDA of any assets disposed of during any of
such fiscal quarters for the twelve months preceding the date of calculation.
"LIBOR Advance" means an Advance which the Borrower requests to be made as
-------------
a LIBOR Advance or which is reborrowed as a LIBOR Advance, in accordance with
the provisions of Section 2.2 hereof.
-----------
"LIBOR Basis" means a simple per annum interest rate equal to the lesser of
-----------
(a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus the
Applicable LIBOR Rate Margin. The LIBOR Basis shall, with respect to LIBOR
Advances subject to reserve or deposit requirements, be subject to premiums for
such reserve or deposit requirements assessed by each Lender to the extent
incurred by such Lender, which are payable by the Borrower directly to each
Lender. Once determined, the LIBOR Basis shall remain unchanged during the
applicable Interest Period.
"LIBOR Lending Office" means, with respect to a Lender, the office
--------------------
designated as its LIBOR Lending Office on Schedule 1 attached hereto, and such
----------
other office of the Lender or any of its Affiliates hereafter designated by
notice to the Borrower and the Administrative Agent.
"LIBOR Rate" means, for any LIBOR Advance for any Interest Period therefor,
----------
the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period. If for any reason such rate is not
available, the term "LIBOR Rate" shall mean, for any LIBOR Advance for any
----------
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest Period
for a term comparable to such Interest Period; provided, however, if more than
-------- -------
one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates.
18
<PAGE>
"Lien" means, with respect to any property, any mortgage, lien, pledge,
----
collateral assignment, hypothecation, charge, security interest, title retention
agreement, levy, execution, seizure, attachment, garnishment or other similar
encumbrance of any kind in respect of such property, whether or not choate,
vested or perfected.
"Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
----------
investigation by or before any Tribunal, including, without limitation,
proceedings, claims, lawsuits, and/or investigations under or pursuant to any
environmental, occupational, safety and health, antitrust, unfair competition,
securities, Tax or other Law, or under or pursuant to any contract, agreement or
other instrument.
"Loan Documents" means this Agreement, the Notes, the Security Agreements,
--------------
the Deeds of Trust, any other Collateral Document, any Subsidiary Guaranty, the
L/C Related Documents, the Underwriting Fee Letter, the Administrative Agent Fee
Letter, any Interest Hedge Agreements entered into with any Lender, and any
other document or agreement executed or delivered from time to time by the
Borrower, any Subsidiary of the Borrower or any other Person in connection
herewith or as security for the Obligations.
"Material Adverse Effect" means any act or circumstance or event that (a)
-----------------------
could reasonably be expected to be material and adverse to the business,
financial condition or results of operations of the Borrower and its
Subsidiaries taken as a whole, or (b) in any manner whatsoever does or could
reasonably be expected to materially and adversely affect (i) the validity or
enforceability of any Loan Document, (ii) the ability of the Borrower and its
Subsidiaries taken as a whole to perform their respective Obligations under the
Loan Documents, or (iii) the rights and remedies of the Lenders or the
Administrative Agent under any of the Loan Documents.
"Multiemployer Plan" means, as to any Person, at any time, a "multiemployer
------------------
plan" within the meaning of Section 4001(a)(3) of ERISA and to which such Person
or any member of its Controlled Group is making, or is obligated to make
contributions or has made, or been obligated to make, contributions.
"NationsBank" means NationsBank of Texas, N.A., a national banking
-----------
association, in its capacity as a Lender.
"Necessary Authorization" means any right, franchise, license, permit,
-----------------------
consent, approval or authorization from, or any filing or registration with, any
Tribunal or any Person necessary or appropriate to enable the Borrower or any
Subsidiary of the Borrower to maintain and operate its business and properties.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer or
-----------------
other disposition of any asset by any Person, the amount of cash received by
such Person in connection with such transaction (including cash proceeds of any
property received in consideration of any such sale, lease, transfer or other
disposition) after deducting therefrom the aggregate, without duplication, of
the following amounts to the extent properly
19
<PAGE>
attributable to such transaction or to the asset that is the subject thereof:
(i) reasonable brokerage commissions, legal fees, finder's fees, financial
advisory fees, accounting fees, underwriting fees, investment banking fees and
other similar commissions and fees, and expenses, in each case, to the extent
paid or payable by such Person; (ii) filing, recording or registration fees or
charges or similar fees or charges paid by such Person; (iii) taxes paid or
payable by such Person or any shareholder, partner or member of such Person to
governmental taxing authorities as a result of such sale or other disposition;
and (iv) payment of the outstanding principal amount of, premium or penalty, if
any, and interest on any Indebtedness that is secured by a Lien on the asset in
question and that is required to be repaid under the terms thereof as a result
of such asset sale.
"Net Income" means net earnings (or deficit) after taxes of the Borrower
----------
and its Subsidiaries, on a consolidated basis, determined in accordance with
GAAP.
"Net Operating Cash Flow" means, for any period, determined in accordance
-----------------------
with GAAP on a consolidated basis for the Borrower and its Subsidiaries the
remainder of (i)(a) Net Income, plus (b) depreciation, amortization and other
non-cash charges (to the extent included in determining Net Income), plus (c)
net losses on sale of assets and non-cash write down of assets (to the extent
included in determining Net Income), minus (ii) Capital Expenditures, minus
(iii) scheduled principal payments on Indebtedness, minus (iv) net gains on sale
of assets (to the extent included in determining Net Income).
"Notes" means, collectively, the Revolving Credit Notes, the Facility A
-----
Term Loan Notes, the Facility B Term Loan Notes and the Swing Line Note.
"Notice of Borrowing" has the meaning specified in Section 2.2(a) hereof.
------------------- --------------
"Notice of Issuance" has the meaning specified in Section 2.15(b) hereof.
------------------ ---------------
"Obligations" means (a) all obligations of any nature (whether matured or
-----------
unmatured, fixed or contingent, including the Reimbursement Obligations) of the
Borrower or any other Obligor to any Lender or the Administrative Agent under
any of the Loan Documents as they may be amended from time to time, and (b) all
obligations of the Borrower or any other Obligor for losses, damages, expenses
or any other liabilities of any kind that any Lender may suffer by reason of a
breach by the Borrower or any other Obligor of any obligation, covenant or
undertaking with respect to any Loan Document payable by the Borrower or any
other Obligor under any Loan Document.
"Obligor" means the Borrower and each Guarantor.
-------
"Operating Lease" means any operating lease, as defined in the Financial
---------------
Accounting Standard Board Statement of Financial Accounting Standards No. 13,
dated November, 1976 or otherwise in accordance with GAAP.
"Participant" has the meaning specified in Section 11.6(c) hereof.
----------- ---------------
20
<PAGE>
"Participation" has the meaning specified in Section 11.6(c) hereof.
------------- ---------------
"Payment Date" means the last day of the Interest Period for any LIBOR
------------
Advance.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions under ERISA.
"Permitted Collateral Liens" means Liens described in clauses (b), (c) and
--------------------------
(d) of the definition of "Permitted Liens" herein.
"Permitted Liens" means, as applied to any Person:
---------------
(a) Any Lien in favor of the Lenders to secure the Obligations hereunder;
(b) Liens for taxes, assessments, governmental charges, levies or claims
that are not yet delinquent or that are being diligently contested in good faith
by appropriate proceedings in accordance with Section 5.6 hereof and for which
-----------
adequate reserves shall have been set aside on such Person's books, but only so
long as no foreclosure, restraint, sale or similar proceedings have been
commenced with respect thereto;
(c) Liens of carriers, warehousemen, mechanics, laborers and materialmen
and other similar Liens incurred in the ordinary course of business for sums not
yet due or being contested in good faith, if such reserve or appropriate
provision, if any, as shall be required by GAAP shall have been made therefor;
(d) Liens incurred or deposits made in the ordinary course of business in
connection with worker's compensation, unemployment insurance or similar
legislation;
(e) Easements, right-of-way, restrictions and other similar encumbrances on
the use of real property which do not interfere in any material respect with the
ordinary conduct of the business of such Person;
(f) Liens created to secure the purchase price of assets acquired (or
existing on property at the time such property is acquired) by such Person or
created to secure Indebtedness permitted by Section 7.1(c) or 7.1(h) hereof,
-------------- ------
which is incurred solely for the purpose of financing the acquisition of such
assets and incurred at the time of acquisition or which exists against such
assets at the time of acquisition thereof, so long as each such Lien shall at
all times be confined solely to the asset or assets so acquired (and proceeds
thereof), and refinancings thereof so long as any such Lien remains solely on
the asset or assets acquired (and the proceeds thereof) and the amount of
Indebtedness related thereto is not increased;
(g) Any Liens which are described on Schedule 2 hereto, and Liens resulting
----------
from the refinancing of the related Indebtedness, provided that the Indebtedness
secured thereby shall not be increased and the Liens shall not cover additional
assets of the Borrower;
21
<PAGE>
(h) Liens arising from filing Uniform Commercial Code financing statements
for precautionary purposes relating solely to true leases of personal property
permitted by this Agreement under which the Borrower or any of its Subsidiaries
is a lessee;
(i) Any zoning or similar law or right reserved to or vested in any
Tribunal to control or regulate the use of any real property;
(j) Any other title or survey exception with respect to real property
assets disclosed by any preliminary title report, title commitment report,
survey or other search of title provided to the Administrative Agent in
accordance with this Agreement unless disapproved by the Administrative Agent
prior to the Agreement Date;
(k) Liens incurred or deposits made to secure the performance of bids,
tenders, leases, trade contracts (other than for Indebtedness), statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business;
(l) Any leases or subleases currently in effect, entered into in the
ordinary course of business or entered into in compliance with the Loan
Documents;
(m) Liens created by such Person to secure Indebtedness permitted to be
incurred by such Person pursuant to Section 7.1(l) hereof, so long as such Lien
--------------
shall at no time extend to any Collateral; and
(n) Any replacements or renewals of Liens (but no increases in the
Indebtedness secured thereby) permitted by clauses (f), (g), (h) and (m) hereof.
"Person" means an individual, corporation, partnership, limited liability
------
company, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan as defined in Section 3(3) of ERISA
----
(including a Multiemployer Plan) pursuant to which any employees of the
Borrower, its Subsidiaries or any member of their Controlled Group participate.
"Pretax Cash Flow" means, for any date of calculation, calculated for the
----------------
Borrower and its Subsidiaries on a consolidated basis, an amount equal to the
sum of (a) EBITDA, minus (b) Capital Expenditures. For purposes of the
calculation of Pretax Cash Flow only, any Capital Expenditures during the period
from the Agreement Date through September 30, 1998 which exceed in aggregate
amount 5% of cumulative net revenues of the Borrower and its Subsidiaries during
such period shall be excluded in all periods from Capital Expenditures.
"Pretax Net Income" means net profit (or loss) before taxes of the Borrower
-----------------
and its Subsidiaries, on a consolidated basis, determined in accordance with
GAAP.
22
<PAGE>
"Prime Rate" means, at any time, the prime interest rate announced or
----------
published by the Reference Lender from time to time as its reference rate for
the determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of creditworthiness
and being quoted at such time by the Reference Lender as its "prime rate;" it
being understood that such rate may not be the lowest rate of interest charged
by the Reference Lender.
"Quarterly Date" means the last day of each March, June, September and
--------------
December, beginning December 31, 1997.
"Rate Adjustment Date" means the date which is two Business Days following
--------------------
the date that the Lenders receive the financial statements for the fiscal
quarter ending June 30, 1998, required to be delivered pursuant to Section 6.3
-----------
hereof.
"Reference Lender" means NationsBank; provided that if NationsBank's
----------------
Commitments shall terminate and it shall have no Advances and Letters of Credit
outstanding hereunder, NationsBank shall cease to be the Reference Lender, and
Administrative Agent (after consultation with Borrower) shall, with notice to
Borrower and Lenders, designate another Lender as the Reference Lender.
"Reimbursement Obligations" means, in respect of any Letter of Credit as at
-------------------------
any date of determination, the sum of (a) the maximum aggregate amount which is
then available to be drawn under such Letter of Credit plus (b) the aggregate
amount of all drawings under such Letter of Credit not theretofore reimbursed by
the Borrower.
"Related Person" means (a) any Affiliate of the Parent, (b) any individual
--------------
or entity who directly or indirectly holds 5% or more of any class of Equity
Interests of the Parent, (c) any relative of such individual by blood, marriage
or adoption not more remote than first cousin and (d) any officer or director of
the Parent.
"Release Date" means the date on which the Notes have been paid, all other
------------
Obligations due and owing have been paid and performed in full, and the
Commitments have been terminated.
"Reportable Event" has the meaning set forth in Section 4043(c) of ERISA.
----------------
"Responsible Officer" means, of any Person, the President, chief operating
-------------------
officer, chief executive officer, chief financial officer, treasurer or any
other executive officer of such Person.
"Restricted Payments" means, collectively, (a) Dividends, (b) any (i)
-------------------
payment or prepayment of principal, premium or penalty on any Institutional Debt
of the Borrower or any Subsidiary of the Borrower or any defeasance, redemption,
purchase, repurchase or other acquisition or retirement for value, in whole or
in part, of any Institutional Debt (including, without limitation, the setting
aside of assets or the deposit of funds therefor),
23
<PAGE>
(ii) prepayment of interest on any Institutional Debt, and (c) any payment of
any management, advisory or similar fees to the Specified Investors.
"Revolving Commitment Fee" has the meaning specified in Section 2.4(a)
------------------------ --------------
hereof.
"Revolving Commitment Maturity Date" means September 30, 2003, or the
----------------------------------
earlier date of termination in whole of the Revolving Credit Commitment pursuant
to Section 2.6 or 8.2 hereof.
----------- ---
"Revolving Credit Advance" means an Advance made pursuant to Section 2.1(a)
------------------------ --------------
hereof.
"Revolving Credit Commitment" means $27,500,000 as reduced pursuant to
---------------------------
Section 2.6.
- -----------
"Revolving Credit Notes" means the promissory notes of Borrower evidencing
----------------------
Revolving Credit Advances hereunder, substantially in the form of Exhibit A
---------
hereto, together with any extension, renewal, or amendment thereof, or
substitution therefor.
"Revolving Credit Specified Percentage" means, as to any Lender, the
-------------------------------------
percentage indicated beside its name on the signature pages hereof as its
Revolving Credit Specified Percentage, or as adjusted or specified in any
amendment to this Agreement or in any Assignment Agreement.
"Rights" means rights, remedies, powers and privileges.
------
"Security Agreements" mean the General Security Agreements and the
-------------------
Intellectual Property Security Agreements.
"Senior Subordinated Notes" means those certain senior subordinated notes
-------------------------
of the Borrower due 2007 to be issued by the Borrower in connection with the
Dogloo Transaction not to exceed $85,000,000, which shall be subordinated to the
Obligations on the terms set forth in the Indenture of Trust dated as of
September 19, 1997 by and between the Borrower and First Trust National
Association, as trustee.
"Solvent" means, with respect to any Person, that as of the date of
-------
determination, (a) the fair saleable value of the assets of such Person is
greater than the total amount of liabilities (including contingent and
unliquidated liabilities) of such Person, (b) such Person is able to pay the
probable liabilities on such Person's then existing debts as they become
absolute and matured considering all financing alternatives and potential asset
sales reasonably available to such Person, and (c) such Person does not have
unreasonably small capital with which to carry on its business. In computing
the amount of contingent or unliquidated liabilities at any time, such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can
24
<PAGE>
reasonably be expected to become an actual or matured liability discounted to
present value at rates believed to be reasonable by such Person.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll, P.C.,
---------------
or such other legal counsel as the Administrative Agent may select.
"Specified Investors" means Westar Capital L.L.C., HBI Financial, Inc.,
-------------------
Enterprise and any of their respective Affiliates and, in the event that any
Specified Investor distributes any of the equity interests of Company to its
partners or other equity holders, such equity holders, and including, in the
case of an individual, the estate or any heir of such individual or any trust
established by such individual for estate planning purposes.
"Subordinated Debt" means any Indebtedness of the Borrower or any
-----------------
Subsidiary of the Borrower having maturities and terms, and which is
subordinated to payment of the Obligations in a manner, approved in writing by
the Administrative Agent and the Determining Lenders, with only such changes or
amendments as are not prohibited by Section 7.18 hereof; provided, however, any
------------
supplemental issuance with respect to the Senior Subordinated Notes which is on
the same terms as the Senior Subordinated Notes shall be deemed to be approved
by the Administrative Agent and the Determining Lenders.
"Subsequent Pricing Period" means the period from and including the date
-------------------------
which is the first day following the end of the Initial Pricing Period to and
including the Release Date.
"Subsidiary" of any Person means any corporation, partnership, joint
----------
venture, trust or estate or other Person of which (or in which) more than 50%
of:
(a) the outstanding capital stock having voting power to elect a majority
of the Board of Directors of such corporation (irrespective of whether at the
time capital stock of any other class or classes of such corporation shall or
might have voting power upon the occurrence of any contingency),
(b) the interest in the capital or profits of such partnership or joint
venture,
(c) the beneficial interest of such trust or estate, or
(d) the equity interest of such other Person,
is at the time directly or indirectly owned by such Person, by such Person and
one or more of its Subsidiaries or by one or more of such Person's Subsidiaries.
"Subsidiary Guaranty" means a guaranty, substantially in the form of
-------------------
Exhibit H hereto, executed by each direct and indirect Subsidiary of the
- ---------
Borrower other than any Subsidiary which is a Foreign Subsidiary, as amended,
supplemented, modified, renewed or otherwise restated from time to time.
25
<PAGE>
"Swing Line Advance" means an Advance made pursuant to Section 2.1(d)
------------------ --------------
hereof.
"Swing Line Bank" means NationsBank of Texas, N.A. and any successor
---------------
thereto appointed in accordance with Section 10.1(b) hereof.
---------------
"Swing Line Facility" has the meaning specified in Section 2.1(d) hereof.
------------------- --------------
"Swing Line Note" means the Swing Line Note of the Borrower payable to the
---------------
order of the Swing Line Bank, substantially in the form of Exhibit L hereto,
---------
together with any extension, renewal or amendment thereof or substitution
therefor.
"Taxes" has the meaning specified in Section 2.14 hereof.
----- ------------
"Term Loan Advance" means a Facility A Term Loan Advance or a Facility B
-----------------
Term Loan Advance.
"Term Loan Commitments" means, collectively, the Facility A Term Loan
---------------------
Commitment and the Facility B Term Loan Commitment.
"Total Debt" means, as of any date of determination, determined for the
----------
Borrower and its Subsidiaries on a consolidated basis, to the extent that the
following would appear as a liability upon the consolidated balance sheet of the
Borrower and its Subsidiaries in accordance with GAAP: (i) indebtedness for
borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) non-contingent obligations to pay the deferred
purchase price of property or services other than trade payables incurred in the
ordinary course of business, and (iv) Capitalized Lease Obligations.
"Total Specified Percentage" means, as to any Lender, the percentage
--------------------------
indicated beside its name on the signature pages hereof as its Total Specified
Percentage, or (a) as adjusted or specified in any amendment to this Agreement
or in any Assignment Agreement or (b) as adjusted as a result of an adjustment
in the Facility B Term Loan Specified Percentage.
"Tribunal" means any state, commonwealth, federal, foreign, territorial, or
--------
other court or government body, subdivision, agency, department, commission,
board, bureau, or instrumentality of a governmental or other regulatory or
public body or authority.
"UCC" means the Uniform Commercial Code of Texas, as amended from time to
---
time, and the Uniform Commercial Code applicable in such other states as any
Collateral may be located.
"Underwriting Fee Letter" means that certain letter, dated August 20, 1997,
-----------------------
from NationsBank of Texas, N.A., NationsBanc Capital Markets, Inc., DLJ Capital
Funding, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation to
Enterprise providing an underwriting fee with respect to the Commitments.
26
<PAGE>
"Unused Portion" means an amount equal to the result of (i) the Revolving
--------------
Credit Commitment minus (ii) the sum of (A) the outstanding Revolving Credit
Advances plus (B) outstanding Reimbursement Obligations in respect of the
Letters of Credit.
"Voting Power" means, with respect to any Person, the power ordinarily
------------
(without the occurrence of a contingency) to elect the members of the board of
directors (or persons performing similar functions).
Section 1.2 Amendments and Renewals. Each definition of an agreement in
-----------------------
this Article 1 shall include such agreement as amended to date, and as amended
---------
or renewed from time to time in accordance with its terms, but only with the
prior written consent of the Determining Lenders or all the Lenders as required
pursuant to Section 11.11 hereof.
-------------
Section 1.3 Construction. The terms defined in this Article 1 (except as
------------
otherwise expressly provided in this Agreement) for all purposes shall have the
meanings set forth in Section 1.1 hereof, and the singular shall include the
-----------
plural, and vice versa, unless otherwise specifically required by the context.
All accounting terms used in this Agreement which are not otherwise defined
herein shall be construed in accordance with GAAP on a consolidated basis for
the Borrower and its Subsidiaries, unless otherwise expressly stated herein.
ARTICLE 2
Advances
--------
Section 2.1 The Advances.
------------
(a) Revolving Credit Advances. Each Lender severally agrees, upon the
-------------------------
terms and subject to the conditions of this Agreement, to make Revolving Credit
Advances to the Borrower from time to time in an aggregate amount not to exceed
its Revolving Credit Specified Percentage of the Revolving Credit Commitment
less its Revolving Credit Specified Percentage of the aggregate amount of all
(i) Reimbursement Obligations then outstanding (assuming compliance with all
conditions to drawing) and (ii) Swing Line Advances then outstanding, for the
purposes set forth in Section 5.8 hereof. Subject to Section 2.9 hereof,
----------- -----------
Revolving Credit Advances may be repaid and then reborrowed. Notwithstanding
any provision in any Loan Document to the contrary, in no event shall (a) the
sum of the principal amount of all outstanding (i) Revolving Credit Advances,
(ii) Reimbursement Obligations and (iii) Swing Line Advances exceed (b) the
lesser of (i) the Revolving Credit Commitment and (ii) the Borrowing Base.
(b) Facility A Term Loan Advances. Each Lender severally agrees, upon the
-----------------------------
terms and subject to the conditions of this Agreement, to make a Facility A Term
Loan Advance to the Borrower on the Agreement Date in an amount not to exceed
its Facility A Term Loan Specified Percentage of the Facility A Term Loan
Commitment for the purposes set forth in Section 5.8 hereof. Notwithstanding
-----------
any provision in any Loan Document to the
27
<PAGE>
contrary, in no event shall the principal amount of all outstanding Facility A
Term Loan Advances exceed the Facility A Term Loan Commitment. Immediately upon
the making of the Facility A Term Loan Advances, the Facility A Term Loan
Commitment shall be automatically terminated. Facility A Term Loan Advances may
not be repaid and then reborrowed.
(c) Facility B Term Loan Advances. Each Lender severally agrees, upon the
-----------------------------
terms and subject to the conditions of this Agreement, to make a Facility B Term
Loan Advance to the Borrower on the Agreement Date in an amount not to exceed
its Facility B Term Loan Specified Percentage of the Facility B Term Loan
Commitment for the purposes set forth in Section 5.8 hereof. Notwithstanding
-----------
any provision in any Loan Document to the contrary, in no event shall the
principal amount of all outstanding Facility B Term Loan Advances exceed the
Facility B Term Loan Commitment. Immediately upon the making of the Facility B
Term Loan Advances, the Facility B Commitment shall be automatically terminated.
Facility B Advances may not be repaid and then reborrowed.
(d) Swing Line Advances. The Borrower may request the Swing Line Bank to
-------------------
make, and the Swing Line Bank shall make, on the terms and conditions
hereinafter set forth, advances ("Swing Line Advances") to the Borrower from
time to time on any Business Day during the period from the Agreement Date to
the Revolving Commitment Maturity Date in an aggregate amount not to exceed at
any time outstanding the lesser of (a) $5,000,000 and (b) an amount equal to the
lesser of the Revolving Credit Commitment and the Borrowing Base minus (i) the
aggregate principal amount of Revolving Credit Advances then outstanding and
(ii) the aggregate amount of all Reimbursement Obligations then outstanding (the
"Swing Line Facility"). Each Swing Line Advance shall be in an amount not less
than $100,000. Within the limits of the Swing Line Facility and subject to the
terms hereof, Swing Line Advances may be repaid and then reborrowed.
(e) Any Advance, other than a Swing Line Advance, shall, at the option of
the Borrower as provided in Section 2.2 hereof (and, in the case of LIBOR
-----------
Advances, subject to the provisions of Article 9 hereof), be made as a Base Rate
---------
Advance or a LIBOR Advance; provided that there shall not be outstanding, at any
one time, more than eight LIBOR Advances.
Section 2.2 Manner of Borrowing and Disbursement.
------------------------------------
(a) Base Rate Advances. In the case of Base Rate Advances (other than
------------------
Swing Line Advances), the Borrower, through an Authorized Signatory, shall give
the Administrative Agent prior to 10:00 a.m., Dallas, Texas time, on the date of
any proposed Base Rate Advance irrevocable written notice, or irrevocable
telephonic notice followed immediately by written notice, in substantially the
form of Exhibit I hereto (a "Notice of Borrowing") (provided, however, that the
---------
Borrower's failure to confirm any telephonic notice in writing shall not
invalidate any notice so given), of its intention to borrow a Base Rate Advance
hereunder. Such notice of borrowing shall specify the requested funding date,
28
<PAGE>
which shall be a Business Day, and the amount of the proposed aggregate Base
Rate Advances to be made by Lenders.
(b) LIBOR Advances. In the case of LIBOR Advances, the Borrower, through
--------------
an Authorized Signatory, shall give the Administrative Agent at least three
Business Days' irrevocable written notice, or irrevocable telephonic notice
followed immediately by written notice (provided, however, that the Borrower's
failure to confirm any telephonic notice in writing shall not invalidate any
notice so given) pursuant to a Notice of Borrowing, of its intention to borrow a
LIBOR Advance hereunder. Notice shall be given to the Administrative Agent
prior to 10:00 a.m., Dallas, Texas time, in order for such Business Day to count
toward the minimum number of Business Days required. LIBOR Advances shall in
all cases be subject to Article 9 hereof. For LIBOR Advances, the notice of
---------
borrowing shall specify the requested funding date, which shall be a Business
Day, the amount of the proposed aggregate LIBOR Advances to be made by Lenders
and the Interest Period selected by the Borrower, provided that no such Interest
Period shall extend past the Revolving Commitment Maturity Date, the Facility A
Term Loan Maturity Date or the Facility B Term Loan Maturity Date, as
appropriate, or prohibit or impair the Borrower's ability to comply with Section
-------
2.5 or 2.8 hereof.
- --- ---
(c) Swing Line Advances. In the case of Swing Line Advances, the Borrower,
-------------------
through an Authorized Signatory, shall give the Swing Line Bank and the
Administrative Agent prior to 12:00 noon, Dallas, Texas time, on the date of any
proposed Swing Line Advance irrevocable telephonic notice (provided, however,
(i) the Borrower shall deliver written notice at least once a week confirming
the telephonic notices given by the Borrower with respect to Swing Line Advances
during the immediately preceding week and (ii) that the Borrower's failure to
confirm any telephonic notice in writing shall not invalidate any notice so
given), of its intention to borrow or reborrow a Swing Line Advance. Such
notice of borrowing shall specify (i) the requested funding date, which shall be
a Business Day, (ii) the amount of the proposed Swing Line Advance and (iii) the
maturity date of the proposed Swing Line Advance (which maturity date shall be
no later than the seventh day after the requested date of such Swing Line
Advance).
(d) Continuation/Conversion. Subject to Sections 2.1 and 2.9 hereof, the
----------------------- ------------ ---
Borrower shall have the option (i) to convert at any time all or any part of the
outstanding Base Rate Advances to LIBOR Advances and all or any part of the
outstanding LIBOR Advances to Base Rate Advances or (ii) upon expiration of any
Interest Period applicable to a LIBOR Advance, to continue all or any portion of
such LIBOR Advance equal to $1,000,000 and integral multiples of $500,000 in
excess of that amount as a LIBOR Advance and the succeeding Interest Period(s)
of such continued LIBOR Advance shall commence on the last day of the Interest
Period of the LIBOR Advance to be continued; provided, however, (a) LIBOR
Advances may only be converted into Base Rate Advances on the expiration date of
the Interest Period applicable thereto and (b) notwithstanding anything in this
Agreement to the contrary, no outstanding Advance may be continued as, or
converted into, a LIBOR Advance when any Default or Event of Default has
occurred and is continuing. At least three Business Days prior to a proposed
conversion/continuation date, the Borrower, through
29
<PAGE>
an Authorized Signatory, shall give the Administrative Agent irrevocable written
notice, or irrevocable telephonic notice followed immediately by written notice
(provided, however, that the Borrower's failure to confirm any telephonic notice
in writing shall not invalidate any notice so given), stating (i) the proposed
conversion/continuation date (which shall be a Business Day), (ii) the amount of
the Advance to be converted/continued, (iii) in the case of a conversion to, or
a continuation of, a LIBOR Advance, the requested Interest Period, and (iv) in
the case of a conversion of a Base Rate Advance to a LIBOR Advance or
continuation of a LIBOR Advance, stating that no Default or Event of Default has
occurred and is continuing. If the Borrower shall fail to give any notice in
accordance with this Section 2.2(d), the Borrower shall be deemed irrevocably to
--------------
have requested that such LIBOR Advance be converted to a Base Rate Advance in
the same principal amount. Notice shall be given to the Administrative Agent
prior to 10:00 a.m., Dallas, Texas time, in order for such Business Day to count
toward the minimum number of Business Days required.
(e) Minimum Amount. The aggregate amount of Base Rate Advances (other than
--------------
Swing Line Advances) to be made by the Lenders on any day shall be in a
principal amount which is at least $1,000,000 and which is an integral multiple
of $100,000; provided, however, that such amount may equal the unused amount of
the applicable Commitment. The aggregate amount of LIBOR Advances having the
same Interest Period and to be made by the Lenders on any day shall be in a
principal amount which is at least $1,000,000 and which is an integral multiple
of $500,000.
(f) Notice and Disbursement. The Administrative Agent shall promptly
-----------------------
notify the Lenders of each notice (other than with respect to a Swing Line
Advance) received from the Borrower pursuant to this Section. Each Lender
shall, not later than 2:00 p.m., Dallas, Texas time, on the date of any Advance,
deliver to the Administrative Agent, at its address set forth herein, such
Lender's Specified Percentage of such Advance in immediately available funds in
accordance with the Administrative Agent's instructions. Prior to 2:30 p.m.,
Dallas, Texas time, on the date of any Advance hereunder, the Administrative
Agent shall, subject to satisfaction of the conditions set forth in Article 3,
---------
disburse the amounts made available to the Administrative Agent by the Lenders
by (i) transferring such amounts by wire transfer pursuant to the Borrower's
instructions, or (ii) in the absence of such instructions, crediting such
amounts to the account of the Borrower maintained with the Administrative Agent.
All Revolving Credit Advances shall be made by each Lender according to its
Revolving Credit Specified Percentage. All Facility A Term Loan Advances shall
be made by each Lender in accordance with its Facility A Term Loan Specified
Percentage. All Facility B Term Loan Advances shall be made by each Lender in
accordance with its Facility B Term Loan Specified Percentage. Upon the request
of any Lender, the Administrative Agent shall notify such Lender of the
aggregate principal amount of Swing Line Advances outstanding at such time.
(g) The Swing Line Bank shall, not later than 2:30 p.m., Dallas, Texas
time, on the date of any Swing Line Advance, deliver to the Administrative Agent
at its address set forth herein, the amount of such Swing Line Advance in
immediately available funds in accordance with the Administrative Agent's
instructions. Prior to 3:00 p.m., Dallas, Texas
30
<PAGE>
time, on the date of any Swing Line Advance, the Administrative Agent shall,
subject to the conditions set forth in Article 3, disburse the amount made
---------
available to the Administrative Agent by the Swing Line Bank by (i) transferring
such amounts by wire transfer pursuant to the Borrower's instruction or (ii) in
the absence of such instructions, crediting such amounts to the account of the
Borrower maintained with the Administrative Agent. Forthwith upon demand by the
Swing Line Bank at any time, including after a Default or Event of Default, and
in any event upon the making of the direction specified by Section 8.2 to
-----------
authorize the Administrative Agent to declare the Advances due and payable
pursuant to the provisions of Section 8.2, each Lender, including the Swing Line
-----------
Bank, notwithstanding the failure of the Borrower at such time to satisfy each
condition specified in Article 3, shall make by 12:00 noon (Dallas, Texas time)
---------
on the first Business Day following receipt by such Lender of notice from the
Swing Line Bank, a Revolving Credit Advance which is a Base Rate Advance in an
amount equal to the product of (i) the Revolving Credit Specified Percentage of
such Lender times (ii) the aggregate outstanding principal amount of the Swing
Line Advances. The proceeds of such Revolving Credit Advances shall be applied
by the Administrative Agent to repay the outstanding Swing Line Advance.
Section 2.3 Interest.
--------
(a) On Base Rate Advances.
---------------------
(i) The Borrower shall pay interest on the outstanding unpaid
principal amount of the Base Rate Advances outstanding from time to time,
until such Base Rate Advances are due (whether at maturity, by reason of
acceleration, by scheduled reduction, or otherwise) and repaid at a simple
interest rate per annum equal to the Base Rate Basis for the Base Rate
Advances as in effect from time to time. If at any time the Base Rate
Basis would exceed the Highest Lawful Rate, interest payable on the Base
Rate Advances shall be limited to the Highest Lawful Rate, but the Base
Rate Basis shall not thereafter be reduced below the Highest Lawful Rate
until the total amount of interest accrued on the Base Rate Advances equals
the amount of interest that would have accrued if the Base Rate Basis had
been in effect at all times.
(ii) Interest on the Base Rate Advances shall be computed on the basis
of a year of 365 or 366 days, as appropriate, for the actual number of days
elapsed, and shall be payable in arrears on each Quarterly Date and on the
Revolving Commitment Maturity Date, the Facility A Term Loan Maturity Date
or the Facility B Term Loan Maturity Date, as appropriate.
(b) On LIBOR Advances.
-----------------
(i) The Borrower shall pay interest on the unpaid principal amount of
each LIBOR Advance, from the date such Advance is made until it is due
(whether at maturity, by reason of acceleration, by scheduled reduction, or
otherwise) and repaid, at a rate per annum equal to the LIBOR Basis for
such LIBOR Advance. The Administrative Agent, whose determination shall be
controlling in the absence of
31
<PAGE>
demonstrable error, shall determine the LIBOR Basis on the second Business
Day prior to the applicable funding, conversion or continuation date and
shall notify the Borrower and the Lenders of such LIBOR Basis.
(ii) Subject to Section 11.9 hereof, interest on each LIBOR Advance
------------
shall be computed on the basis of a 360-day year for the actual number of
days elapsed, and shall be payable in arrears on the applicable Payment
Date and on the Revolving Commitment Maturity Date, the Facility A Term
Loan Maturity Date or the Facility B Term Loan Maturity Date, as
appropriate; provided, however, that if the Interest Period for such LIBOR
Advance exceeds three months, interest shall also be due and payable in
arrears on each three-month anniversary of the commencement of such
Interest Period during such Interest Period.
(c) On Swing Line Advances.
----------------------
(i) The Borrower shall pay interest on the outstanding principal
amount of such Swing Line Advance, from the date of such Swing Line Advance
is made until it is due (whether at maturity, by reason of acceleration or
otherwise) and repaid, at a simple interest rate per annum equal to the sum
of (A) the Base Rate Basis in effect from time to time minus (B) 0.50%, but
in no event higher than the Highest Lawful Rate.
(ii) Interest on each Swing Line Advance shall be computed on the
basis of a year of 365 or 366 days, as applicable, for the number of days
actually elapsed, and shall be payable in arrears on the maturity date of
each Swing Line Advance and on the Revolving Commitment Maturity Date.
(d) Interest After an Event of Default. (i) After an Event of Default
----------------------------------
(other than an Event of Default specified in Section 8.1(f) or (g) hereof) and
-------------- ---
during any continuance thereof, at the option of the Determining Lenders, and
(ii) after an Event of Default specified in Section 8.1(f) or (g) hereof and
-------------- ---
during any continuance thereof, automatically and without any action by the
Administrative Agent or any Lender, the Obligations shall bear interest at a
rate per annum equal to the Default Rate. Such interest shall be payable on the
earlier of demand or the Revolving Commitment Maturity Date, the Facility A Term
Loan Maturity Date or the Facility B Term Loan Maturity Date, as appropriate,
and shall accrue until the earlier of (i) waiver or cure of the applicable Event
of Default, (ii) agreement by the Determining Lenders to rescind the charging of
interest at the Default Rate, or (iii) payment in full of the Obligations. The
Lenders shall not be required to accelerate the maturity of the Advances, to
exercise any other rights or remedies under the Loan Documents, or to give
notice to the Borrower of the decision to charge interest at the Default Rate.
Section 2.4 Fees.
----
(a) Revolving Commitment Fee. Subject to Section 11.9 hereof, the Borrower
------------------------ ------------
agrees to pay to the Administrative Agent, for the account of the Lenders
according to their
32
<PAGE>
Revolving Credit Specified Percentages, a commitment fee of 0.50% per annum (or
0.375% per annum during any period during the Subsequent Pricing Period that the
Applicable Base Rate Margin for Revolving Credit Advances is zero) on the daily
average Unused Portion during the period commencing on the Agreement Date and
ending on the Revolving Credit Maturity Date. Such fee shall be (i) payable in
arrears on each Quarterly Date and on the Revolving Credit Maturity Date, (ii)
fully earned when due and, subject to Section 11.9 hereof, nonrefundable when
------------
paid and (iii) subject to Section 11.9 hereof, computed on the basis of a 360-
------------
day year for the actual number of days elapsed.
(b) Other Fees. Subject to Section 11.9 hereof, the Borrower agrees to pay
---------- ------------
to the Administrative Agent, for the account of (i) the Administrative Agent,
the fees on the dates and in the amounts specified in the letter agreement (the
"Administrative Agent Fee Letter"), dated as of the Agreement Date, between the
Borrower and the Administrative Agent, and (ii) NationsBank of Texas, N.A. and
DLJ Capital Funding, Inc. the fees specified in the Underwriting Fee Letter on
the Agreement Date.
Section 2.5 Prepayments.
-----------
(a) Voluntary LIBOR Advance Prepayments. Upon three Business Days' prior
-----------------------------------
telephonic notice (to be promptly followed by written notice) by an Authorized
Signatory to the Administrative Agent, LIBOR Advances may be voluntarily prepaid
but only so long as the Borrower concurrently reimburses the Lenders in
accordance with Section 2.9 hereof. Any notice of prepayment shall be
-----------
irrevocable.
(b) Mandatory Prepayment. On or before the date of any reduction of the
--------------------
Revolving Credit Commitment, the Borrower shall prepay applicable outstanding
Revolving Credit Advances in an amount necessary to reduce the sum of
outstanding Revolving Credit Advances and Reimbursement Obligations to an amount
less than or equal to the Revolving Credit Commitment as so reduced. To the
extent required by the immediately preceding sentence, the Borrower shall first
prepay all Base Rate Advances and shall thereafter prepay LIBOR Advances. To
the extent that any prepayment requires that a LIBOR Advance be repaid on a date
other than the last day of its Interest Period, the Borrower shall reimburse
each Lender in accordance with Section 2.9 hereof. To the extent that
-----------
outstanding Revolving Credit Advances exceed the Revolving Credit Commitment
after any reduction thereof, the Borrower shall repay any such excess amount and
all accrued interest attributable to such excess Revolving Credit Advances on
the date of such reduction. To the extent that at any time the aggregate
principal amount of Revolving Credit Advances and Reimbursement Obligations
outstanding hereunder exceed the Borrowing Base then in effect, the Borrower
shall immediately repay Revolving Credit Advances in an amount equal to such
excess.
(c) Prepayments from Sales of Assets. Concurrently with the receipt of Net
--------------------------------
Cash Proceeds from the sale or disposition by the Borrower or any Subsidiary of
the Borrower of any assets, including any Equity Interests of any such
Subsidiary (other than sales or dispositions of assets (i) expressly permitted
pursuant to clauses (a) through (c) of Section 7.5 hereof or (ii) the aggregate
-----------
amount of Net Cash Proceeds of which during any fiscal year do
33
<PAGE>
not exceed $1,000,000), the Borrower shall prepay Facility A Term Loan Advances
and Facility B Term Loan Advances in an amount equal to the lesser of (a) the
amount of such Net Cash Proceeds or (b) an amount, if any, which would result in
the Leverage Ratio being less than 3.00 to 1 after such prepayment. Each such
prepayment shall be applied pro rata to all of the unpaid scheduled installment
--------
payments of the Facility A Term Loans and the Facility B Term Loans, in each
case pro rata based upon the respective principal amounts of such installment
--------
payments then unpaid.
(d) Prepayments from Excess Cash Flow. Commencing on October 31, 1998 and
---------------------------------
on each October 31 thereafter, the Borrower shall prepay the Facility A Term
Loan Advances and the Facility B Term Loan Advances in an amount equal to the
lesser of (a) 50% of Excess Cash Flow, if any, for the fiscal year ending
immediately preceding each such October 31 (or in the case of the fiscal year
ending June 30, 1998, for the period from the Agreement Date to such fiscal
year-end) or (b) an amount, if any, which would result in the Leverage Ratio
being less than 3.00 to 1 after such prepayment. Each such prepayment shall be
applied pro rata to all of the unpaid scheduled installment payments of the
--------
Facility A Term Loan Advances and the Facility B Term Loan Advances, in each
case pro rata based upon the respective principal amounts of such installment
--------
payments then unpaid.
(e) Prepayment from Sales of Equity. Concurrently with receipt of Net Cash
-------------------------------
Proceeds from the sale or disposition by the Borrower to any Person of any
Equity after the Agreement Date (other than (i) such sales or dispositions the
aggregate amount of the Net Cash Proceeds of which during any fiscal year do not
exceed $1,000,000 or (ii) sales or dispositions of Equity of the Borrower to the
Specified Investors and to other shareholders of the Borrower as of the
Agreement Date that are concurrently applied to consummate an Acquisition
permitted by this Agreement), the Borrower shall prepay the Facility A Term Loan
Advances and the Facility B Term Loan Advances in an amount equal to the lesser
of (a) 50% of such Net Cash Proceeds or (b) an amount, if any, which would
result in the Leverage Ratio being less than 3.00 to 1 after such prepayment.
Each such prepayment of the Facility A Term Loan Advances and the Facility B
Term Loan Advances shall be applied pro rata to all of the unpaid scheduled
--------
installment payments of the Facility A Term Loan Advances and the Facility B
Term Loan Advances, in each case pro rata based upon the respective principal
--------
amounts of such installment payments then unpaid.
(f) Prepayment from Issuance of Institutional Debt. Concurrently with the
----------------------------------------------
receipt of Net Cash Proceeds from the issuance of Institutional Debt by the
Borrower or any Subsidiary of the Borrower, the Borrower shall prepay the
Facility A Term Loan Advances and the Facility B Term Loan Advances in an amount
equal to the lesser of (a) 100% of such Net Cash Proceeds (or 50% of such Net
Cash Proceeds if such Institutional Debt is Subordinated Debt and the remaining
50% of such Net Cash Proceeds is concurrently applied to consummate an
Acquisition permitted by this Agreement) or (b) an amount, if any, which would
result in the Leverage Ratio being less than 3.00 to 1 after such prepayment.
Each such prepayment of the Facility A Term Loan Advances and the Facility B
Term Loan Advances shall be applied pro rata to all of the unpaid scheduled
--------
installment payments of the
34
<PAGE>
Facility A Term Loan Advances and the Facility B Term Loan Advances, in each
case pro rata based upon the respective principal amounts of such installment
--------
payments then unpaid.
(g) Prepayments in Respect of the Doskocil Transaction Restricted Payments.
----------------------------------------------------------------------
On the date which is 180 days after the Agreement Date, the Borrower shall
prepay the Facility A Term Loan Advances and the Facility B Term Loan Advances
in an amount equal to the amount of the Doskocil Transaction Restricted Payments
that have not been made by such date. Each such prepayment of the Facility A
Term Loan Advances and the Facility B Term Loan Advances shall be applied pro
---
rata to all of the unpaid scheduled installment payments of the Facility A Term
- ----
Loan Advances and the Facility B Term Loan Advances, in each case pro rata based
--------
upon the respective principal amounts of such installment payments then unpaid.
(h) Payments, Generally. Any prepayment of any Advance shall be
-------------------
accompanied by interest accrued on the principal amount being prepaid. Any
voluntary partial payment of a Base Rate Advance shall be in a principal amount
which is at least $1,000,000 and which is an integral multiple of $100,000. Any
voluntary partial payment of a LIBOR Advance shall be in a principal amount
which is at least $1,000,000 and which is an integral multiple of $500,000, and
to the extent that any prepayment of a LIBOR Advance is made on a date other
than the last day of its Interest Period, the Borrower shall reimburse each
Lender in accordance with Section 2.9 hereof. Any voluntary prepayment of any
-----------
Term Loan Advance shall be applied pro rata to all of the unpaid scheduled
--------
installment payments of the Facility A Term Loan Advances and the Facility B
Term Loan Advances, in each case pro rata based upon the respective principal
--------
amount of such installment payment then unpaid.
Section 2.6 Reduction of Revolving Credit Commitment.
----------------------------------------
(a) Voluntary Reduction. The Borrower shall have the right, upon not less
-------------------
than 5 Business Days' notice by an Authorized Signatory to the Administrative
Agent (if telephonic, to be confirmed by telex or in writing on or before the
date of reduction or termination), which shall promptly notify the Lenders, to
terminate or reduce the Revolving Credit Commitment. Each partial termination
shall be in an aggregate amount which is at least $1,000,000 and which is an
integral multiple thereof, and no voluntary reduction in the Revolving Credit
Commitment shall cause any LIBOR Advance to be repaid prior to the last day of
its Interest Period unless the Borrower shall reimburse each Lender in
accordance with Section 2.9 hereof.
-----------
(b) Mandatory Reduction. On the Revolving Commitment Maturity Date, the
-------------------
Revolving Credit Commitment shall be automatically reduced to zero.
(c) General Requirements. Upon any reduction of the Revolving Credit
--------------------
Commitment pursuant to this Section, the Borrower shall immediately make a
repayment of Revolving Credit Advances in accordance with Section 2.5(b) hereof.
--------------
The Borrower shall reimburse each Lender in connection with any such payment in
accordance with Section 2.9 hereof to the extent applicable. The Borrower shall
-----------
not have any right to rescind any
35
<PAGE>
termination or reduction. Once reduced, the Revolving Credit Commitment may not
be increased or reinstated.
Section 2.7 Non-Receipt of Funds by the Administrative Agent. Unless the
------------------------------------------------
Administrative Agent shall have been notified by a Lender prior to the date of
any proposed Advance (which notice shall be effective upon receipt) that such
Lender does not intend to make the proceeds of such Advance available to the
Administrative Agent, the Administrative Agent may assume that such Lender has
made such proceeds available to the Administrative Agent on such date, and the
Administrative Agent may in reliance upon such assumption (but shall not be
required to) make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Agent
by such Lender, the Administrative Agent shall be entitled to recover such
amount on demand from such Lender (or, if such Lender fails to pay such amount
forthwith upon such demand, from the Borrower) together with interest thereon in
respect of each day during the period commencing on the date such amount was
available to the Borrower and ending on (but excluding) the date the
Administrative Agent receives such amount from (a) the Lender, at a per annum
rate equal to the lesser of (i) the Highest Lawful Rate or (ii) the Federal
Funds Rate, or (b) the Borrower, at the per annum rate applicable at the time to
such Advance. No Lender shall be liable for any other Lender's failure to fund
an Advance hereunder.
Section 2.8 Payment of Principal of Advances.
--------------------------------
(a) Revolving Credit Advances. To the extent not otherwise required to be
-------------------------
paid earlier as provided herein, the principal amount of the Revolving Credit
Advances shall be due and payable on the Revolving Commitment Maturity Date.
(b) Facility A Term Loan Advances. To the extent not otherwise required to
-----------------------------
be paid earlier as provided herein, the principal amount of the Facility A Term
Loan Advances shall be repaid on each Quarterly Date and on the Facility A Term
Loan Maturity Date in such amounts as set forth next to each such date below:
<TABLE>
<CAPTION>
Amount of Reduction of Facility A
Quarterly Date Term Loan Advances as of each Date
-------------- ----------------------------------
<S> <C>
December 31, 1998 $1,250,000
March 31, 1999 $1,250,000
June 30, 1999 $1,250,000
September 30, 1999 $1,250,000
December 31, 1999 $2,250,000
March 31, 2000 $2,250,000
June 30, 2000 $2,250,000
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
September 30, 2000 $2,250,000
December 31, 2000 $2,250,000
March 31, 2001 $2,250,000
June 30, 2001 $2,250,000
September 30, 2001 $2,250,000
December 31, 2001 $2,750,000
March 31, 2002 $2,750,000
June 30, 2002 $2,750,000
September 30, 2002 $2,750,000
December 31, 2002 $2,750,000
March 31, 2003 $2,750,000
June 30, 2003 $2,750,000
September 30, 2003 $2,750,000
or such other amount of Facility A
Term Loan Advances then outstanding
</TABLE>
(c) Facility B Term Loan Advances. To the extent not otherwise required to
-----------------------------
be paid earlier as provided herein, the principal amount of the Facility B Term
Loan Advances shall be repaid on each Quarterly Date and on the Facility B Term
Loan Maturity Date in such amounts as set forth next to each such date below:
<TABLE>
<CAPTION>
Amount of Reduction of Facility B
Quarterly Date Term Loan Advances as of each Date
-------------- ----------------------------------
<S> <C>
December 31, 1997 $93,750
March 31, 1998 $93,750
June 30, 1998 $93,750
September 30, 1998 $93,750
December 31, 1998 $93,750
March 31, 1999 $93,750
June 30, 1999 $93,750
September 30, 1999 $93,750
December 31, 1999 $93,750
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
February 29, 2000 $ 93,750
June 30, 2000 $ 93,750
September 30, 2000 $ 93,750
December 31, 2000 $ 93,750
March 31, 2001 $ 93,750
June 30, 2001 $ 93,750
September 30, 2001 $ 93,750
December 31, 2001 $ 93,750
March 31, 2002 $ 93,750
June 30, 2002 $ 93,750
September 30, 2002 $ 93,750
December 31, 2002 $ 93,750
March 31, 2003 $ 93,750
June 30, 2003 $ 93,750
September 30, 2003 $ 93,750
December 31, 2003 $8,812,500
March 31, 2004 $8,812,500
June 30, 2004 $8,812,500
September 30, 2004 $8,812,500
or such other amount of Facility B
Term Loan Advances then outstanding
</TABLE>
(d) Swing Line Advances. To the extent not otherwise required to be paid
-------------------
earlier as provided herein, the outstanding principal amount of each Swing Line
Advance shall be due and payable on its maturity date.
Section 2.9 Reimbursement. Whenever any Lender shall sustain or incur any
-------------
losses or reasonable out-of-pocket expenses in connection with (a) failure by
the Borrower to borrow any LIBOR Advance after having given notice of its
intention to borrow in accordance with Section 2.2 hereof (whether by reason of
-----------
the Borrower's election not to proceed or the non-fulfillment of any of the
conditions set forth in Article 3 hereof), (b) any prepayment for any reason of
any LIBOR Advance in whole or in part (including, but not limited to, a
prepayment pursuant to Section 9.3(b) hereof) on other than the last day of an
--------------
Interest Period applicable to such LIBOR Advance, (c) any prepayment of any of
its LIBOR Advances that is not made on any date specified in a notice of
prepayment given by the
38
<PAGE>
Borrower or (d) the selling by such Lender (provided that such Lender was a
Lender on the Agreement Date) of its rights and obligations under this Agreement
to an Eligible Assignee within 180 days after the Agreement Date, the Borrower
agrees to pay to any such Lender, within 30 days after demand by such Lender, an
amount sufficient to compensate such Lender for all such losses (excluding loss
of anticipated profits) and out-of-pocket expenses, subject to Section 11.9
------------
hereof. A certificate as to any amounts payable to any Lender under this
Section 2.9 submitted to the Borrower by such Lender shall certify that such
- -----------
amounts were actually incurred by such Lender and shall show in reasonable
detail an accounting of the amount payable and the calculations used to
determine in good faith such amount and shall be conclusive absent demonstrable
error.
Section 2.10 Manner of Payment.
-----------------
(a) Each payment (including prepayments) by the Borrower of the principal
of or interest on the Advances, fees, and any other amount owed under this
Agreement or any other Loan Document shall be made not later than 12:00 noon
(Dallas, Texas time) on the date specified for payment under this Agreement to
the Administrative Agent at the Administrative Agent's office, in lawful money
of the United States of America constituting immediately available funds.
(b) If any payment under this Agreement or any other Loan Document shall be
specified to be made upon a day which is not a Business Day, it shall be made on
the next succeeding day which is a Business Day, unless, with respect to a
payment due in respect of a LIBOR Advance, such Business Day falls in another
calendar month, in which case payment shall be made on the preceding Business
Day. Any extension of time shall in such case be included in computing interest
and fees, if any, in connection with such payment.
(c) The Borrower agrees to pay principal, interest, fees and all other
amounts due under the Loan Documents without deduction for set-off or
counterclaim or any deduction whatsoever.
(d) Notwithstanding anything in this Agreement to the contrary, all
payments received by the Administrative Agent pursuant to the Loan Documents
(other than from other Lenders) shall be applied as follows:
(i) Prior to (A) the occurrence and continuance of an Event of
Default and (B) the delivery by the Determining Lenders of the notice to
the Administrative Agent referred to in Section 2.10(d)(ii)(B) below, the
----------------------
Administrative Agent shall apply all such payments as between the Revolving
Credit Advances, the Facility A Term Loan Advances and the Facility B Term
Loan Advances to the applicable Advances in accordance with the Applicable
Specified Percentages.
(ii) If (A) there exists an Event of Default that has occurred and is
continuing and (B) the Determining Lenders shall have delivered notice to
the Administrative Agent to apply such payments as provided in this Section
-------
2.10(d)(ii),
-----------
39
<PAGE>
the Administrative Agent shall apply all such payments to reduce the
Revolving Credit Advances, the Swing Line Advances, the Facility A Term
Loan Advances and the Facility B Term Loan Advances in accordance with each
Lender's Total Specified Percentage.
(iii) At all times prior to the Lenders making a Revolving Credit
Advance pursuant to Section 2.2(g), the Administrative Agent shall
--------------
distribute all payments in respect of the Swing Line Advances to the Swing
Line Bank. At such time, if any, that the Lenders make a Revolving Credit
Advance pursuant to Section 2.2(g), the Administrative Agent shall
--------------
distribute all payments in respect of the Swing Line Advances to the
Revolving Credit Advances in accordance with the Revolving Credit Specified
Percentages.
Section 2.11 LIBOR Lending Offices. Each Lender's initial LIBOR Lending
---------------------
Office is set forth opposite its name in Schedule 1 attached hereto. Each
----------
Lender shall have the right at any time and from time to time to designate a
different office of itself or of any Affiliate of such Lender as such Lender's
LIBOR Lending Office, and to transfer any outstanding LIBOR Advance to such
LIBOR Lending Office. No such designation or transfer shall result in any
liability on the part of the Borrower for increased costs or expenses resulting
solely from such designation or transfer (except any such transfer which is made
by a Lender pursuant to Section 9.2 or 9.3 hereof, or otherwise for the purpose
----------- ---
of complying with Applicable Law). Increased costs for expenses resulting from
a change in law occurring subsequent to any such designation or transfer shall
be deemed not to result solely from such designation or transfer.
Section 2.12 Sharing of Payments. If any Lender shall obtain a payment
-------------------
(whether voluntary or involuntary, due to the exercise of any right of set-off,
or otherwise) on account of its Advances (other than pursuant to Sections
--------
2.4(b), 2.14, 2.15(d), 9.3 or 9.5 or in respect of Swing Line Advances) in
---- ------- --- ---
excess of its share of payments made by the Borrower according to (a) before the
Lenders have delivered the notice to the Administrative Agent referred to in
Section 2.10(d)(ii)(B) above, its Applicable Specified Percentage, and (b) after
- ----------------------
the occurrence and during the continuance of an Event of Default and provided
that the Determining Lenders have delivered the notice to the Administrative
Agent referred to in Schedule 2.10(d)(ii)(B) above, its Total Specified
-----------------------
Percentage, then in each case, such Lender shall purchase from each other Lender
such participation in the Advances made by such other Lender as shall be
necessary to cause such purchasing Lender to share a ratable portion of the
excess payment with each other Lender (based on its Applicable Specified
Percentage so long as there does not exist an Event of Default, and based on its
Total Specified Percentage if there exists an Event of Default); provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, the purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest.
The Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section, to the fullest extent permitted by law, may
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
40
<PAGE>
Section 2.13 Calculation of LIBOR Rate. The provisions of this Agreement
-------------------------
relating to calculation of the LIBOR Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid hereunder that are
based upon such rate, it being understood that each Lender shall be entitled to
fund and maintain its funding of all or any part of a LIBOR Advance as it sees
fit.
Section 2.14 Taxes.
-----
(a) Any and all payments by the Borrower hereunder shall be made, in
accordance with Section 2.10, free and clear of and without deduction for any
------------
and all present or future taxes, levies, imposts, deductions, charges and
withholdings, and all liabilities with respect thereto, excluding, in the case
---------
of each Lender and the Administrative Agent, (i) taxes imposed on, based upon or
measured by its overall net income, net worth or capital, and franchise taxes,
doing business taxes or minimum taxes imposed on it, by the jurisdiction under
the laws of which such Lender or the Administrative Agent (as the case may be)
is organized or in which it has its applicable lending office or any political
subdivision thereof; (ii) taxes imposed by reason of failure by the Lender or
the Administrative Agent to comply with the requirements of paragraph (e) of
this Section 2.14; and (iii) in the case of any Lender, any taxes in the nature
------------
of transfer, stamp, recording or documentary taxes resulting from a transfer
(other than as a result of foreclosure) by such Lender of all or any portion of
its interest in this Agreement, the Notes or any other Loan Documents (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by Law to deduct or withhold any Taxes from or in respect of any sum
payable hereunder to any Lender or the Administrative Agent, to the extent not
prohibited by Applicable Law, (x) the sum payable shall be increased as may be
necessary so that after making all required deductions for Taxes (including
deductions applicable to additional sums payable under this Section 2.14) such
------------
Lender or the Administrative Agent (as the case may be) receives an amount equal
to the sum it would have received had no such deductions been made, (y) the
Borrower shall make such deductions and (z) the Borrower shall pay the full
amount of Taxes deducted to the relevant taxation authority or other authority
in accordance with Applicable Law.
(b) In addition, the Borrower agrees to pay any and all stamp and
documentary taxes and any and all other excise and property taxes, charges and
similar levies (other than taxes described in clause (iii) of the first sentence
of Section 2.14(a)) that arise from any payment made hereunder or from the
---------------
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender and the Administrative Agent
for the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.14) paid by such Lender or the Administrative Agent (as the case may
- ------------
be) and all liabilities (including penalties, additions to tax, interest and
reasonable expenses) arising therefrom or with respect thereto whether or not
such Taxes or Other Taxes were correctly or legally asserted, other
41
<PAGE>
than penalties, additions to tax, interest and expenses which are finally
judicially determined by a court of competent jurisdiction to have arisen as a
result of gross negligence or wilful misconduct on the part of such Lender or
the Administrative Agent. This indemnification shall be made within 30 days
from the date such Lender or the Administrative Agent (as the case may be) makes
written demand therefor.
(d) As soon as practicable after the date of any payment of Taxes, the
Borrower will furnish to the Administrative Agent the original or a certified
copy of a receipt evidencing payment thereof. For purposes of this Section 2.14
------------
the terms "United States" and "United States Person" shall have the meanings set
forth in Section 7701 of the Code.
(e) Each Lender which is not a United States Person hereby agrees that:
(i) it shall, no later than the Agreement Date (or, in the case of a
Lender which becomes a party hereto pursuant to Section 11.6 after the
------------
Agreement Date, the date upon which such Lender becomes a party hereto) and
at such times as necessary in the reasonable determination of the Borrower,
deliver to the Borrower through the Administrative Agent, with a copy to
the Administrative Agent:
(A) if any lending office is located in the United States, two (2)
accurate and complete signed originals of Internal Revenue
Service Form 4224 or any successor form thereto ("Form 4224"),
(B) if any lending office is located outside the United States, two
(2) accurate and complete signed originals of Internal Revenue
Service Form 1001 or any successor form thereto ("Form 1001"),
in each case establishing that such Lender is on the date of delivery
thereof entitled to receive payments of principal, interest, fees, or other
amounts payable at such lending office or lending offices under this
Agreement or any other Loan Document free from deduction or withholding of
United States federal income tax;
(ii) if at any time such Lender changes its lending office or lending
offices or selects an additional lending office it shall, at the same time
or reasonably promptly thereafter, but only to the extent the forms
previously delivered by it hereunder are not effective with respect to such
changed or additional lending office or lending offices, deliver to the
Borrower through the Administrative Agent, with a copy to the
Administrative Agent, in replacement for the forms previously delivered by
it hereunder:
(A) if such changed or additional lending office is located in the
United States, two (2) accurate and complete signed originals of
Form 4224; or
(B) otherwise, two (2) accurate and complete signed originals of Form
1001,
42
<PAGE>
in each case establishing that such Lender is on the date of delivery
thereof entitled to receive payments of principal, interest, fees, or other
amounts payable at such changed or additional lending office under this
Agreement or any other Loan Document free from deduction of withholding of
United States federal income tax;
(iii) it shall, before or promptly after the occurrence of any event
(including the passing of time but excluding any event mentioned in clause
(ii) above) requiring a change in the most recent Form 4224 or Form 1001
previously delivered by such Lender and if the delivery of the same be
lawful, deliver to the Borrower through the Administrative Agent, with a
copy to the Administrative Agent, two (2) accurate and complete original
signed copies of Form 4224 or Form 1001, in each case establishing that
such Lender is on the date of delivery thereof entitled to receive payments
of principal, interest, fees, or other amounts payable under this Agreement
or any other Loan Document free from deduction or withholding of United
States federal income tax, in replacement for the forms previously
delivered by such Lender;
(iv) it shall, promptly upon the request of the Borrower to that
effect, deliver to the Borrower such other forms or similar documentation
as may be required from time to time by any applicable law, treaty, rule or
regulation in order to establish such Lender's tax status for withholding
purposes;
(v) it shall notify the Borrower promptly after any event (including
an amendment to or a change in any applicable law or regulation or in the
written interpretation thereof by any regulatory authority or any judicial
authority or by ruling applicable to such Lender of any governmental
authority charged with the interpretation or administration of any law)
shall occur that results in such Lender no longer being capable of
receiving payments under this Agreement without any deduction or
withholding of United States federal income tax; and
(vi) if such Lender is not a "bank" or other person described in
Section 881(c)(3) of the Code and cannot deliver either Form 4224 or Form
1001, a statement that such Lender is not a "bank" under Section
881(c)(3)(A) of the Code and two original copies of Internal Revenue
Service Form W-8 (or any successor form), properly completed and duly
executed by such Lender.
(f) 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 shall survive the payment in full of the Obligations.
------------
(g) Each Lender (and the Administrative Agent with respect to payments to
the Administrative Agent for its own account) agrees that (i) it will take all
reasonable actions by all usual means to maintain all exemptions, if any,
available to it from United States withholding taxes (whether available by
treaty, existing administrative waiver or by virtue of the location of any
Lender's lending office), (ii) it will use reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to change the
jurisdiction of its
43
<PAGE>
lending office, if the making of such a change would avoid the need for, or
reduce the amount of, any such additional amounts which may thereafter accrue
and would not, in the reasonable judgment of such Lender, be disadvantageous to
such Lender, and (iii) otherwise cooperate with the Borrower (in a manner that
is not disadvantageous to such Lender in its sole discretion) to minimize
amounts payable by the Borrower under this Section 2.14; provided, however, no
------------ -------- -------
Lender nor the Administrative Agent shall be obligated by reason of this Section
-------
2.14(g) to (a) disclose any information regarding its tax affairs or tax
- -------
computations or reorder its tax or other affairs or tax or other planning or (b)
contest the payment of any Taxes or Other Taxes. Subject to the foregoing, to
the extent the Borrower pays sums pursuant to this Section 2.14 and the Lender
------------
or the Administrative Agent receives a refund of any or all of such sums, the
party receiving such refund shall promptly pay over all such refunded sums to
the Borrower, provided that no Default or Event of Default is in existence at
such time. At such time, if any, that such Default or Event of Default is cured
or waived, the party receiving such refund shall promptly pay over all such
refunded sums to the Borrower.
(h) If the Borrower becomes obligated to pay additional amounts described
in this Section 2.14 to any Lender, the Borrower may designate a financial
------------
institution reasonably acceptable to the Administrative Agent to replace such
Lender by purchasing for cash and receiving an assignment of such Lender's pro
rata share of the Commitments and the Rights of such Lender under the Loan
Documents without recourse to or warranty by, or expense to, such Lender, for a
purchase price equal to the outstanding amounts owed to such Lender (including
such additional amounts owing to such Lender pursuant to this Section 2.14).
------------
Upon execution of an Assignment Agreement, such other financial institution
shall be deemed to be a "Lender" for all purposes of this Agreement as set forth
in Section 11.6 hereof.
------------
Section 2.15 Letters of Credit.
-----------------
(a) The Letter of Credit Facility. The Borrower may request the Issuing
-----------------------------
Bank, on the terms and conditions hereinafter set forth, to issue, and the
Issuing Bank shall, if so requested, issue, letters of credit (the "Letters of
Credit") for the account of the Borrower from time to time on any Business Day
from the date of the initial Advance until the Revolving Commitment Maturity
Date in an aggregate maximum amount (assuming compliance with all conditions to
drawing) not to exceed, at any time outstanding, the lesser of (i) $5,000,000
(the "Letter of Credit Facility") and (ii) an amount equal to the lesser of the
Revolving Credit Commitment and the Borrowing Base minus the aggregate principal
-----
amount of Revolving Credit Advances and Swing Line Advances then outstanding.
No Letter of Credit shall have an expiration date (including all rights of
renewal) later than the earlier of (i) the Revolving Commitment Maturity Date or
(ii) one year after the date of issuance thereof. Immediately upon the issuance
of each Letter of Credit, the Issuing Bank shall be deemed to have sold and
transferred to each Lender, and each Lender shall be deemed to have purchased
and received from the Issuing Bank, in each case irrevocably and without any
further action by any party, an undivided interest and participation in such
Letter of Credit, each drawing thereunder and the obligations of the Borrower
under this Agreement
44
<PAGE>
in respect thereof in an amount equal to the product of (x) such Lender's
Revolving Credit Specified Percentage times (y) the maximum amount available to
be drawn under such Letter of Credit (assuming compliance with all conditions to
drawing). Within the limits of the Letter of Credit Facility, and subject to
the limits referred to above, the Borrower may request the issuance of Letters
of Credit under this Section 2.15(a), repay any Revolving Credit Advances
---------------
resulting from drawings thereunder pursuant to Section 2.15(c) and request the
---------------
issuance of additional Letters of Credit under this Section 2.15(a).
---------------
(b) Request for Issuance. Each Letter of Credit shall be issued upon
--------------------
notice, given not later than 1:00 p.m. (Dallas, Texas time) on the fourth
Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Borrower to the Issuing Bank. Each Letter of Credit shall be
issued upon notice given in accordance with the terms of any separate agreement
between the Borrower and the Issuing Bank in form and substance reasonably
satisfactory to the Borrower and the Issuing Bank providing for the issuance of
Letters of Credit pursuant to this Agreement and containing terms and conditions
not inconsistent with this Agreement (a "Letter of Credit Agreement"), provided
--------
that if any such terms and conditions are inconsistent with this Agreement, this
Agreement shall control. Each such notice of issuance of a Letter of Credit by
the Borrower (a "Notice of Issuance") shall be by telecopier, specifying
therein, in the case of a Letter of Credit, the requested (i) date of such
issuance (which shall be a Business Day), (ii) maximum amount of such Letter of
Credit, (iii) expiration date of such Letter of Credit, (iv) name and address of
the beneficiary of such Letter of Credit, and (v) form of such Letter of Credit
and specifying such other information as shall be required pursuant to the
relevant Letter of Credit Agreement. If the requested terms of such Letter of
Credit are acceptable to the Issuing Bank in its reasonable discretion, the
Issuing Bank will, upon fulfillment of the applicable conditions set forth in
Article 3 hereof, make such Letter of Credit available to the Borrower at its
- ---------
office referred to in Section 11.1 or as otherwise agreed with the Borrower in
------------
connection with such issuance.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of a draft
-------------------------
drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of a Revolving Credit Advance, which
shall bear interest at the Base Rate Basis, in the amount of such draft (but
without any requirement for compliance with the conditions set forth in Article
-------
3 hereof). In the event that a drawing under any Letter of Credit is not
- -
reimbursed by the Borrower by 12:00 noon (Dallas, Texas time) on the first
Business Day after such drawing, the Issuing Bank shall promptly notify
Administrative Agent and each other Lender. Each such Lender shall, on the
first Business Day following such notification, make a Revolving Credit Advance,
which shall bear interest at the Base Rate Basis, and shall be used to repay the
applicable portion of the Issuing Bank's Advance with respect to such Letter of
Credit, in an amount equal to the amount of its participation in such drawing
for application to reimburse the Issuing Bank (but without any requirement for
compliance with the applicable conditions set forth in Article 3 hereof) and
---------
shall make available to the Administrative Agent for the account of the Issuing
Bank, by deposit at the Administrative Agent's office, in same day funds, the
amount of such Advance. In the event that any Lender fails to make available to
the Administrative Agent
45
<PAGE>
for the account of the Issuing Bank the amount of such Advance, the Issuing Bank
shall be entitled to recover such amount on demand from such Lender together
with interest thereon at a rate per annum equal to the lesser of (i) the Highest
Lawful Rate or (ii) the Federal Funds Rate.
(d) Increased Costs. If, (i) any change after the Agreement Date in any
---------------
Law or in the interpretation thereof by any Tribunal charged with the
administration thereof or (ii) compliance by a Lender with any Law or any
guideline or requirement from any central bank or Tribunal (whether or not
having the force of law) adopted or promulgated after the Agreement Date
(including any implementation of the Basle Accord or similar guideline or
requirement adopted, promulgated or becoming effective after the Agreement Date)
shall either (A) impose, modify or deem applicable any reserve, special deposit
or similar requirement against letters of credit or guarantees issued by, or
assets held by, or deposits in or for the account of, the Issuing Bank or any
Lender or any corporation controlling the Issuing Bank or any Lender or (B)
impose on the Issuing Bank or any Lender or any corporation controlling the
Issuing Bank or any Lender any other condition regarding this Agreement or any
Letter of Credit, and the result of any event referred to in the preceding
clause (A) or (B) shall be to increase the cost to the Issuing Bank or any
corporation controlling the Issuing Bank of issuing or maintaining any Letter of
Credit or to any Lender or any corporation controlling such Lender of purchasing
any participation therein or making any Advance pursuant to Section 2.15(c),
---------------
then, within 10 days after demand by the Issuing Bank or such Lender, the
Borrower shall, subject to Section 11.9 hereof, pay to the Issuing Bank or such
------------
Lender, from time to time as specified by the Issuing Bank or such Lender,
additional amounts that shall be sufficient to compensate the Issuing Bank or
such Lender or any corporation controlling such Lender for such increased cost.
A certificate as to the amount of such increased cost, submitted to the Borrower
by the Issuing Bank or such Lender, shall certify that such increased costs were
actually incurred by the Issuing Bank or such Lender and shall show in
reasonable detail an accounting of the amount payable and the calculation used
to determine in good faith such amount and shall be conclusive absent
demonstrable error. In determining such amount, the Issuing Bank or such Lender
may use any reasonable averaging or attribution method. Nothing in this Section
-------
2.15(d) shall provide the Borrower or any Subsidiary of the Borrower the right
- -------
to inspect the records, files or books of the Issuing Bank or any Lender. If
the Borrower becomes obligated to pay additional amounts described in this
Section 2.15(d) to any Lender, the Borrower may designate a financial
- ---------------
institution reasonably acceptable to the Administrative Agent to replace such
Lender by purchasing for cash and receiving an assignment of such Lender's pro
rata share of the Commitments and the Rights of such Lender under the Loan
Documents without recourse to or warranty by, or expenses to, such Lender, for a
purchase price equal to the outstanding amounts owing to such Lender (including
such additional amounts owing to such Lender pursuant to this Section 2.15(d)).
---------------
Upon execution of an Assignment Agreement, such other financial institution
shall be deemed to be a "Lender" for all purposes of this Agreement as set forth
in Section 11.6 hereof. The obligations of the Borrower under this Section
------------ -------
2.15(d) shall survive termination of this Agreement. The Issuing Bank or any
- -------
Lender claiming any additional compensation under this Section 2.15(d) shall use
---------------
reasonable efforts (consistent with legal and regulatory restrictions) to reduce
or eliminate any such
46
<PAGE>
additional compensation which may thereafter accrue and which efforts would not,
in the reasonable judgment of the Issuing Bank or such Lender, be otherwise
disadvantageous.
(e) Obligations Absolute. The obligations of the Borrower under this
--------------------
Agreement with respect to any Letter of Credit, any Letter of Credit Agreement
and any other agreement or instrument relating to any Letter of Credit or any
Revolving Credit Advance pursuant to Section 2.15(c) shall be unconditional and
---------------
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, such Letter of Credit Agreement and such other agreement or
instrument under all circumstances, including, without limitation, the following
circumstances:
(i) any lack of validity or enforceability of this Agreement, any
other Loan Document, any Letter of Credit Agreement, any Letter of Credit
or any other agreement or instrument relating thereto (collectively, the
"L/C Related Documents");
(ii) (A) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations of the Borrower in respect
of the Letters of Credit or any Revolving Credit Advance pursuant to
Section 2.15(c) or (B) any other amendment or waiver of or any consent to
---------------
departure from all or any of the L/C Related Documents;
(iii) the existence of any claim, set-off, defense or other right
that the Borrower may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank, any
Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C Related Documents or any
unrelated transaction;
(iv) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not comply with the terms
of the Letter of Credit, except for any payment made upon the Issuing
Bank's gross negligence or wilful misconduct;
(vi) any exchange, release or non-perfection of any Collateral, or
any release or amendment or waiver of or consent to departure from any
guarantee, for all or any of the Obligations of the Borrower in respect of
the Letters of Credit or any Revolving Credit Advance pursuant to Section
-------
2.15(c); or
-------
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance
47
<PAGE>
that might otherwise constitute a defense available to, or a discharge of,
the Borrower or a guarantor, other than the Issuing's Bank gross negligence
or wilful misconduct.
(f) Compensation for Letters of Credit.
----------------------------------
(i) Credit Fee. Subject to Section 11.9 hereof, the Borrower shall
---------- ------------
pay to the Administrative Agent for the account of the Lenders according to
their Revolving Credit Specified Percentages, a per annum fee (which shall
be payable quarterly in arrears on each Quarterly Date and on the Revolving
Commitment Maturity Date) equal to the product of the Applicable LIBOR Rate
Margin in effect from time to time for Revolving Advances multiplied by the
average daily amount available for drawing under all outstanding Letters of
Credit. Subject to Section 11.9 hereof, such fee shall be computed on the
------------
basis of a 360-day year for the actual number of days elapsed.
(ii) Fronting Fee. Subject to Section 11.9 hereof, the Borrower
------------ ------------
shall pay to the Administrative Agent for the account of the Issuing Bank a
per annum fronting fee (which shall be payable quarterly in arrears on each
Quarterly Date and on the Revolving Commitment Maturity Date) in an amount
equal to the product of (a) 0.25% times (b) the average daily amount
available for drawing under all outstanding Letters of Credit. Subject to
Section 11.9 hereof, such fee shall be computed on the basis of a 360-day
------------
year for the actual number of days elapsed.
(iii) Administrative Fee. Subject to Section 11.9 hereof, the
------------------ ------------
Borrower shall pay, with respect to each amendment, renewal or transfer of
each Letter of Credit and each drawing made thereunder, reasonable
documentary and processing charges in accordance with the Issuing Bank's
standard schedule for such charges in effect at the time of such amendment,
renewal, transfer or drawing, as the case may be.
(g) L/C Cash Collateral Account.
---------------------------
(i) Upon the occurrence of an Event of Default and demand by the
Administrative Agent pursuant to Section 8.2(c) (except in the case of an
--------------
Event of Default specified in Section 8.1(f) or (g) hereof, without any
-------------- ---
demand or taking of any other action by the Administrative Agent or any
Lender), the Borrower will promptly pay to the Administrative Agent in
immediately available funds an amount equal to the maximum amount then
available to be drawn under the Letters of Credit then outstanding. Any
amounts so received by the Administrative Agent shall be deposited by the
Administrative Agent in a deposit account maintained by the Issuing Bank
(the "L/C Cash Collateral Account").
(ii) As security for the payment of all Reimbursement Obligations and
for any other Obligations, the Borrower hereby grants, conveys, assigns,
pledges, sets over and transfers to the Administrative Agent (for the
benefit of the Issuing Bank and Lenders), and creates in the Administrative
Agent's favor (for the benefit of the Issuing Bank and Lenders) a Lien in,
all money, instruments and securities at any
48
<PAGE>
time held in or acquired in connection with the L/C Cash Collateral
Account, together with all proceeds thereof. The L/C Cash Collateral
Account shall be under the sole dominion and control of the Administrative
Agent and the Borrower shall have no right to withdraw or to cause the
Administrative Agent to withdraw any funds deposited in the L/C Cash
Collateral Account. At any time and from time to time, upon the
Administrative Agent's request, the Borrower promptly shall execute and
deliver any and all such further instruments and documents, including UCC
financing statements, as may be necessary, appropriate or desirable in the
Administrative Agent's judgment to obtain the full benefits (including
perfection and priority) of the security interest created or intended to be
created by this paragraph (ii) and of the rights and powers herein granted.
The Borrower shall not create or suffer to exist any Lien on any amounts or
investments held in the L/C Cash Collateral Account other than the Lien
granted under this paragraph (ii).
(iii) The Administrative Agent shall (A) apply any funds in the L/C
Cash Collateral Account on account of Reimbursement Obligations when the
same become due and payable, (B) after the Revolving Commitment Maturity
Date, apply any proceeds remaining in the L/C Cash Collateral Account first
-----
to pay any unpaid Obligations then outstanding hereunder and then to refund
----
any remaining amount to the Borrower.
(iv) The Borrower, no more than once in any calendar month, may
direct the Administrative Agent to invest the funds held in the L/C Cash
Collateral Account (so long as the aggregate amount of such funds exceeds
any relevant minimum investment requirement) in (A) Cash and Cash
Equivalents or direct obligations of the United States or any agency
thereof, or obligations guaranteed by the United States or any agency
thereof and (B) one or more other types of investments permitted by the
Determining Lenders, in each case with such maturities as the Borrower,
with the consent of the Determining Lenders, may specify, pending
application of such funds on account of Reimbursement Obligations or on
account of other Obligations, as the case may be. In the absence of any
such direction from the Borrower, the Administrative Agent shall invest the
funds held in the L/C Cash Collateral Account (so long as the aggregate
amount of such funds exceeds any relevant minimum investment requirement)
in one or more types of investments with the consent of the Determining
Lenders with such maturities as the Borrower, with the consent of the
Determining Lenders, may specify, pending application of such funds on
account of Reimbursement Obligations or on account of other Obligations, as
the case may be. All such investments shall be made in the Administrative
Agent's name for the account of the Lenders, subject to the ownership
interest therein of the Borrower. The Borrower recognizes that any losses
or taxes with respect to such investments shall be borne solely by the
Borrower, and the Borrower agrees to hold the Administrative Agent and the
Lenders harmless from any and all such losses and taxes, except to the
extent that such losses or taxes are finally judicially determined by a
court of competent jurisdiction to be the result of gross negligence or
wilful misconduct of the Administrative Agent. Administrative Agent may
liquidate any
49
<PAGE>
investment held in the L/C Cash Collateral Account in order to apply the
proceeds of such investment on account of the Reimbursement Obligations as
provided in Section 2.15(g)(iii) hereof (or on account of any other
--------------------
Obligation then due and payable, as the case may be) without regard to
whether such investment has matured and without liability for any penalty
or other fee incurred (with respect to which the Borrower hereby agrees to
reimburse the Administrative Agent) as a result of such application.
(v) After the establishment of the L/C Cash Collateral Account
pursuant to Section 2.15(g)(i) hereof, the Borrower shall pay to the
------------------
Administrative Agent the fees customarily charged by the Issuing Bank with
respect to the maintenance of accounts similar to the L/C Cash Collateral
Account.
(vi) At such time as no Event of Default is in existence, the
Administrative Agent shall return any amount remaining in the L/C Cash
Collateral Account to the Borrower.
ARTICLE 3
Conditions Precedent
--------------------
Section 3.1 Conditions Precedent to the Initial Advances and the Initial
------------------------------------------------------------
Letters of Credit. The obligation of each Lender to make the initial Advance
- -----------------
and the obligation of the Issuing Bank to issue the initial Letter of Credit is
subject to (i) receipt by the Administrative Agent of the following items which
are to be delivered, in form and substance satisfactory to each Lender, with a
copy (except for the Notes and this Agreement) for each Lender, and (ii)
satisfaction of the following conditions which are to be satisfied:
(a) A loan certificate of each Obligor certifying as to the accuracy of its
representations and warranties in the Loan Documents, certifying, in the case of
any such Obligor, that no Default or Event of Default has occurred, and
including a certificate of incumbency with respect to each Authorized Signatory,
and including (i) a copy of the articles or certificate of incorporation or
other organizational documents of such Obligor, certified to be true, complete
and correct by the secretary of state of its state of organization, (ii) a copy
of a certificate of good standing and a certificate of existence for its state
of organization and, in the case of any such Obligor, each state in which it is
qualified to do business, (iii) a copy of such Obligor's bylaws, partnership
agreement or similar document, certified to be true, complete and correct by its
secretary or general partner, as the case may be, and (iv) a copy of corporate
or similar resolutions authorizing the execution, delivery and performance of
the Loan Documents to be executed by such Obligor;
(b) a duly executed Revolving Credit Note, Facility A Term Loan Note and
Facility B Term Loan Note payable to the order of each Lender and in an amount
for each Lender equal to its Specified Percentage of each Commitment,
respectively;
50
<PAGE>
(c) UCC searches in appropriate jurisdictions where Collateral is located;
(d) opinions of counsel to each Obligor addressed to the Lenders and in
form and substance satisfactory to the Lenders, dated the Agreement Date, and
covering certain of the matters set forth in Sections 4.1(a), (b), (c), (h),
--------------- --- --- ---
(m), (n) and (p) and such other matters incident to the transactions
- --- --- ---
contemplated hereby as the Administrative Agent or Special Counsel may
reasonably request;
(e) reimbursement for the Administrative Agent for Special Counsel's
reasonable and customary fees (on an hourly basis) and expenses rendered through
the date hereof, to the extent invoiced one Business Day prior to the Agreement
Date;
(f) evidence that all proceedings of each Obligor taken in connection with
the transactions contemplated by this Agreement and the other Loan Documents
shall be reasonably satisfactory in form and substance to the Administrative
Agent and Special Counsel; and the Lenders shall have received copies of all
documents or other evidence which the Administrative Agent or Special Counsel
may reasonably request in connection with such transactions;
(g) any fees or any expenses required to be paid pursuant to the
Administrative Agent Fee Letter and the Underwriting Fee Letter;
(h) duly executed and completed Security Agreements, dated as of the
Agreement Date, granting a Lien, in all Collateral covered thereby, together
with related financing statements, certificates of title with respect to motor
vehicles having a fair market value in excess of $15,000, stock powers, stock
certificates evidencing ownership of (i) 100% of the issued and outstanding
Equity Interests of each Domestic Subsidiary and (ii) 65% of the issued and
outstanding Equity Interests of each Foreign Subsidiary, and insurance
certificates listing Administrative Agent as loss payee and additional insured
and otherwise in a form required by the Collateral Documents.
(i) simultaneously with the making of the initial Advance, executed UCC-3
Termination Statements to be filed in appropriate jurisdictions to terminate all
Liens against assets of Dogloo, the Borrower and its Subsidiaries other than
Permitted Liens (or written agreements from each holder of such Liens to
promptly execute such Termination Statements);
(j) all Dogloo Transaction Documents, which shall be in substance and form
satisfactory to the Administrative Agent and Special Counsel;
(k) consummation of the Dogloo Transaction shall simultaneously occur on
terms and conditions set forth in the Dogloo Transaction Documents satisfactory
to the Administrative Agent and Special Counsel;
51
<PAGE>
(l) Deeds of Trust executed by the Borrower and dated as of the Agreement
Date, together with surveys and title insurance policies or commitments in form
and substance satisfactory to the Administrative Agent and Special Counsel;
(m) Landlord's Agreements executed by each lessor with respect to leased
properties on which Collateral is located in substantially the form set out on
Exhibit K ("Landlord's Waiver");
- ---------
(n) evidence satisfactory to the Administrative Agent that (i) the Doskocil
Transaction shall have been consummated (or shall be consummated simultaneously
with the initial Advance hereunder), and (ii) the Borrower shall have received
at least $85,000,000 in gross proceeds from the sale of the Senior Subordinated
Notes;
(o) a pro forma balance sheet of the Borrower and its Subsidiaries taking
into account the Dogloo Transaction and reflecting estimated purchase price
accounting and such other information relating to the Dogloo Transaction as the
Administrative Agent may require;
(p) after giving effect to the Dogloo Transaction, there shall have
occurred no material adverse change in the business, assets, operations,
prospects or condition (financial or otherwise) of the Borrower and Dogloo,
taken as a whole, since June 30, 1997;
(q) a solvency opinion (taking into account the Dogloo Transaction and the
incurrence of the Indebtedness related thereto) with respect to the Borrower and
its Subsidiaries delivered by Houlihan, Lokey, Howard & Zukin Financial
Advisors, Inc. or other financial advisor acceptable to the Lenders, in form and
substance satisfactory to the Administrative Agent;
(r) the Administrative Agent and Special Counsel shall be satisfied with
the form and substance of all real property leases of Dogloo;
(s) the Administrative Agent shall be satisfied with the form and substance
of all environmental, and other collateral reports and examinations on the
Collateral to the provided by Dogloo or to be performed by the Lenders;
(t) all Indebtedness of the Borrower under the Bridge Notes and the
Existing Credit Agreement shall have been (or shall be consummated
simultaneously with the initial Advance hereunder) refinanced in full pursuant
to the terms hereof, and all obligations of the Borrower under the Bridge Notes
and the Existing Credit Agreement, except for those that expressly survive
termination thereof, shall terminate; and
(u) in form and substance reasonably satisfactory to the Administrative
Agent and Special Counsel, such other documents, instruments and certificates as
the Administrative Agent or any Lender may reasonably require in connection with
the transactions contemplated hereby, including without limitation, evidence of
the status, organization or
52
<PAGE>
authority of the Borrower or any Subsidiary of the Borrower, and the
enforceability of the Obligations.
Section 3.2 Conditions Precedent to All Advances and Letters of Credit.
----------------------------------------------------------
The obligation of each Lender to make each Advance hereunder (including the
initial Advance) and the obligation of the Issuing Bank to issue each Letter of
Credit (including the initial Letter of Credit) is subject to fulfillment of the
following conditions immediately prior to or contemporaneously with each such
Advance or issuance:
(a) With respect to each Advance and each issuance of a Letter of Credit,
all of the representations and warranties of the Borrower under this Agreement,
which, pursuant to Section 4.2 hereof, are made at and as of the time of each
-----------
such Advance or issuance, shall be true and correct, both before and after
giving effect to the application of the proceeds of the Advance or Letter of
Credit, except as otherwise expressly provided in said Section 4.2 hereof.
-----------
(b) The incumbency of the Authorized Signatories shall be as stated in the
certificate of incumbency delivered in the Borrower's loan certificate pursuant
to Section 3.1(a) or as subsequently modified and reflected in a certificate of
--------------
incumbency delivered to the Administrative Agent. The Lenders may, without
waiving this condition, consider it fulfilled and a representation by the
Borrower made to such effect if no written notice to the contrary, dated on or
before the date of such Advance or Letter of Credit, is received by the
Administrative Agent from the Borrower prior to the making of such Advance or
issuance of such Letter of Credit;
(c) There shall not exist a Default or Event of Default hereunder;
(d) The aggregate Advances and Letters of Credit, after giving effect to
such proposed Advance or Letter of Credit, shall not exceed the maximum
principal amount then permitted to be outstanding hereunder;
(e) No order, judgment, injunction or decree of any Tribunal shall purport
to enjoin or restrain any Lender or the Issuing Bank from making any Advance or
issuing any Letter of Credit;
(f) There shall be no Litigation pending against, or, to the Borrower's
current actual knowledge, threatened against the Borrower or any of its
Subsidiaries, or in any other manner relating directly and adversely to the
Borrower or any of its Subsidiaries, or any of their respective properties, in
any court or before any arbitrator of any kind or before or by any governmental
body which could reasonably be expected to have a Material Adverse Effect;
(g) There shall have occurred no material adverse change in the business,
assets, condition (financial or otherwise) or results of operations of the
Borrower and its Subsidiaries (including the assets acquired and liabilities of
the Spectrum acquired in the Doskocil
53
<PAGE>
Transaction), taken as a whole, since June 30, 1997 (but after giving effect to
the Doskocil Transaction and the Dogloo Transaction); and
(h) In the event that after giving effect to the making of such Advances or
the issuance of such Letters of Credit, the aggregate amount of Advances
outstanding plus Reimbursement Obligations outstanding exceeds $100,000,000, the
----
following statements shall be true and correct and the Borrower shall be deemed
to represent and warrant as of such date as follows:
(i) such requested Advances or Letters of Credit are permitted
"Indebtedness" (as such term is defined in the Indenture with respect to
the Senior Subordinated Notes (the "Senior Subordinated Notes Indenture"));
(ii) upon the making of each requested Advance or the issuance of
each requested Letter of Credit, no Event of Default (as defined in the
Senior Subordinated Notes Indenture) shall have occurred and be continuing
at the time of, or would occur after giving effect on a pro forma basis to,
such increase of "Indebtedness"; and
(iii) all Advances and Reimbursement Obligations under this Agreement
are "Senior Debt" as defined in the Senior Subordinated Notes Indenture.
Notwithstanding the above, the obligation of each Lender to make a
Revolving Credit Advance pursuant to Sections 2.2(g) and 2.15(c) shall be
--------------- -------
absolute and unconditional and shall not be affected by any circumstances,
including, without limitation, (i) the occurrence of any Default or Event of
Default, unless the Administrative Agent or the Issuing Bank, as the case may
be, had actual knowledge of such Default or Event of Default prior to the making
of the Swing Line Advance or Letter of Credit, as the case may be, related to
such Revolving Credit Advance, (ii) the failure of the Borrower to satisfy any
condition set forth in this Section 3.2, or (iii) any other circumstance,
-----------
happening or event whatsoever, except that the conditions precedent set forth in
Sections 3.1 and 3.2 with respect to the Swing Line Advance or the Letter of
- ------------ ---
Credit for which such Revolving Credit Advance is made pursuant to Section
-------
2.2(g) or 2.15(c) shall have been satisfied in full at the time of the making of
- ------ -------
such Swing Line Advance or the issuance of such Letter of Credit.
Section 3.3 Conditions Precedent to Conversions and Continuations. The
-----------------------------------------------------
obligation of the Lenders to convert any existing Base Rate Advance into a LIBOR
Advance or to continue any existing LIBOR Advance is subject to the condition
precedent that on the date of such conversion or continuation no Default or
Event of Default shall have occurred and be continuing or would result from the
making of such conversion or continuation. The acceptance of the benefits of
each such conversion and continuation shall constitute a representation and
warranty by the Borrower to each of the Lenders that no Default or Event of
Default shall have occurred and be continuing or would result from the making of
such conversion or continuation.
54
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ARTICLE 4
Representations and Warranties
------------------------------
Section 4.1 Representations and Warranties. The Borrower hereby
------------------------------
represents and warrants to each Lender as follows:
(a) Organization; Power; Qualification. As of the Agreement Date, the
----------------------------------
respective jurisdiction of organization or incorporation and percentage
ownership of the Borrower and by the Borrower of the Subsidiaries listed on
Schedule 4 are true and correct, after giving effect to the Dogloo Transaction.
- ----------
As of the Agreement Date and after giving effect to the Dogloo Transaction,
Schedule 4 is a complete and accurate listing, showing with respect to the
- ----------
Borrower and each Subsidiary of the Borrower (a) its mailing address, which is
its principal place of business, (b) the classes of its Equity Interests and the
number of amount of its Equity Interests authorized and outstanding, (c) each
record and beneficial owner of its outstanding Equity Interests of the Borrower
in excess of 5%, and (d) except as set forth in the Second Amended and Restated
Securityholders Agreement (a copy of which has been received by the
Administrative Agent and Special Counsel), all outstanding options, rights,
rights of conversion, redemption, purchase or repurchase, rights of first
refusal and similar rights relating to the Equity Interests. All of the
outstanding Equity Interests of the Borrower and each Subsidiary of the Borrower
is validly issued, fully paid and non-assessable. Each of the Borrower and its
Subsidiaries is a corporation or other legal Person duly organized, validly
existing and in good standing under the laws of its state of incorporation or
organization. Each of the Borrower and its Subsidiaries has the legal power and
authority to own its properties and to carry on its business as now being and
hereafter proposed to be conducted. Each of the Borrower and its Subsidiaries
is authorized to do business, duly qualified and in good standing in the
jurisdiction as set forth in Schedule 7 and no qualification or authorization is
----------
necessary in any other jurisdictions in which the character of its properties or
the nature of its business requires such qualification or authorization, except
where the failure to be so qualified or authorized could not reasonably be
expected to have a Material Adverse Effect.
(b) Authorization. The Borrower has legal power and has taken all
-------------
necessary legal action to authorize it to borrow and request Letters of Credit
hereunder. Each of the Borrower and its Subsidiaries has legal power and has
taken all necessary legal action to execute, deliver and perform the Loan
Documents to which it is party in accordance with the terms thereof, and to
consummate the transactions contemplated thereby. Each Loan Document has been
duly executed and delivered by the Borrower or the Subsidiary of the Borrower
executing it. Each of the Loan Documents to which the Borrower or any of its
Subsidiaries is a party is a legal, valid and binding obligation of the Borrower
or such Subsidiary, as applicable, enforceable in accordance with its terms,
subject, to enforcement of remedies, to the following qualifications: (i)
equitable principles generally, and (ii) Debtor Relief Laws (insofar as any such
law relates to the bankruptcy, insolvency or similar event of the Borrower or
any Subsidiary of the Borrower).
55
<PAGE>
(c) Compliance with Other Loan Documents and Contemplated Transactions.
------------------------------------------------------------------
The execution, delivery and performance by the Borrower and its Subsidiaries of
the Loan Documents to which they are respectively a party, and the consummation
of the transactions contemplated thereby, do not and will not (i) require any
consent or approval necessary on or prior to the Agreement Date not already
obtained, except to the extent that the failure to obtain such consent or
approval could not reasonably be expected to have a Material Adverse Effect,
(ii) violate any Applicable Law, (iii) conflict with, result in a breach of, or
constitute a default under the certificate of incorporation or by-laws or other
applicable organizational documents of the Borrower or any Subsidiary of the
Borrower, (iv) conflict with, result in a breach of, or constitute a default
under any Necessary Authorization, indenture, agreement or other instrument, to
which the Borrower or any Subsidiary of the Borrower is a party or by which they
or their respective properties may be bound, the effect of which could
reasonably be expected to have a Material Adverse Effect, or (v) result in or
require the creation or imposition of any Lien (other than Liens in favor of the
Lenders to secure the Obligations hereunder) upon or with respect to any
property now owned or hereafter acquired by the Borrower or any Subsidiary of
the Borrower.
(d) Business. The Borrower and its Subsidiaries are engaged primarily in
--------
the business of the manufacture and distribution of pet supplies and products,
sporting goods and similar and related businesses, including the businesses
engaged in by the Borrower and Dogloo immediately preceding the Agreement Date,
and activities directly related thereto.
(e) Licenses, etc. All Necessary Authorizations have been duly obtained,
--------------
and are in full force and effect without any known conflict with the rights of
others and free from any unduly burdensome restrictions, unless the failure to
obtain or have in effect such Necessary Authorizations could not reasonably be
expected to result in a Material Adverse Effect. The Borrower and its
Subsidiaries are and will continue to be in compliance with all provisions
thereof, except to the extent that any such failure to comply could not
reasonably be expected to have a Material Adverse Effect. No circumstance
exists which could reasonably be expected to impair the utility of the Necessary
Authorization or the right to renew such Necessary Authorization the effect of
which could reasonably be expected to have a Material Adverse Effect. No
Necessary Authorization is the subject of any pending or, to the best of the
Borrower's knowledge, threatened challenge, suspension, cancellation or
revocation, the effect of which could reasonably be expected to have a Material
Adverse Effect.
(f) Compliance with Law. The Borrower and its Subsidiaries are in
-------------------
compliance in all respects with all Applicable Laws, except where the failure to
so comply could not reasonably be expected to have a Material Adverse Effect.
(g) Title to Properties. The Borrower and its Subsidiaries have good title
-------------------
to, or a valid leasehold or subleasehold interest in, all of their material
assets. None of their assets are subject to any Liens, except Permitted Liens.
No financing statement or other Lien filing (except relating to Permitted Liens)
is on file in any state or jurisdiction that names the Borrower or any of its
Subsidiaries as debtor or covers (or purports to cover) any assets of
56
<PAGE>
the Borrower or any of its Subsidiaries, except for Indebtedness with respect to
which the requirements of Section 3.1(i) hereof have been satisfied. The
--------------
Borrower and its Subsidiaries have not signed any such financing statement or
filing, nor any security agreement authorizing any Person to file any such
financing statement or filing (except relating to Permitted Liens).
(h) Litigation. Except as reflected on Schedule 3 hereto, as of the
---------- ----------
Agreement Date, there is no Litigation pending against, or, to the Borrower's
current actual knowledge, threatened against the Borrower or any of its
Subsidiaries, or in any other manner relating directly and adversely to the
Borrower or any of its Subsidiaries, or any of their respective properties, in
any court or before any arbitrator of any kind or before or by any governmental
body in which the amount claimed in an aggregate amount (excluding liabilities
for which credit worthy insurance companies have acknowledged coverage) exceeds
$100,000.
(i) Taxes. All federal, state and other tax returns of the Borrower and
-----
its Subsidiaries required by law to be filed have been duly filed, or extensions
have been timely filed, and all Taxes shown to be due and payable on such
returns, have been paid, unless the same are being diligently contested in
accordance with Section 5.6 hereof. The charges, accruals and reserves on the
-----------
books of the Borrower and its Subsidiaries in respect of their Taxes are, in the
reasonable judgment of the Borrower, adequate.
(j) Financial Statements; Material Liabilities.
------------------------------------------
(i) The Borrower has heretofore delivered to Lenders the audited
combined balance sheets of the Borrower and Spectrum as at June 30, 1997,
and the related statements of earnings and changes in shareholders' equity
(deficit) and statement of cash flows for the twelve-month period then
ended and audited balance sheet of Dogloo as at December 31, 1996 and the
related statements of earnings and changes in shareholders' equity
(deficit) and statement of cash flows for the twelve-month period then
ended (the "Financial Statements"). The Financial Statements were prepared
in conformity with GAAP (other than as set forth in the respective audit
reports attached thereto) and fairly present, in all material respects, the
financial position of the Borrower and Spectrum and Dogloo, respectively,
as at the date thereof and the combined results of operations and cash
flows for the period covered thereby.
(ii) The projected financial statements of the Borrower (including
Dogloo) and its Subsidiaries delivered to the Lenders prior to or on the
Agreement Date are based on good faith estimates and assumptions made by
the management of the Borrower and believed to be reasonable at the time
made, it being recognized by the Lenders that such projections as to future
events are not to be viewed as facts and that actual results during the
period or periods covered by any such projections may differ from the
projected results.
57
<PAGE>
(iii) The financial statements of the Borrower and its Subsidiaries
delivered to the Lenders pursuant to Section 6.1, 6.2 and 6.3 hereof fairly
----------- --- ---
present in all material respects their respective financial condition and
their respective results of operations as of the dates and for the periods
shown, all in accordance with GAAP, subject to normal year-end adjustments.
The latest of such financial statements reflects all material liabilities,
direct and contingent, of the Borrower and each Subsidiary of the Borrower
that are required to be disclosed in accordance with GAAP.
(k) No Adverse Change. Since the date of the last financial statements
-----------------
delivered to the Lenders pursuant to Section 6.1, 6.2 or 6.3 hereof, no event or
----------- --- ---
circumstance has occurred or arisen which is reasonably likely to have a
Material Adverse Effect.
(l) ERISA. As of the Agreement Date, none of the Borrower or its
-----
Controlled Group maintains or contributes to any Plan (other than a
Multiemployer Plan) subject to Title IV of ERISA. Each such Plan (other than
any Multiemployer Plan) is in compliance in all material respects with the
applicable provisions of ERISA, the Code, and any other applicable Law, except
to the extent that failure to so comply would not reasonably be expected to have
a Material Adverse Effect. With respect to each Plan (other than any
Multiemployer Plan) of the Borrower and each member of its Controlled Group, all
reports required under ERISA or any other Applicable Law to be filed with any
Tribunal, the failure of which to file could reasonably be expected to result in
liability of the Borrower or any member of its Controlled Group in excess of
$150,000, have been duly filed. All such reports are true and correct in all
material respects as of the date given. No Plan of the Borrower or any member
of its Controlled Group has been terminated under Section 4041(c) of ERISA nor
has any accumulated funding deficiency (as defined in Section 412(a) of the
Code) been incurred (without regard to any waiver granted under Section 412 of
the Code), nor has any funding waiver from the Internal Revenue Service been
received or requested the result of which could reasonably be expected to have a
Material Adverse Effect. None of the Borrower or any member of its Controlled
Group has failed to make any contribution or pay any amount due or owing as
required under the terms of any such Plan, or by Section 412 of the Code or
Section 302 of ERISA by the due date under Section 412 of the Code and Section
302 of ERISA, the result of which could reasonably be expected to have a
Material Adverse Effect. There has been no ERISA Event or any event requiring
disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to any
Plan or its related trust of the Borrower or any member of its Controlled Group
since the effective date of ERISA, the result of which could reasonably be
expected to have a Material Adverse Effect. The present value of the benefit
liabilities, as defined in Title IV of ERISA, of each Plan subject to Title IV
of ERISA (other than a Multiemployer Plan) of the Borrower and each member of
its Controlled Group does not exceed by more than $150,000 the present value of
the assets of each such Plan as of the most recent valuation date using each
such Plan's actuarial assumptions at such date. There are no pending, or to the
Borrower's knowledge threatened, claims, lawsuits or actions (other than routine
claims for benefits in the ordinary course) asserted or instituted against, and
neither the Borrower nor any member of its Controlled Group has knowledge of any
threatened litigation or claims against, the assets of any Plan or
58
<PAGE>
its related trust or against any fiduciary of a Plan with respect to the
operation of such Plan, the result of which could reasonably be expected to have
a Material Adverse Effect. None of the Borrower or, to the Borrower's
knowledge, any member of its Controlled Group has engaged in any prohibited
transactions, within the meaning of Section 406 of ERISA or Section 4975 of the
Code, in connection with any Plan the result of which could reasonably be
expected to have a Material Adverse Effect. None of the Borrower or any member
of its Controlled Group has withdrawn from any Multiemployer Plan, nor has
incurred or reasonably expects to incur (A) any liability under Title IV of
ERISA (other than premiums due under Section 4007 of ERISA to the PBGC), (B) any
withdrawal liability (and no event has occurred which with the giving of notice
under Section 4219 of ERISA would result in such liability) under Section 4201
of ERISA as a result of a complete or partial withdrawal (within the meaning of
Section 4203 or 4205 of ERISA) from a Multiemployer Plan, or (C) any liability
under Section 4062 of ERISA to the PBGC or to a trustee appointed under Section
4042 of ERISA, the result of which could reasonably be expected to have a
Material Adverse Effect. None of the Borrower, any member of its Controlled
Group, or any organization to which the Borrower or any member of its Controlled
Group is a successor or parent corporation within the meaning of ERISA Section
4069(b), has engaged in a transaction within the meaning of ERISA Section 4069,
the result of which could reasonably be expected to have a Material Adverse
Effect. None of the Borrower or any member of its Controlled Group maintains or
has established any Plan (other than a Multiemployer Plan) which is a welfare
benefit plan within the meaning of Section 3(1) of ERISA and which provides for
continuing benefits or coverage for any participant or any beneficiary of any
participant after such participant's termination of employment, except as may be
required by any Applicable Law, the result of which could reasonably be expected
to have a Material Adverse Effect. Each of Borrower and its Controlled Group
which maintains a Plan which is a welfare benefit plan within the meaning of
Section 3(1) of ERISA has complied in all material respects with any applicable
notice and continuation requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and the regulations thereunder. None of
the Borrower or any member of its Controlled Group maintains or has established
a multiemployer welfare benefit arrangement within the meaning of Section
3(40)(A) of ERISA.
(m) Compliance with Regulations G, T, U and X. The Borrower is not engaged
-----------------------------------------
principally 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 Regulations G, T, U and X of the Board of Governors of the Federal
Reserve System, and no part of the proceeds of the Advances or Letters of Credit
will be used to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock in any manner which
might cause the borrowing of any Advances or the application of any proceeds
thereof to violate Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System.
(n) Required Consents. The Borrower and its Subsidiaries are not required
-----------------
to obtain any material Necessary Authorization on or prior to the Agreement Date
that has not already been obtained from, or effect any material filing or
registration that has not already
59
<PAGE>
been effected with, any Tribunal in connection with the execution and delivery
of this Agreement or any other Loan Document, or the performance thereof, in
accordance with their respective terms, including any borrowings hereunder,
except for the filing of financing statements (and other similar notices) and
other Collateral Documents containing a description of the Collateral with
certain Tribunals, including the United States Patent and Trademark Office.
(o) Absence of Default. The Borrower and its Subsidiaries are in
------------------
compliance in all material respects with all of the provisions of their
certificate of incorporation, by-laws and other organizational documents, and no
event has occurred or failed to occur, which has not been remedied or waived,
the occurrence or non-occurrence of which constitutes, or which with the passage
of time or giving of notice or both would constitute, (i) an Event of Default or
(ii) a default by the Borrower or any of its Subsidiaries under any indenture,
agreement or other instrument, or any judgment, decree or order to which the
Borrower or any of its Subsidiaries or by which they or any of their respective
properties is bound, the result of which with respect to any default set forth
in clause (ii) could reasonably be expected to have a Material Adverse Effect.
(p) Governmental Regulation. Neither the Borrower nor any of its
-----------------------
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Interstate Commerce Act or the
Investment Company Act of 1940. Neither the entering into or performance by the
Borrower of this Agreement nor the issuance of the Notes violates any provision
of such act or requires any consent, approval, or authorization of, or
registration with, the Securities and Exchange Commission or any other Tribunal
pursuant to any provisions of such act.
(q) Environmental Matters. The Borrower does not have any current actual
---------------------
knowledge that any substance deemed hazardous by any Applicable Environmental
Law, has been placed (i) on any real property fee title to which is now owned by
the Borrower or any of its Subsidiaries or (ii) by Borrower or any of its
Subsidiaries on any real property leased by the Borrower or any of its
Subsidiaries, in either case in a manner which does not comply with Applicable
Environmental Laws, except to the extent that the failure to so comply could not
reasonably be expected to have a Material Adverse Effect. The Borrower and its
Subsidiaries are not in violation of or subject to any existing, pending or, to
the best of the Borrower's knowledge, threatened investigation or inquiry by any
Tribunal or to any remedial obligations under any Applicable Environmental Laws,
the effect of which could reasonably be expected to have a Material Adverse
Effect. The Borrower and its Subsidiaries have not failed to obtain any
permits, licenses or similar authorizations other than certificates of occupancy
and building permits and other authorizations that have been obtained to
construct, occupy, operate or use any buildings, improvements, fixtures, and
equipment forming a part of any real property owned or leased by the Borrower or
any Subsidiary of the Borrower by reason of any Applicable Environmental Laws,
except to the extent that the failure to so obtain could not reasonably be
expected to have a Material Adverse Effect. The Borrower has no current actual
knowledge, that any hazardous substances or solid wastes have been disposed of
or otherwise released (i) on or to the real
60
<PAGE>
property fee title to which is owned by the Borrower or any of its Subsidiaries
or (ii) by Borrower or any of its Subsidiaries on or to any real property leased
by Borrower or any of its Subsidiaries, all within the meaning of the Applicable
Environmental Laws, the effect of which could reasonably be expected to have a
Material Adverse Effect.
(r) Certain Fees. Except for fees and expenses incurred in connection with
------------
the Dogloo Transaction and the Doskocil Transaction, no broker's, finder's or
other fee or commission will be payable by the Borrower (other than to the
Lenders hereunder) with respect to the making of the Commitments or the Advances
hereunder. The Borrower agrees to indemnify and hold harmless the
Administrative Agent and each Lender from and against any claims, demand,
liability, proceedings, costs or expenses asserted with respect to or arising in
connection with any such fees or commissions, including those related to the
Dogloo Transaction and the Doskocil Transaction.
(s) Patents, Etc. The Borrower and its Subsidiaries have collectively
------------
obtained or applied for or licensed or otherwise obtained the right to use all
patents, trademarks, service marks, trade names, copyrights, and other rights,
free from Liens (except Permitted Liens), that are necessary for the operation
of their business as presently conducted and as proposed to be conducted, except
to the extent that the failure to so obtain, apply, license or obtain the right
to use could not reasonably be expected to have a Material Adverse Effect.
Nothing has come to the current actual knowledge of the Borrower or any of its
Subsidiaries to the effect that (i) any process, method, part or other material
presently contemplated to be employed by the Borrower or any Subsidiary of the
Borrower infringes any valid and enforceable patent, trademark, service mark,
trade name, copyright, license or other right owned by any other Person, or (ii)
there is pending or overtly threatened any claim or litigation against or
affecting the Borrower or any Subsidiary of the Borrower contesting its right to
sell or use any such process, method, part or other material, which could
reasonably be expected to have a Material Adverse Effect.
(t) Disclosure. All factual information furnished by the Borrower or any
----------
of its Subsidiaries in writing to the Administrative Agent or any Lender in
connection with this Agreement or the other Loan Documents is, and all other
such factual information hereafter furnished by or on behalf of the Borrower or
any of its Subsidiaries in writing to the Administrative Agent or any Lender
will be, true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information not misleading at such time in
light of the circumstances under which such information was provided. There is
no fact known to the Borrower and not known to the public generally that could
reasonably be expected to have a Material Adverse Effect, which has not been set
forth in this Agreement or in the documents, certificates and statements
furnished to the Lenders by or on behalf of the Borrower prior to the date
hereof in connection with the transaction contemplated hereby.
(u) Solvency. The Borrower is, and Borrower and its Subsidiaries on a
--------
consolidated basis are, Solvent.
61
<PAGE>
(v) Labor Relations. Except as provided on Schedule 8, neither the
--------------- ----------
Borrower nor any Subsidiary is a party to a collective bargaining agreement or
similar agreement, and the Borrower and each Subsidiary is in compliance in all
material respects with all Laws respecting employment and employment practices,
terms and conditions of employment, wages and hours and other laws related to
the employment of its employees, except where the failure to comply could not
reasonably be expected to result in a Material Adverse Effect, and there are no
arrears in the payment of wages, withholding or social security taxes,
unemployment insurance premiums or other similar obligations of the Borrower or
any Subsidiary or for which the Borrower or any Subsidiary may be responsible
other than in the ordinary course of business, except for such unpaid or
unwithheld arrears which could not reasonably be expected to result in a
Material Adverse Effect. There is no strike, work stoppage or labor dispute
with any union or group of employees pending or overtly threatened involving
Borrower or any Subsidiary that could reasonably be expected to have a Material
Adverse Effect.
(w) Common Enterprise. The Borrower and its Subsidiaries are engaged in
-----------------
the businesses set forth in Section 4.1(d) hereof. These operations require
--------------
financing on a basis such that the credit supplied can be made available from
time to time to the Borrower and various of the Subsidiaries, as required for
the continued successful operation of the Borrower and its Subsidiaries as a
whole. The Borrower and its Subsidiaries expect to derive benefit (and the
boards of directors of the Borrower and its Subsidiaries have determined that
the Borrower and the Subsidiaries may reasonably be expected to derive benefit),
directly or indirectly, from the credit extended by Lenders hereunder, both in
their separate capacities and as members of the group of companies, since the
successful operation and condition of the Borrower and its Subsidiaries is
dependent on the continued successful performance of the functions of the group
as a whole.
Section 4.2 Survival of Representations and Warranties, etc. All
-----------------------------------------------
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date and at and
as of the date of each Advance and the date of issuance of each Letter of
Credit, and each shall be true and correct in all material respects when made,
except to the extent (a) previously fulfilled in accordance with the terms
hereof, (b) previously waived in writing by the Determining Lenders with respect
to any particular factual circumstance or permitted by the terms of this
Agreement or (c) such representations and warranties specifically relate to an
earlier date, in which case such representations and warranties shall have been
true and correct in all material respects on and as of such date. All such
representations and warranties shall survive, and not be waived by, the
execution hereof by any Lender, any investigation or inquiry by any Lender, or
by the making of any Advance or the issuance of any Letter of Credit under this
Agreement.
62
<PAGE>
ARTICLE 5
General Covenants
-----------------
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
Section 5.1 Preservation of Existence and Similar Matters. The Borrower
---------------------------------------------
shall, and shall cause each Subsidiary of the Borrower to:
(a) except as otherwise permitted pursuant to Section 7.4 hereof, preserve
-----------
and maintain, or timely obtain and thereafter preserve and maintain, its
existence, rights, franchises, licenses, authorizations, consents, privileges
and all other Necessary Authorizations from any Tribunal, the loss of which
could reasonably be expected to have a Material Adverse Effect; and
(b) except as otherwise permitted pursuant to Section 7.4 hereof, qualify
-----------
and remain qualified and authorized to do business in each jurisdiction in which
the character of its properties or the nature of its business requires such
qualification or authorization, unless the failure to do so could not reasonably
be expected to have a Material Adverse Effect.
Section 5.2 Business; Compliance with Applicable Law. The Borrower and
----------------------------------------
its Subsidiaries shall (a) engage primarily in the businesses set forth in
Section 4.1(d) hereof, and (b) comply in all respects with the requirements of
- --------------
all Applicable Law, except where the failure to so comply could not reasonably
be expected to have a Material Adverse Effect.
Section 5.3 Maintenance of Properties. The Borrower shall, and shall
-------------------------
cause each Subsidiary of the Borrower to, maintain or cause to be maintained all
its properties (whether owned or held under lease) in adequate operating
condition and repair for purposes of their current use with due regard to the
age thereof, taken as a whole, subject to ordinary wear and tear, and from time
to time make or cause to be made all appropriate (in the reasonable judgment of
the Borrower) repairs, renewals, replacements, additions, betterments and
improvements thereto in accordance with past practice, except where the failure
to so maintain, repair, renew, replace or improve could not reasonably be
expected to have a Material Adverse Effect.
Section 5.4 Accounting Methods and Financial Records. The Borrower shall,
----------------------------------------
and shall cause each Subsidiary of the Borrower to, maintain a system of
accounting established and administered in accordance with GAAP, keep adequate
records and books of account in which complete entries will be made and all
transactions reflected in accordance with GAAP, and keep accurate and complete
records of its respective assets.
Section 5.5 Insurance. The Borrower shall, and shall cause each
---------
Subsidiary of the Borrower to, maintain insurance from responsible companies in
such amounts and against such risks as shall be customary and usual in the
industry for companies of similar size and
63
<PAGE>
capability. Each insurance policy shall (a) provide for at least 30 days' prior
notice to the Administrative Agent of any proposed termination or cancellation
of such policy, whether on account of default or otherwise and (b) otherwise
contain the requirements for insurance set forth in the Security Agreements.
Section 5.6 Payment of Taxes and Claims. The Borrower shall, and shall
---------------------------
cause each Subsidiary of the Borrower to, pay and discharge all material taxes
to which they are subject prior to the date on which penalties attach thereto,
and all lawful material claims for labor, materials and supplies which, if
unpaid, might by Law become a Lien upon any of its properties; except that no
such tax or claim need be paid which is being diligently contested in good faith
by appropriate proceedings and for which adequate reserves shall have been set
aside on the appropriate books, but only so long as any Lien related thereto is
a Permitted Lien. The Borrower shall, and shall cause each Subsidiary of the
Borrower to, timely file all information returns (or extensions of such filing
deadlines) required by federal, state or local tax authorities.
Section 5.7 Visits and Inspections. The Borrower shall, and shall cause
----------------------
each Subsidiary of the Borrower to, promptly permit representatives of the
Administrative Agent or any Lender from time to time after reasonable notice by
the Administrative Agent or any Lender to (a) visit and inspect the properties
of the Borrower and its Subsidiaries as often as the Administrative Agent or any
Lender shall reasonably deem advisable, (b) review, inspect and make extracts
from and copies of the Borrower's and each such Subsidiary's books and records,
and (c) discuss with the Borrower's and each such Subsidiary's directors,
officers, employees and auditors its business, assets, liabilities, financial
positions, results of operations and business prospects, provided that such
--------
representatives of the Administrative Agent or any Lender shall keep
confidential all information obtained pursuant to this Section 5.7 to the extent
-----------
required by Section 11.14. The Borrower shall pay the reasonable out-of-pocket
-------------
expenses related to inspections and reviews performed (a) at any time by the
Administrative Agent and (b) after the occurrence and during the continuance of
an Event of Default by each Lender. Except after the occurrence and during the
continuance of an Event of Default, all such visits and inspections shall be
conducted during normal business hours. Following the occurrence and during the
continuance of an Event of Default, such visits and inspections shall be
conducted at any time requested by the Administrative Agent or any Lender
without any requirement for reasonable notice.
Section 5.8 Use of Proceeds. The proceeds of the Advances shall be used
---------------
by the Borrower to (a) to consummate the Dogloo Transaction and pay certain
outstanding Indebtedness of the Borrower and Dogloo, (b) pay certain fees and
expenses related to the Dogloo Transaction, and (c) finance the ongoing working
capital and general corporate requirements of the Borrower and its Subsidiaries.
SECTION 5.9 INDEMNITY.
---------
(A) THE BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS THE
ADMINISTRATIVE AGENT, EACH LENDER, EACH
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OF THEIR RESPECTIVE AFFILIATES, AND EACH OF THEIR RESPECTIVE (INCLUDING SUCH
AFFILIATES') OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS AND CONSULTANTS
(INCLUDING, WITHOUT LIMITATION, THOSE RETAINED IN CONNECTION WITH THE
SATISFACTION OR ATTEMPTED SATISFACTION OF ANY OF THE CONDITIONS SET FORTH
HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY, "INDEMNITEES") FROM AND AGAINST
ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, CLAIMS, REASONABLE COSTS, REASONABLE OUT-OF-POCKET EXPENSES
AND REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING,
WITHOUT LIMITATION, THE REASONABLE 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 (WHETHER
DIRECT, INDIRECT OR CONSEQUENTIAL AND WHETHER BASED ON ANY FEDERAL, STATE, OR
LOCAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE CAUSE, OR ON
CONTRACT, TORT OR OTHERWISE, ARISING FROM OR CONNECTED WITH THE PAST, PRESENT OR
FUTURE OPERATIONS OF THE BORROWER OR ANY SUBSIDIARY OF THE BORROWER OR THEIR
RESPECTIVE PREDECESSORS IN INTEREST, OR THE PAST, PRESENT OR FUTURE
ENVIRONMENTAL CONDITION OF PROPERTY OF THE BORROWER OR ANY SUBSIDIARY OF THE
BORROWER), RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR ANY ACT, EVENT OR TRANSACTION OR ALLEGED ACT, EVENT OR TRANSACTION
RELATING THERETO, INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN WHOLE OR IN
PART, OF ANY ORDINARY OR MERE NEGLIGENCE OF ADMINISTRATIVE AGENT OR ANY LENDER
(OTHER THAN THOSE MATTERS RAISED EXCLUSIVELY BY A PARTICIPANT AGAINST THE
ADMINISTRATIVE AGENT OR ANY LENDER AND NOT THE BORROWER), OR THE USE OR INTENDED
USE OF THE PROCEEDS OF THE ADVANCES OR LETTERS OF CREDIT HEREUNDER, OR IN
CONNECTION WITH ANY INVESTIGATION OF ANY POTENTIAL MATTER COVERED HEREBY, BUT
EXCLUDING (i) ANY CLAIM OR LIABILITY THAT ARISES AS THE RESULT OF THE GROSS
NEGLIGENCE OR WILFUL MISCONDUCT OF ANY INDEMNITEE, AS FINALLY JUDICIALLY
DETERMINED BY A COURT OF COMPETENT JURISDICTION, (ii) ANY CLAIM OR LIABILITY
THAT ARISES AS THE DIRECT RESULT OF THE OPERATION OF THE PROPERTY OF THE
BORROWER OR ANY SUBSIDIARY OF THE BORROWER BY ANY OF THE LENDERS AFTER TAKING
POSSESSION THEREOF BY FORECLOSURE OR BY TRANSFER IN LIEU OF FORECLOSURE
(PROVIDED THAT SUCH CLAIM OR LIABILITY DOES NOT RELATE TO ANY CONDITION EXISTING
ON SUCH PROPERTY PRIOR TO FORECLOSURE OR TRANSFER IN LIEU OF FORECLOSURE), AND
(iii) MATTERS RAISED BY ONE LENDER AGAINST ANOTHER LENDER OR BY ANY SHAREHOLDERS
OF A LENDER
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AGAINST A LENDER OR ITS MANAGEMENT (COLLECTIVELY, EXCEPT FOR THE MATTERS
REFERRED TO CLAUSES (i), (ii) OR (iii) ABOVE, "INDEMNIFIED MATTERS", AND THE
MATTERS REFERRED TO IN CLAUSES (i), (ii) OR (iii) ABOVE, COLLECTIVELY, "EXCLUDED
MATTERS"). TO THE EXTENT THAT ANY INDEMNIFIED MATTER INVOLVES ONE OR MORE
INDEMNITEES, SUCH INDEMNITEES SHALL USE THE SAME LEGAL COUNSEL UNLESS ANY
INDEMNITEE IN ITS REASONABLE DISCRETION DETERMINES THAT CONFLICTS EXIST OR MAY
ARISE IN CONNECTION WITH SUCH REPRESENTATION.
(B) WITHOUT DUPLICATION, THE BORROWER SHALL PERIODICALLY, UPON REQUEST,
REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE OUT-OF-POCKET LEGAL AND OTHER
ACTUAL REASONABLE EXPENSES (INCLUDING THE REASONABLE COST OF ANY INVESTIGATION
AND PREPARATION) INCURRED IN CONNECTION WITH ANY INDEMNIFIED MATTER; PROVIDED
THAT SUCH INDEMNITEE SHALL PROVIDE ADEQUATE DOCUMENTATION OF SUCH EXPENSES;
PROVIDED, FURTHER, THAT IF AN INDEMNITEE IS REIMBURSED HEREUNDER FOR SUCH
AMOUNT, THE AMOUNT SO PAID SHALL BE REFUNDED TO THE BORROWER IF AND TO THE
EXTENT IT IS FINALLY JUDICIALLY DETERMINED THAT THE INDEMNIFIED MATTER IN
QUESTION WAS AN EXCLUDED MATTER. THE REIMBURSEMENT, INDEMNITY AND CONTRIBUTION
OBLIGATIONS UNDER THIS SECTION SHALL BE IN ADDITION TO ANY LIABILITY WHICH THE
BORROWER MAY OTHERWISE HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO
EACH INDEMNITEE, AND SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY
SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF THE BORROWER, THE
ADMINISTRATIVE AGENT, THE LENDERS AND ALL OTHER INDEMNITEES. THIS SECTION SHALL
SURVIVE ANY TERMINATION OF THIS AGREEMENT AND PAYMENT OF THE OBLIGATIONS.
Section 5.10 Environmental Law Compliance. The use which the Borrower or
----------------------------
any Subsidiary of the Borrower intends to make of any real property which is
owned or leased by it will not result in the disposal or other release of any
hazardous substance or solid waste on or to such real property which is in
violation of Applicable Environmental Laws, the effect of which could reasonably
be expected to have a Material Adverse Effect. As used herein, the terms
"hazardous substance" and "release" as used in this Section shall have the
meanings specified in CERCLA (as defined in the definition of Applicable
Environmental Laws), and the terms "solid waste" and "disposal" shall have the
meanings specified in RCRA (as defined in the definition of Applicable
Environmental Laws); provided, however, that if CERCLA or RCRA is amended so as
to broaden or lessen the meaning of any term defined thereby, such broader or
lesser meaning shall apply subsequent to the effective date of such amendment;
and provided further, to the extent that any other law applicable to the
Borrower, any Subsidiary or any of their properties establishes a meaning for
"hazardous
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substance," "release," "solid waste," or "disposal" which is broader or lesser
than that specified in either CERCLA or RCRA, such broader or lesser meaning
shall apply.
Section 5.11 Further Assurances. At any time or from time to time upon
------------------
request by the Administrative Agent, the Borrower or any Subsidiary of the
Borrower shall execute and deliver such further documents and do such other acts
and things as the Administrative Agent may reasonably request in order to effect
fully the purposes of this Agreement and the other Loan Documents and to provide
for payment of the Obligations in accordance with the terms of this Agreement
and the other Loan Documents. Without limiting the generality of the foregoing,
the Borrower agrees to (a) update and deliver to the Administrative Agent
Schedule 4 hereto (with respect to the identities, jurisdictions of
- ----------
incorporation and ownership of the Borrower's Subsidiaries) at the time of
delivery of the financial statements set forth in Sections 6.1 and 6.2 hereof if
------------ ---
the information provided therein is not complete and correct, (b) update and
deliver to the Administrative Agent Schedule 1 to the Security Agreements
----------
promptly upon discovery if the information provided therein is not complete and
correct, and (c) execute and deliver to the Administrative Agent deeds of trust
or mortgages, as appropriate, in substantially the form of Exhibit J-1 and J-2
----------- ---
hereto with respect to any real property hereafter acquired by the Borrower, as
applicable, together with title insurance thereon in an amount reasonably
satisfactory to the Administrative Agent, and such board resolutions, officer's
certificates, corporate and other documents and opinions of counsel as the
Administrative Agent shall reasonably request with respect thereto; provided
this Section 5.11(c) shall not apply to any leasehold interests unless requested
---------------
by the Determining Lenders or any leasehold interest for sales or representative
office space only.
Section 5.12 Subsidiaries. At any time that any Person becomes a Domestic
------------
Subsidiary, (a) such Subsidiary shall execute a Subsidiary Guaranty of the
Obligations and Collateral Documents granting a first priority Lien in all
assets of such Subsidiary required by the Determining Lenders to be pledged,
except, to the extent applicable, for Permitted Liens to secure the Obligations,
(b) 100% of such Subsidiary's Equity Interests shall be pledged to secure the
Obligations and (c) the Lenders shall receive such board resolutions, officer's
certificates, corporate and other documents and opinions of counsel as the
Administrative Agent shall reasonably request in connection with the actions
described in clauses (a) and (b) above. At any time that any Person becomes a
Foreign Subsidiary, (a) 65% of such Subsidiary's Equity Interests shall be
pledged to secure the Obligations and (b) the Lenders shall receive such board
resolutions, officers' certificates, corporate and other documents and opinions
of counsel as the Administrative Agent shall reasonably request in connection
with the action described in clause (a) above.
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ARTICLE 6
Information Covenants
---------------------
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled), the Borrower shall furnish or cause to be furnished to
each Lender:
Section 6.1 Monthly Financial Statements and Information. Within 30 days
--------------------------------------------
after the end of each fiscal month (or during the first year following the
Agreement Date, within 45 days after the end of each fiscal month) of each
fiscal year (other than the end of a fiscal month which coincides with the end
of a fiscal quarter), the consolidated balance sheets of the Borrower and its
Subsidiaries as at the end of such fiscal month and the related consolidated
statements of income for such fiscal month and for the elapsed portion of the
year ended with the last day of such fiscal month, consolidated statements of
cash flow for the elapsed portion of the year ended with the last day of such
fiscal month, and a consolidating statement of year-to-date EBITDA, all of which
shall be certified by the president or chief financial officer or other officer
of the Borrower acceptable to the Administrative Agent, to, in his or her
opinion acting solely in his or her capacity as an officer of the Borrower,
present fairly in all material respects, in accordance with GAAP (except for the
absence of footnotes), the financial position and results of operations of the
Borrower and its Subsidiaries as at the end of and for such fiscal month, and
for the elapsed portion of the year ended with the last day of such fiscal
month, subject only to normal year-end adjustments.
Section 6.2 Quarterly Financial Statements and Information. Within 45
----------------------------------------------
after the end of each fiscal quarter of each fiscal year (other than the end of
a fiscal quarter which coincides with the end of a fiscal year), the
consolidated balance sheets of the Borrower and its Subsidiaries as at the end
of such fiscal quarter and the related consolidated statements of income for
such fiscal quarter and for the elapsed portion of the year ended with the last
day of such fiscal quarter, and consolidated statements of cash flow for the
elapsed portion of the year ended with the last day of such fiscal quarter, all
of which shall be certified by the president or chief financial officer or other
officer of the Borrower acceptable to the Administrative Agent, to, in his or
her opinion acting solely in his or her capacity as an officer of the Borrower,
present fairly in all material respects, in accordance with GAAP (except for the
absence of footnotes), the financial position and results of operations of the
Borrower and its Subsidiaries as at the end of and for such fiscal quarter, and
for the elapsed portion of the year ended with the last day of such fiscal
quarter, subject only to normal year-end adjustments.
Section 6.3 Annual Financial Statements and Information; Certificate of No
--------------------------------------------------------------
Default.
- -------
(a) Within 120 days after the end of each fiscal year, a copy of (i) the
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries, as of the end of the current and prior fiscal years and (ii) the
consolidated and consolidating statements
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of earnings and consolidated statements of changes in shareholders' equity, and
statements of cash flow as of and through the end of such fiscal year, all of
which are prepared in accordance with GAAP, and certified by independent
certified public accountants reasonably acceptable to the Lenders (provided,
however, any big six public accounting firm shall be acceptable to the Lenders),
whose opinion shall be in scope and substance in accordance with generally
accepted auditing standards and shall be unqualified as to scope of audit and
going concern.
(b) Simultaneously with the delivery of the statements required by this
Section 6.3, a letter from the Borrower's public accountants stating to the
- -----------
effect that during their audit of such financial statements nothing has come to
their attention that would result in a Default or Event of Default under this
Agreement, recognizing, however, that the scope and purpose of their audit was
not to determine compliance with the terms of this Agreement or whether a
Default or Event of Default has otherwise occurred.
(c) As soon as available, but in any event within 90 days following the end
of each fiscal year, a copy of the annual consolidated operating budget of the
Borrower and its Subsidiaries for the succeeding fiscal year.
Section 6.4 Compliance Certificate. At the time financial statements are
----------------------
furnished pursuant to Sections 6.1, 6.2 and 6.3 hereof, the Compliance
------------ --- ---
Certificate, completed as provided therein.
Section 6.5 Copies of Other Reports and Notices.
-----------------------------------
(a) Promptly upon their becoming available, a copy of (i) all material
final reports or letters submitted to the Borrower or any Subsidiary of the
Borrower by accountants in connection with any annual, interim or special audit,
including without limitation any final report prepared in connection with the
annual audit referred to in Section 6.2 hereof, and any other comment letter
-----------
submitted to management in connection with any such audit, (ii) each regular,
periodic or other report and any registration statement (other than statements
on Form S-8) or prospectus (or material written communication in respect of any
thereof) filed by the Borrower or any Subsidiary of the Borrower with any
securities exchange, with the Securities and Exchange Commission or any
successor agency, and (iii) all press releases concerning material financial
aspects of the Borrower or any Subsidiary of the Borrower;
(b) Promptly upon becoming aware that (i) the holder(s) of any note(s) or
other evidence of indebtedness or other security of the Borrower or any
Subsidiary of the Borrower in excess of $300,000 in the aggregate has given
notice or taken any action with respect to a breach, failure to perform, claimed
default or event of default thereunder or (ii) any event, circumstance or
condition which could reasonably be expected to be classified as a Material
Adverse Effect, a written notice specifying the details thereof (or the nature
of any claimed default or event of default) and what action is being taken or is
proposed to be taken with respect thereto;
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(c) Promptly upon becoming aware that any party to any Capitalized Lease
Obligations in excess of $200,000 or Operating Lease in which the annual rentals
thereunder exceed $50,000, has given notice or taken any action with respect to
a breach, failure to perform, claimed default or event of default thereunder, a
written notice specifying the details thereof (or the nature of any claimed
default or event of default) and what action is being taken or is proposed to be
taken with respect thereto;
(d) Promptly upon receipt thereof, information with respect to and copies
of any notices received from any Tribunal relating to any order, ruling, law,
information or policy that relates to a breach of or noncompliance with any Law,
and could reasonably be expected to result in the payment of money by the
Borrower or any Subsidiary of the Borrower in an amount of $100,000 or more in
the aggregate, or otherwise have a Material Adverse Effect, or result in the
loss or suspension of any Necessary Authorization where such loss could
reasonably be expected to have a Material Adverse Effect; and
(e) From time to time and promptly upon each request, such material data,
certificates, reports, statements, documents or further information regarding
the assets, business, liabilities, financial position, projections, results of
operations or business prospects of the Borrower and its Subsidiaries, as the
Administrative Agent or any Lender may reasonably request.
Section 6.6 Notice of Litigation, Default and Other Matters. Prompt
-----------------------------------------------
notice of the following events after the Borrower has knowledge or notice
thereof:
(a) The commencement of all Litigation and investigations by or before any
Tribunal, and all actions and proceedings in any court or before any arbitrator
involving claims for damages (including punitive damages) in excess of $100,000
(after deducting the amount with respect to which creditworthy insurance
companies have acknowledged coverage), against or in any other way relating
directly to the Borrower, any Subsidiary of the Borrower, or any of their
respective properties or businesses; and
(b) Promptly upon the happening of any condition or event of which the
Borrower has current actual knowledge which constitutes a Default, a written
notice specifying the nature and period of existence thereof and what action is
being taken or is proposed to be taken with respect thereto.
Section 6.7 ERISA Reporting Requirements.
----------------------------
(a) Promptly and in any event (i) within 30 days after the Borrower or any
member of its Controlled Group has current actual knowledge that any ERISA Event
described in clause (a) of the definition of ERISA Event or any event described
in Section 4063(a) of ERISA with respect to any Plan of the Borrower or any
member of its Controlled Group has occurred, and (ii) within 10 days after the
Borrower or any member of its Controlled Group has current actual knowledge that
any other ERISA Event with respect to any Plan of the Borrower or any member of
its Controlled Group has occurred or a
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request for a minimum funding waiver under Section 412 of the Code has been made
with respect to any Plan of the Borrower or any member of its Controlled Group,
a written notice describing such event and describing what action is being taken
or is proposed to be taken with respect thereto, together with a copy of any
notice of such event that is given to the PBGC;
(b) Promptly and in any event within ten Business Days after receipt
thereof by the Borrower or any member of its Controlled Group from the PBGC,
copies of each notice received by the Borrower or any member of its Controlled
Group of the PBGC's intention to terminate any Plan or to have a trustee
appointed to administer any Plan;
(c) Promptly and in any event within 30 days after the filing thereof by
the Borrower or any member of its Controlled Group with the United States
Department of Labor or the Internal Revenue Service, copies of each annual
report (including Schedule B thereto, if applicable) with respect to each Plan
subject to Title IV of ERISA of which Borrower or any member of its Controlled
Group is the "plan sponsor";
(d) Promptly, and in any event within 10 Business Days after receipt
thereof, a copy of any correspondence the Borrower or any member of its
Controlled Group receives from the Plan Sponsor (as defined by Section
4001(a)(10) of ERISA) of any Plan concerning potential withdrawal liability
pursuant to Section 4219 or 4202 of ERISA, and a statement from the chief
financial officer of the Borrower or such member of its Controlled Group setting
forth details as to the events giving rise to such potential withdrawal
liability and the action which the Borrower or such member of its Controlled
Group is taking or proposes to take with respect thereto;
(e) Notification within 30 days of any material increases in the benefits
provided under any existing Plan which is not a Multiemployer Plan, or the
establishment of any new Plans, or the commencement of contributions to any Plan
to which the Borrower or any member of its Controlled Group was not previously
contributing, which could reasonably be expected in any such case to result in
an additional material liability to the Borrower;
(f) Notification within three Business Days after the Borrower or any
member of its Controlled Group knows that the Borrower or any such member of its
Controlled Group has filed or intends to file a notice of intent to terminate
any Plan under a distress termination within the meaning of Section 4041(c) of
ERISA and a copy of such notice; and
(g) Within three Business Days after receipt of written notice of
commencement thereof, notice of all actions, suits and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any member of
its Controlled Group with respect to any Plan, except those which, in the
aggregate, if adversely determined could not reasonably be expected to have a
Material Adverse Effect.
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ARTICLE 7
Negative Covenants
------------------
So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):
Section 7.1 Indebtedness. The Borrower shall not, and shall not permit
------------
any Subsidiary of the Borrower to, create, assume, incur or otherwise become or
remain obligated in respect of, or permit to be outstanding, or suffer to exist
any Indebtedness, except:
(a) Indebtedness under the Loan Documents;
(b) Accounts payable and accrued liabilities incurred in the ordinary
course of business;
(c) Indebtedness, including in respect of Capitalized Lease Obligations,
incurred to purchase, or to finance the purchase of, assets which constitute
property, plant and equipment, not to exceed, together with Indebtedness
permitted pursuant to clauses (h) and (m) of this Section 7.1, $10,000,000 in
-----------
aggregate principal amount outstanding;
(d) Institutional Debt; provided that (i) the Net Cash Proceeds of such
Institutional Debt are applied in accordance with Section 2.5(f) hereof to the
--------------
extent required therein and (ii) the scheduled principal payments of all
Indebtedness of the Borrower and its Subsidiaries immediately after the issuance
thereof is not greater in amount during any year in which the Obligations are
scheduled to be outstanding or earlier in amortization than immediately
preceding the issuance thereof.
(e) Interest hedging obligations under Interest Hedge Agreements entered
into with any Lender;
(f) Indebtedness existing on the Agreement Date which is described on
Schedule 6 hereto, including renewals, replacements and refinancings (but no
- ----------
increases) thereof;
(g) Indebtedness in respect of endorsement of negotiable instruments in the
ordinary course of business;
(h) Indebtedness assumed in connection with Acquisitions permitted under
Section 7.6 not to exceed, together with Indebtedness permitted pursuant to
- -----------
clauses (c) and (m) of this Section 7.1, $10,000,000 in aggregate principal
-----------
amount outstanding;
(i) Indebtedness owing to the Borrower or any Domestic Subsidiary by the
Borrower or any Subsidiary of the Borrower, which Indebtedness is subordinated
to the
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Obligations and evidenced by an entry on the financial records of the Borrower
and any such Subsidiary of the Borrower;
(j) Guaranties by Subsidiaries of the Borrower of Indebtedness of the
Borrower or other Domestic Subsidiaries of the Borrower, to the extent such
underlying Indebtedness is permitted hereunder;
(k) Indebtedness in respect of the Senior Subordinated Notes;
(l) Indebtedness of Foreign Subsidiaries not to exceed $10,000,000 in
aggregate principal amount outstanding; and
(m) Other Indebtedness not to exceed, together with Indebtedness permitted
pursuant to clauses (c) and (h) of this Section 7.1, $10,000,000 in aggregate
-----------
principal amount outstanding;
provided, however, that no Indebtedness otherwise permitted pursuant to clauses
- -------- -------
(c), (d), (h), (j), (l) and (m) above may be incurred if, immediately before or
after giving effect to the incurrence thereof, any Event of Default shall have
occurred and be continuing.
Section 7.2 Liens. The Borrower shall not, and shall not permit any
-----
Subsidiary of Borrower to, create, assume, incur, permit or suffer to exist,
directly or indirectly, any Lien on any of its assets, whether now owned or
hereafter acquired, except Permitted Liens. The Borrower shall not, and shall
not permit any Subsidiary to, agree with any other Person that it shall not
create, assume, incur, permit or suffer to exist or to be created, assumed,
incurred or permitted to exist, directly or indirectly, any Lien on any of its
assets other than in respect of Indebtedness permitted by Sections 7.1(c) and
---------------
(h), provided that such agreement relates only to the assets purchased or
- ---
acquired.
Section 7.3 Investments. The Borrower shall not, and shall not permit any
-----------
Subsidiary of Borrower to, make any Investment, except that the Borrower and any
Subsidiary of the Borrower may purchase or otherwise acquire and own:
(a) Cash and Cash Equivalents;
(b) Accounts receivable that arise in the ordinary course of business and
are payable on standard terms;
(c) Investments in existence on the Agreement Date which are described on
Schedule 5 hereto;
- ----------
(d) Investments which are Acquisitions permitted pursuant to Section 7.6
-----------
hereof;
(e) Investments in the form of Interest Hedge Agreements permitted by
Section 7.1(e) hereof;
- --------------
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(f) Investments in, and expenditures in respect of Acquisitions of,
Subsidiaries which are not Domestic Subsidiaries by the Borrower in an aggregate
amount after the Agreement Date not to exceed (calculated immediately prior to
the date of each such Investment or Acquisition) $10,000,000 at any time
outstanding;
(g) Investments in Domestic Subsidiaries of the Borrower (i) which have
executed a Subsidiary Guaranty and Collateral Documents granting a first
priority Lien in all assets of such Subsidiary required by the Determining
Lenders to be pledged, except for Permitted Liens to secure the Obligations,
(ii) 100% of whose Equity Interests shall be pledged to secure the Obligations
and (iii) which have delivered to the Lenders such board resolutions, officer's
certificates, corporate and other documents and opinions of counsel as the
Administrative Agent shall reasonably request;
(h) Investments consisting of non-cash consideration received in connection
with a sale of assets permitted by Section 7.5 not to exceed $5,000,000 in
-----------
aggregate amount outstanding at any time;
(i) Investments arising from transactions by the Borrower or any of its
Subsidiaries with customers or suppliers in the ordinary course of business,
including endorsements of negotiable instruments, debt obligations and other
investments received in connection with the bankruptcy or reorganization of
customers and suppliers and in settlement of delinquent obligations of, and
other disputes with, customers and suppliers; and
(j) Other Investments not to exceed $2,500,000 in aggregate amount
outstanding at any time;
provided, however, that no Investment otherwise permitted by clauses (d), (f),
- -------- -------
(h) and (j) above shall be permitted to be made if, immediately before or after
giving effect thereto, any Event of Default shall have occurred and be
continuing.
Section 7.4 Liquidation, Merger. The Borrower shall not, and shall not
-------------------
permit any Subsidiary of Borrower to, at any time:
(a) liquidate or dissolve itself (or suffer any liquidation or dissolution)
or otherwise wind up, except that (i) a Subsidiary of the Borrower may liquidate
or dissolve into the Borrower or a Subsidiary of the Borrower which is an
Obligor and (ii) a Subsidiary of the Borrower which is not an Obligor may
liquidate or dissolve into the Borrower or a Subsidiary of the Borrower; or
(b) enter into any merger or consolidation unless (i) with respect to a
merger or consolidation involving the Borrower, the Borrower shall be the
surviving corporation, or if the merger or consolidation involves a Subsidiary
of the Borrower which is an Obligor and not the Borrower, such Subsidiary shall
be the surviving corporation, (ii) such transaction shall not be utilized to
circumvent compliance with any term or provision herein and (iii) no Default or
Event of Default shall then be in existence or occur as a result of such
transaction.
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Section 7.5 Sales of Assets. The Borrower shall not, and shall not permit
---------------
any Subsidiary of the Borrower to, sell, transfer or otherwise dispose of, any
of its assets except (a) inventory in the ordinary course of business, (b)
obsolete or worn-out assets, (c) asset sales in which the Net Cash Proceeds from
the disposition thereof (to the extent not applied pursuant to clause (d)
immediately following) are reinvested, within 150 days before or after such
disposition, in productive tangible assets used in the business of the Borrower
and its Subsidiaries, and provided that the aggregate amount of Net Cash
Proceeds outstanding and pending reinvestment pursuant to this clause (c) shall
not exceed $5,000,000 at any time, and (d) asset sales the Net Cash Proceeds of
which are applied in accordance with Section 2.5(c) hereof to the extent
--------------
required therein.
Section 7.6 Acquisitions. The Borrower shall not, and shall not permit
------------
any Subsidiary of Borrower to, make any Acquisitions; provided, however, if (a)
immediately prior to and after giving effect to the proposed Acquisition there
shall not exist a Default or Event of Default and (b) immediately after giving
effect to the proposed transaction the Unused Portion shall be no less than
$5,000,000, the Borrower or any Subsidiary of the Borrower may make Acquisitions
so long as (i) such Acquisition shall not be opposed by the board of the
directors of the Person being acquired, (ii) Lenders shall have received written
notice at least 15 Business Days prior to the date of such Acquisition, (iii)
the Administrative Agent shall have received at least 10 Business Days prior to
the date of such Acquisition a Compliance Certificate setting forth the covenant
calculations both immediately prior to and after giving effect to the proposed
Acquisition, (iv) the assets, property or business acquired shall be in the
business described in Section 4.1(d) hereof and the Administrative Agent for the
--------------
benefit of the Lenders shall have a first priority Lien in substantially all of
such assets (or, if less than substantially all of such assets, such assets
required by the Determining Lenders to be pledged), except for Permitted Liens,
(v) if such Acquisition results in a Domestic Subsidiary, (A) such Subsidiary
shall execute a Subsidiary Guaranty of the Obligations and Collateral Documents
granting a first priority Lien in substantially all of such assets (or, if less
than substantially all of such assets, all assets required by the Determining
Lenders to be pledged), except for Permitted Liens to secure the Obligations,
(B) 100% of such Subsidiary's Equity Interests shall be pledged to secure the
Obligations and (C) the Administrative Agent on behalf of the Lenders shall have
received such board resolutions, officer's certificates and opinions of counsel
as the Administrative Agent shall reasonably request in connection with the
actions described in clauses (A) and (B) above, and (vi) if such Acquisition
results in a Foreign Subsidiary, (A) 65% of such Subsidiary's Equity Interests
shall be pledged to secure the Obligations and (B) the Administrative Agent on
behalf of the Lenders shall have received such board resolutions, officer's
certificates and opinions of counsel as the Administrative Agent shall
reasonably request in connection with clause (A) immediately preceding.
Section 7.7 Capital Expenditures. The Borrower shall not, and shall not
--------------------
permit any Subsidiary of the Borrower to, make or commit to make any Capital
Expenditures after the Agreement Date in an aggregate amount in excess of an
amount equal to the sum of (a) $15,000,000 plus (b) 5% of cumulative net
revenues of the Borrower and its Subsidiaries from and after the Agreement Date.
75
<PAGE>
Section 7.8 Restricted Payments. The Borrower shall not, and shall not
-------------------
permit any Subsidiary of the Borrower to, directly or indirectly declare, pay or
make any Restricted Payments except (a) Dividends payable by a Subsidiary to the
Borrower, (b) purchases, redemptions, retirements or acquisitions of shares of
capital stock of the Borrower, or options or warrants to purchase shares of such
capital stock, held by officers, directors or employees of the Borrower or any
of its Subsidiaries pursuant to a compensation plan or arrangement in connection
with the death, disability or termination of employment of any such officer,
director or employee in all such cases taken as a whole for aggregate cash
payments not in excess of $2,500,000, (c) payments for the purpose of and in an
amount equal to the amount required to redeem or repurchase Equity Interests of
the Company from certain stockholders of the Company as required pursuant to the
Second Amended and Restated Securityholders Agreement in an aggregate amount not
to exceed $250,000, (d) the Dogloo Transaction Restricted Payments, (e)
additional redemptions of capital stock of the Borrower not to exceed $2,400,000
in aggregate principal amount, and (f) advisory fees to the Specified Investors
not to exceed an aggregate amount of $600,000 for each fiscal year; provided,
however, the Borrower shall not pay or make any Restricted Payments permitted by
this Section 7.8 unless there shall exist no Default or Event of Default prior
-----------
to or after giving effect to any such proposed Restricted Payment.
Section 7.9 Affiliate Transactions. Except for the payments permitted
----------------------
under Section 7.8, the Borrower shall not, and shall not permit any Subsidiary
-----------
of the Borrower to, at any time engage in any transaction with an Affiliate
(other than the Borrower or any Subsidiary of the Borrower) on terms materially
less advantageous to the Borrower or such Subsidiary than would be the case if
such transaction had been effected with a non-Affiliate. The Borrower shall
not, and shall not permit any Subsidiary of Borrower to, in any event incur or
suffer to exist any Indebtedness or Guaranty in favor of any Affiliate, unless
such Affiliate shall subordinate the payment and performance thereof to the
Obligations on terms, conditions and documentation satisfactory to the
Determining Lenders.
Section 7.10 Compliance with ERISA. The Borrower shall not, and shall not
---------------------
permit any Subsidiary of the Borrower to, directly or indirectly, or permit any
member of its Controlled Group to directly or indirectly, (a) terminate any Plan
so as likely to result in liability to the Borrower or any member of its
Controlled Group taken as a whole which could reasonably be expected to have a
Material Adverse Effect, (b) permit to exist any ERISA Event, or any other event
or condition with respect to a Plan which could reasonably be expected to have a
Material Adverse Effect, (c) make a complete or partial withdrawal (within the
meaning of Section 4201 of ERISA) from any Multiemployer Plan which could
reasonably be expected to have a Material Adverse Effect on the Borrower or any
member of its Controlled Group taken as a whole, or (d) enter into any new Plan
or modify any existing Plan so as to increase its obligations thereunder which
could reasonably be expected to have a Material Adverse Effect.
Section 7.11 Maximum Leverage Ratio. At the end of each fiscal quarter
----------------------
occurring during the periods indicated below, the Borrower shall not permit the
Leverage Ratio to be greater than the ratio set forth below opposite the period
in which such fiscal quarter occurs:
76
<PAGE>
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From and including December 31, 1997 to and including 5.75 to 1
September 30, 1998
From and including December 31, 1998 to but not 5.50 to 1
including June 30, 1999
From and including June 30, 1999 to but not including 4.75 to 1
June 30, 2000
From and including June 30, 2000 to but not including 4.25 to 1
June 30, 2001
From and including June 30, 2001 and thereafter 3.75 to 1
</TABLE>
Section 7.12 Minimum Fixed Charge Coverage Ratio. At the end of each
-----------------------------------
fiscal quarter occurring during this Agreement commencing with December 31,
1997, the Borrower shall not permit the Fixed Charge Coverage Ratio to be less
than 1.10 to 1.
Section 7.13 Interest Coverage Ratio. At the end of each fiscal quarter
-----------------------
occurring during the periods indicated below, the Borrower shall not permit the
Interest Coverage Ratio to be less than the ratio set forth below opposite the
period in which such fiscal quarter occurs:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From and including December 31, 1997 to but not including 1.75 to 1
December 31, 1998
From and including December 31, 1998 to but not including 2.00 to 1
June 30, 2000
From and including June 30, 2000 and thereafter 2.50 to 1
</TABLE>
Section 7.14 Sale or Discount of Receivables. The Borrower shall not, and
-------------------------------
shall not permit any Subsidiary of the Borrower to, directly or indirectly,
sell, with or without recourse, for discount or otherwise, any notes or accounts
receivable other than in the ordinary course of business consistent with such
practices of the Borrower prior to the Agreement Date.
Section 7.15 Business. Neither the Borrower nor any Subsidiary of the
--------
Borrower shall conduct any business other than the business described in Section
-------
4.1(d) hereof.
- ------
Section 7.16 Fiscal Year. Neither the Borrower nor any Subsidiary of the
-----------
Borrower shall change its fiscal year from June 30.
77
<PAGE>
Section 7.17 Amendment of Organizational Documents. The Borrower shall
-------------------------------------
not, and shall not permit any Subsidiary of the Borrower to, amend its articles
of incorporation, bylaws or other applicable organizational documents in any
manner that could reasonably be expected to (a) result in a Material Adverse
Effect or (b) impair or adversely affect the Rights of the Administrative Agent
or any Lender under any Loan Documents or in respect of any Collateral, it being
understood that the re-incorporation of the Borrower as a Delaware corporation
will be permitted under this Section 7.17.
------------
Section 7.18 Amendments and Waivers of Subordinated Debt. The Borrower
-------------------------------------------
shall not, and shall not permit any Subsidiary to, change or amend (or take any
action or fail to take any action the result of which is an effective amendment
or change) or accept any waiver or consent with respect to, any document,
instrument or agreement relating to any Subordinated Debt that would result in
(a) an increase in the principal, interest, overdue interest, fees or other
amounts payable under the Subordinated Debt, (b) an acceleration in any date
fixed for payment or prepayment of principal, interest, fees or other amounts
payable under the Subordinated Debt (including, without limitation, as a result
of any redemption), (c) a reduction in any percentage of holders of the
Subordinated Debt required under the terms of the Subordinated Debt to take (or
refrain from taking) any action under the Subordinated Debt, (d) a change in any
covenant under the Subordinated Debt making such covenant more restrictive, (e)
a change in any default or event of default (however designated) under the
Subordinated Debt which makes such default or event of default more restrictive,
(f) a change in the definition of "Change of Control" or "Change in Control" or
similar event or circumstance, however defined or designated, as provided in the
Subordinated Debt which would result in such definition being more restrictive
than such definition in this Agreement, (g) a change in any of the subordination
provisions of the Subordinated Debt, (h) a change in any covenant, term or
provision in the Subordinated Debt which would result in such term or provision
being more restrictive than the terms of this Agreement and the other Loan
Documents or (i) a change in any term or provision of the Subordinated Debt that
could have, in any material respect, an adverse effect on the interest of the
Lenders.
ARTICLE 8
Default
-------
Section 8.1 Events of Default. Each of the following shall constitute an
-----------------
Event of Default, whatever the reason for such event, and whether voluntary,
involuntary, or effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or non-
governmental body:
(a) Any representation or warranty made under any Loan Document shall prove
to have been incorrect or misleading in any material respect when made;
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<PAGE>
(b) The Borrower shall fail to pay any (i) principal under any Note when
due; or (ii) interest under any Note or any fees payable hereunder or any other
costs, fees, expenses or other amounts payable hereunder or under any other Loan
Document within the earlier of (A) three Business Days after the date due or (B)
one Business Day after written notice thereof from the Administrative Agent;
(c) The Borrower or any Subsidiary shall default in the performance or
observance of any agreement or covenant contained Section 5.1(a) hereof or in
--------------
Article 7 (other than Section 7.10) hereof;
- --------- ------------
(d) Any Obligor or any Subsidiary of the Borrower shall default in the
performance or observance of any other agreement or covenant contained in this
Agreement not specifically referred to elsewhere in this Section 8.1, and such
-----------
default shall not be cured within a period of thirty days after the earlier of
notice from the Administrative Agent thereof or actual notice thereof by a
Responsible Officer of any Obligor or such Subsidiary;
(e) Any Obligor or any Subsidiary of the Borrower shall default in the
performance or observance of any agreement or covenant in any of the Loan
Documents (other than this Agreement) and such default shall not be cured within
a period of thirty days after the earlier of notice from the Administrative
Agent thereof or actual notice thereof by a Responsible Officer of any Obligor
or such Subsidiary;
(f) There shall be commenced an involuntary proceeding or an involuntary
petition shall be filed in a court having competent jurisdiction seeking (i)
relief in respect of any Obligor or any Subsidiary of the Borrower, or a
substantial part of the property or the assets of such Obligor or Subsidiary of
the Borrower, under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable Federal, state or foreign bankruptcy
law or other similar law, (ii) the appointment of a receiver, liquidator,
assignee, trustee, custodian, sequestrator or similar official of any Obligor or
any Subsidiary of the Borrower, or of any substantial part of their respective
properties, or (iii) the winding-up or liquidation of the affairs of any Obligor
or any Subsidiary of the Borrower, and any such proceeding or petition shall
continue unstayed and in effect for a period of forty-five consecutive days;
(g) Any Obligor or any Subsidiary of the Borrower shall (i) file a
petition, answer or consent seeking relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other applicable Federal,
state or foreign bankruptcy law or other similar law, (ii) consent to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment or taking of possession of a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of any Obligor or any
Subsidiary of the Borrower or of substantially all of its properties, (iii) file
an answer admitting the material allegations filed against it in any such
proceeding, (iv) make a general assignment for the benefit of creditors, (v)
become unable, admit in writing its inability, or fail generally, to pay its
debts as they become due, or (vi) any Obligor or any Subsidiary of the Borrower
shall take any corporate action in furtherance of any such action;
79
<PAGE>
(h) A final judgment or judgments shall be entered by any court against any
Obligor or any Subsidiary of the Borrower for the payment of money which exceeds
$200,000 in the aggregate, or a warrant of attachment or execution or similar
process shall be issued or levied against property of any Obligor which,
together with all other such property of the Borrower and its Subsidiaries
subject to other such process, exceeds in value $200,000 in the aggregate, and
if such judgment or award is not insured or, within 30 days after the entry,
issue or levy thereof, such judgment, warrant or process shall not have been
paid or discharged or stayed pending appeal, or if, after the expiration of any
such stay, such judgment, warrant or process shall not have been paid or
discharged;
(i) With respect to any Plan of the Borrower or any member of its
Controlled Group: (i) the Borrower, any such member, or any other party-in-
interest or disqualified person (other than any Lender) shall engage in
transactions which in the aggregate would reasonably be expected to result in a
direct or indirect liability to the Borrower or any member of its Controlled
Group under Section 409 or 502 of ERISA or Section 4975 of the Code; (ii) the
Borrower or any member of its Controlled Group shall incur any accumulated
funding deficiency, as defined in Section 412 of the Code, or request a funding
waiver from the Internal Revenue Service for contributions; (iii) the Borrower
or any member of its Controlled Group shall incur any withdrawal liability as a
result of a complete or partial withdrawal within the meaning of Section 4203 or
4205 of ERISA, or any other liability with respect to a Plan, unless the amount
of such liability has been funded within the Plan or pursuant to one or more
insurance contracts; (iv) the Borrower or any member of its Controlled Group
shall fail to make a required contribution by the due date under Section 412 of
the Code or Section 302 of ERISA which would result in the imposition of a lien
under Section 412 of the Code or Section 302 of ERISA; (v) the Borrower, any
member of its Controlled Group or any Plan sponsor shall notify the PBGC of an
intent to terminate, or the PBGC shall institute proceedings to terminate, or
the PBGC shall institute proceedings to terminate, any Plan subject to Title IV
of ERISA; (vi) a Reportable Event shall occur with respect to a Plan subject to
Title IV of ERISA, and within 15 days after the reporting of such Reportable
Event to the Administrative Agent, the Administrative Agent shall have notified
the Borrower in writing that the Determining Lenders have made a determination
that, on the basis of such Reportable Event, there are reasonable grounds for
the termination of such Plan by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer such Plan
and as a result thereof an Event of Default shall have occurred hereunder; (vii)
a trustee shall be appointed by a court of competent jurisdiction to administer
any Plan or the assets thereof; or (viii) any ERISA Event with respect to a Plan
subject to Title IV of ERISA shall have occurred, and 30 days thereafter (A)
such ERISA Event, other than such event described in clause (f) of the
definition of ERISA Event herein, (if correctable) shall not have been corrected
and (B) the then present value of such Plan's benefit liabilities, as defined in
Title IV of ERISA, shall exceed the then current value of assets accumulated in
such Plan; provided, however, that the events listed in subsections (i) -(viii)
-------- -------
above shall constitute Events of Default only if the maximum aggregate liability
which the Borrower or any member of its Controlled Group has a reasonable
likelihood of incurring under the applicable provisions of ERISA resulting from
an event or events exceeds $300,000;
80
<PAGE>
(j) Any Obligor or any Subsidiary of the Borrower shall default in the
payment of any Indebtedness in an aggregate amount of $1,000,000 or more beyond
any grace period provided with respect thereto, or any other event or condition
shall exist under any agreement or instrument under which such Indebtedness is
created or evidenced beyond any applicable grace period, if the effect of such
event or condition is to permit or cause the holder of such Indebtedness (or a
trustee on behalf of any such holder) to (i) cause such Indebtedness to become
due or prepaid prior to its date of maturity or (ii) require the any Obligor or
any Subsidiary of the Borrower to purchase, prepay or redeem such Indebtedness;
(k) Any real property lease where the Borrower or any Subsidiary of the
Borrower is the lessee shall terminate or cease to be effective, and termination
or cessation thereof, together with all other real property leases, if any,
which have been terminated or cease to be effective, could reasonably be
expected to have a Material Adverse Effect; provided, however, that termination
or cessation of a real property lease shall not constitute an Event of Default
if another real property lease reasonably satisfactory to the Determining
Lenders is contemporaneously substituted therefor;
(l) Any provision of any Loan Document shall for any reason cease to be
valid and binding on or enforceable against any party to it (other than the
Administrative Agent or any Lender) other than in accordance with its terms, or
any such party (other than the Administrative Agent or any Lender) shall so
assert in writing;
(m) Any Collateral Document shall for any reason cease to create a valid
and perfected first priority Lien in any Collateral subject thereto, other than
as expressly provided or permitted in such Collateral Document or in this
Agreement; or
(n) A Change of Control shall occur.
Section 8.2 Remedies. If an Event of Default shall have occurred and
--------
shall be continuing:
(a) With the exception of an Event of Default specified in Section 8.1(f)
--------------
or (g) hereof, the Administrative Agent may at its election (provided that the
---
Administrative Agent has not previously received notice to the contrary from the
Determining Lenders), and shall upon the direction of the Determining Lenders,
terminate the Commitments and/or declare the principal of and interest on the
Advances and all Obligations and other amounts owed under the Loan Documents to
be forthwith due and payable without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived, except for notices expressly
set forth in the Loan Documents.
(b) Upon the occurrence of an Event of Default specified in Section 8.1(f)
--------------
or (g) hereof, such principal, interest and other amounts shall thereupon and
---
concurrently therewith become due and payable and the Commitments shall
forthwith terminate, all without any action by the Administrative Agent, any
Lender or any holders of the Notes and without
81
<PAGE>
presentment, demand, protest or other notice of any kind, all of which are
expressly waived, anything in the Loan Documents to the contrary
notwithstanding.
(c) If any Letter of Credit shall be then outstanding, the Administrative
Agent may at its election, and shall upon the direction of the Determining
Lenders shall, demand upon the Borrower to, and forthwith upon such demand (but
in the case of an Event of Default specified in Section 8.1(f) or (g) hereof,
-------------- ---
without any demand or taking of any other action by the Administrative Agent or
any Lender), the Borrower shall, pay to the Administrative Agent in same day
funds at the office of the Administrative Agent for deposit in the L/C Cash
Collateral Account, an amount equal to the maximum amount available to be drawn
under the Letters of Credit then outstanding.
(d) The Administrative Agent and the Lenders may exercise all of the Rights
granted to them under the Loan Documents or under Applicable Law.
(e) The Rights of the Administrative Agent and the Lenders hereunder shall
be cumulative, and not exclusive.
ARTICLE 9
Changes in Circumstances
------------------------
Section 9.1 LIBOR Basis Determination Inadequate. If with respect to any
------------------------------------
proposed LIBOR Advance for any Interest Period, (i) any Lender determines that
deposits in dollars (in the applicable amount) are not being offered to that
Lender in the relevant market for such Interest Period or (ii) the Determining
Lenders determine that the LIBOR Rate for such proposed LIBOR Advance does not
adequately cover the cost to such Lender of making and maintaining such proposed
LIBOR Advance for such Interest Period, such Lender or Determining Lenders, as
the case may be, shall forthwith give notice thereof to the Borrower, whereupon
until such Lender or Determining Lenders, as the case may be, notify the
Borrower that the circumstances giving rise to such situation no longer exist,
the obligation of such Lender to make LIBOR Advances shall be suspended;
provided, however, such Lender or the Determining Lenders, as the case may be,
- -------- -------
shall promptly notify the Borrower if the circumstances giving rise to such
situation no longer exist.
Section 9.2 Illegality. If after the Agreement Date any change in
----------
applicable law, rule or regulation, or adoption thereof, or any change in any
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or its LIBOR Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency, shall make it unlawful or
impossible for such Lender (or its LIBOR Lending Office) to make, maintain or
fund its LIBOR Advances, such Lender shall so notify the Borrower and the
Administrative Agent. Before giving any notice to the Borrower pursuant to this
Section, the notifying Lender shall designate a different
82
<PAGE>
LIBOR Lending Office or other lending office if such designation will avoid the
need for giving such notice and will not, in the sole judgment of the Lender, be
materially disadvantageous to the Lender. Upon receipt of such notice,
notwithstanding anything contained in Article 2 hereof, the Borrower shall repay
---------
in full the then outstanding principal amount of each LIBOR Advance owing to the
notifying Lender, together with accrued interest thereon and any reimbursement
required under Section 2.9 hereof, on either (a) the last day of the Interest
-----------
Period applicable to such Advance, if the Lender may lawfully continue to
maintain and fund such Advance to such day, or (b) immediately, if the Lender
may not lawfully continue to fund and maintain such Advance to such day or if
the Borrower so elects. Concurrently with repaying each affected LIBOR Advance
owing to such Lender if the Borrower does not terminate this Agreement,
notwithstanding anything contained in Article 2 hereof, the Borrower may,
---------
without any requirement to satisfy the conditions precedent set forth in Section
-------
3.1, 3.2 or 3.3, borrow a Base Rate Advance from such Lender, and such Lender
- --- --- ---
shall make such Base Rate Advance, in an amount such that the outstanding
principal amount of the Advances owing to such Lender shall equal the
outstanding principal amount of the Advances owing immediately prior to such
repayment.
Section 9.3 Increased Costs.
---------------
(a) If after the Agreement Date any change in or adoption of any law, rule
or regulation, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof or compliance by any Lender (or its
LIBOR Lending Office) with any request or directive (whether or not having the
force of law) of any such authority, central bank or compatible agency:
(i) shall subject a Lender (or its LIBOR Lending Office) to any Tax
(net of any tax benefit engendered thereby) with respect to its LIBOR
Advances or its obligation to make such Advances, or shall change the basis
of taxation of payments to a Lender (or to its LIBOR Lending Office) of the
principal of or interest on its LIBOR Advances or in respect of any other
amounts due under this Agreement, as the case may be, or its obligation to
make such Advances (except for changes in (A) the rate of tax on the
overall net income, net worth or capital of the Lender and franchise taxes,
doing business taxes or minimum taxes imposed upon such Lender and (B)
withholding taxes of any Tribunal other than the United States of America
or any state thereof); or
(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System), special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, a Lender's
LIBOR Lending Office or shall impose on the Lender (or its LIBOR Lending
Office) or on the London interbank market any other condition affecting its
LIBOR Advances or its obligation to make such Advances (but excluding any
reserves or deposits that are included in the calculation of LIBOR Basis);
83
<PAGE>
and the result of any of the foregoing is to increase the cost to a Lender (or
its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or to
reduce the amount of any sum received or receivable by a Lender (or its LIBOR
Lending Office) with respect thereto, by an amount deemed by a Lender to be
material, then, within 30 days after demand by a Lender, the Borrower agrees to
pay to such Lender such additional amount as will compensate such Lender for
such increased costs or reduced amounts, subject to Section 11.9 hereof. The
------------
affected Lender will as soon as practicable notify the Borrower of any event of
which it has knowledge, occurring after the date hereof, which will entitle such
Lender to compensation pursuant to this Section and will designate a different
LIBOR Lending Office or other lending office if such designation will avoid the
need for, or reduce the amount of, such compensation and will not, in the
reasonable judgment of the affected Lender made in good faith, be
disadvantageous to such Lender.
(b) A certificate of any Lender claiming compensation under this Section
and setting forth the additional amounts to be paid to it hereunder shall
certify that such amounts or costs were actually incurred by such Lender and
shall show in reasonable detail an accounting of the amount payable and the
calculations used to determine in good faith such amount and shall be conclusive
absent demonstrable error. In determining such amount, a Lender may use any
reasonable averaging and attribution methods. Nothing in this Section 9.3 shall
-----------
provide the Borrower or any Subsidiary of the Borrower the right to inspect the
records, files or books of any Lender. If a Lender demands compensation under
this Section, the Borrower may at any time, upon at least five Business Days'
prior notice to the Lender, after reimbursement to the Lender by the Borrower in
accordance with this Section of all costs incurred, prepay in full the then
outstanding LIBOR Advances of the Lender, together with accrued interest thereon
to the date of prepayment, along with any reimbursement required under Section
-------
2.9 hereof. Concurrently with prepaying such LIBOR Advances, the Borrower may,
- ---
without any requirement to satisfy the conditions precedent set forth in Section
-------
3.1, 3.2 or 3.3, borrow a Base Rate Advance from the Lender, and the Lender
- --- --- ---
shall make such Base Rate Advance, in an amount such that the outstanding
principal amount of the Advances owing to such Lender shall equal the
outstanding principal amount of the Advances owing immediately prior to such
prepayment.
Section 9.4 Effect On Base Rate Advances. If notice has been given
----------------------------
pursuant to Section 9.1, 9.2 or 9.3 hereof suspending the obligation of a Lender
----------- --- ---
to make LIBOR Advances, or requiring LIBOR Advances of a Lender to be repaid or
prepaid, then, unless and until the Lender notifies the Borrower that the
circumstances giving rise to such repayment no longer apply, all Advances which
would otherwise be made by such Lender as LIBOR Advances shall be made instead
as Base Rate Advances.
Section 9.5 Capital Adequacy. If (a) the introduction of or any change in
----------------
or in the interpretation of any law, rule or regulation after the Agreement Date
or (b) compliance by a Lender with any Law or any guideline or request from any
central bank or other governmental authority (whether or not having the force of
law) adopted or promulgated after the Agreement Date (including any
implementation of the Basle Accord or similar guideline or requirement adopted,
promulgated or becoming effective after the Agreement Date) affects
84
<PAGE>
or would affect the amount of capital required or expected to be maintained by a
Lender or any corporation controlling such Lender, and such Lender determines
that the amount of such capital is increased by or based upon the existence of
such Lender's commitment or Advances hereunder and other commitments or advances
of such Lender of this type, then, within 10 days after demand by such Lender,
subject to Section 11.9, the Borrower shall immediately pay to such Lender, from
------------
time to time as specified by such Lender, additional amounts sufficient to
compensate such Lender with respect to such circumstances, to the extent that
such Lender reasonably determines in good faith such increase in capital to be
allocable to the existence of such Lender's Commitments hereunder. A
certificate as to any additional amounts payable to any Lender under this
Section 9.5 submitted to the Borrower by such Lender shall certify that such
- -----------
amounts were actually incurred by such Lender or corporation controlling such
Lender and shall show in reasonable detail an accounting of the amount payable
and the calculations used to determine in good faith such amount and shall be
conclusive absent demonstrable error. In determining such amount, such Lender
or a corporation controlling such Lender may use any reasonable averaging and
attribution methods. Notwithstanding the foregoing, nothing in this Section 9.5
-----------
shall provide the Borrower or any Subsidiary of the Borrower the right to
inspect the records, files or books of any Lender or any corporation controlling
such Lender.
Section 9.6 Replacement Lender. If the Borrower becomes obligated to pay
------------------
additional amounts to any Lender described in Section 9.2, 9.3 or 9.5, the
----------- --- ---
Borrower may designate a financial institution reasonably acceptable to the
Administrative Agent to replace such Lender by purchasing for cash and receiving
an assignment of such Lender's pro rata share of such Lender's Commitment and
the Rights of such Lender under the Loan Documents without recourse to or
warranty by, or expense to, such Lender, for a purchase price equal to the
outstanding amounts owing to such Lender (including such additional amounts
owing to such Lender pursuant to Section 9.3 or 9.5). Upon execution of an
----------- ---
Assignment Agreement, such other financial institution shall be deemed to be a
"Lender" for all purposes of this Agreement as set forth in Section 11.6 hereof.
------------
ARTICLE 10
Agreement Among Lenders
-----------------------
Section 10.1 Agreement Among Lenders. The Lenders agree among themselves
-----------------------
that:
(a) Administrative Agent. Each Lender hereby appoints the Administrative
--------------------
Agent as its nominee in its name and on its behalf, to receive all documents and
items to be furnished hereunder; to act as nominee for and on behalf of all
Lenders under the Loan Documents; to, except as otherwise expressly set forth
herein, take such action as may be requested by the Determining Lenders,
provided that, (i) unless and until the Administrative Agent shall have received
such requests, the Administrative Agent may take such administrative action, or
refrain from taking such administrative action, as it may deem
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advisable and in the best interests of the Lenders, and (ii) the Administrative
Agent shall not be required to take any action that exposes the Administrative
Agent to personal liability or that is contrary to any Loan Document or
Applicable Law; to arrange the means whereby the proceeds of the Advances of the
Lenders are to be made available to the Borrower; to distribute promptly to each
Lender information, requests and documents received from the Borrower, and each
payment (in like funds received) with respect to any of such Lender's Advances,
or the ratable amount of fees or other amounts; and to deliver to the Borrower
requests, demands, approvals and consents received from the Lenders.
Administrative Agent agrees to promptly distribute to each Lender, at such
Lender's address set forth below information, requests, documents and payments
received from the Borrower. The Administrative Agent shall have no trustee or
other fiduciary relationship in respect of any Lender by reason of this
Agreement or any other Loan Document. The Administrative Agent shall have no
duties or responsibilities except those expressly set forth in this Agreement.
The duties of the Administrative Agent are mechanical and administrative in
nature.
(b) Replacement of Administrative Agent. Should the Administrative Agent
-----------------------------------
or any successor Administrative Agent ever cease to be a Lender hereunder, or
should the Administrative Agent or any successor Administrative Agent ever
resign as Administrative Agent, or should the Administrative Agent or any
successor Administrative Agent ever be removed with cause or without cause by
the action of all Lenders (other than the Administrative Agent), then the Lender
appointed by the other Lenders (with the consent of the Borrower, which consent
shall not be unreasonably withheld) shall forthwith become the Administrative
Agent, and the Borrower and the Lenders shall execute such documents as any
Lender may reasonably request to reflect such change at no cost to the Borrower.
If the Administrative Agent also then serves in the capacity of the Swing Line
Bank or the Issuing Bank, such resignation or removal shall constitute
resignation or removal of the Swing Line Bank and the Issuing Bank and the
successor Administrative Agent shall serve in the capacity of the Swing Line
Bank and the Issuing Bank. Any resignation or removal of the Administrative
Agent or any successor Administrative Agent shall become effective upon the
appointment by the Lenders of a successor Administrative Agent; provided,
however, if no successor Administrative Agent shall have been so appointed and
shall have accepted such appointment within 30 days after the retiring
Administrative Agent's giving of notice of resignation or the Lenders' removal
of the retiring Administrative Agent, then the retiring Administrative Agent
may, on behalf of the Lenders, appoint a successor Administrative Agent, which
shall be a commercial bank organized under the Laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $500,000,000. Upon the acceptance of any appointment as the
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations under
the Loan Documents, provided that if the retiring or removed Administrative
Agent is unable to appoint a successor Administrative Agent, the Administrative
Agent shall, after the expiration of a 60 day period from the date of notice, be
relieved of all obligations as Administrative Agent hereunder. Notwithstanding
any
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Administrative Agent's resignation or removal hereunder, the provisions of this
Article shall continue to inure to its benefit as to any actions taken or
omitted to be taken by it while it was the Administrative Agent under this
Agreement.
(c) Expenses. Each Lender shall pay its pro rata share, based on its Total
--------
Specified Percentage, of any reasonable expenses paid by the Administrative
Agent directly and solely in connection with any of the Loan Documents if
Administrative Agent does not receive reimbursement therefor from other sources
within 60 days after the date incurred. Any amount so paid by the Lenders to
the Administrative Agent shall be returned by the Administrative Agent pro rata
to each paying Lender to the extent later paid by the Borrower or any other
Person on the Borrower's behalf to the Administrative Agent.
(d) Delegation of Duties. The Administrative Agent may execute any of its
--------------------
duties hereunder by or through officers, directors, employees, attorneys or
agents, and shall be entitled to (and shall be protected in relying upon) advice
of counsel concerning all matters pertaining to its duties hereunder.
(e) Reliance by Administrative Agent. The Administrative Agent and its
--------------------------------
officers, directors, employees, attorneys and agents shall be entitled to rely
and shall be fully protected in relying on any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telex or teletype
message, statement, order, or other document or conversation reasonably believed
by it or them in good faith to be genuine and correct and to have been signed or
made by the proper Person and, with respect to legal matters, upon opinions of
counsel selected by the Administrative Agent. The Administrative Agent may, in
its reasonable judgment, deem and treat the payee of any Note as the owner
thereof for all purposes hereof.
(f) Limitation of Administrative Agent's Liability. Neither the
----------------------------------------------
Administrative Agent nor any of its officers, directors, employees, attorneys or
agents shall be liable for any action taken or omitted to be taken by it or them
hereunder in good faith and believed by it or them to be within the discretion
or power conferred to it or them by the Loan Documents or be responsible for the
consequences of any error of judgment, except for its or their own gross
negligence or wilful misconduct. Except as aforesaid, the Administrative Agent
shall be under no duty to enforce any rights with respect to any of the
Advances, or any security therefor. The Administrative Agent shall not be
compelled to do any act hereunder or to take any action towards the execution or
enforcement of the powers hereby created or to prosecute or defend any suit in
respect hereof, unless indemnified to its reasonable satisfaction against loss,
cost, liability and expense. The Administrative Agent shall not be responsible
in any manner to any Lender for the effectiveness, enforceability, genuineness,
validity or due execution of any of the Loan Documents, or for any
representation, warranty, document, certificate, report or statement made herein
or furnished in connection with any Loan Documents, or be under any obligation
to any Lender to ascertain or to inquire as to the performance or observation of
any of the terms, covenants or conditions of any Loan Documents on the part of
the Borrower. TO THE EXTENT NOT REIMBURSED BY THE BORROWER, EACH LENDER HEREBY
SEVERALLY INDEMNIFIES AND HOLDS
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HARMLESS THE ADMINISTRATIVE AGENT, PRO RATA ACCORDING TO ITS TOTAL SPECIFIED
PERCENTAGE, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, REASONABLE EXPENSES AND/OR
DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, ASSERTED
AGAINST, OR INCURRED BY THE ADMINISTRATIVE AGENT (IN SUCH CAPACITY) IN ANY WAY
WITH RESPECT TO ANY LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED BY THE
ADMINISTRATIVE AGENT UNDER THE LOAN DOCUMENTS (INCLUDING ANY NEGLIGENT ACTION OF
THE ADMINISTRATIVE AGENT), EXCEPT TO THE EXTENT THE SAME ARE FINALLY DETERMINED
BY A COURT OF COMPETENT JURISDICTION TO RESULT FROM GROSS NEGLIGENCE OR WILFUL
MISCONDUCT BY THE ADMINISTRATIVE AGENT. THE INDEMNITY PROVIDED IN THIS SECTION
-------
10.1(f) SHALL SURVIVE TERMINATION OF THIS AGREEMENT.
- -------
(g) Liability Among Lenders. No Lender shall incur any liability (other
-----------------------
than the sharing of expenses and other matters specifically set forth herein and
in the other Loan Documents) to any other Lender, except for acts or omissions
in bad faith.
(h) Rights as Lender. With respect to its commitment hereunder, the
----------------
Advances made by it and the Notes issued to it, the Administrative Agent shall
have the same rights as a Lender and may exercise the same as though it were not
the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity. The Administrative Agent or any Lender may accept deposits from, act
as trustee under indentures of, and generally engage in any kind of business
with, the Borrower and any of its Affiliates, and any Person who may do business
with or own securities of the Borrower or any of its Affiliates, all as if the
Administrative Agent were not the Administrative Agent hereunder and without any
duty to account therefor to the Lenders.
Section 10.2 Lender Credit Decision. Each Lender acknowledges that it
----------------------
has, independently and without reliance upon the Administrative Agent or any
other Lender and based upon the financial statements referred to in Sections
--------
4.1(j), 6.1, and 6.2 hereof, and such other documents and information as it has
- ------ --- ---
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Agent or any other Lender and based
upon 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. Each Lender also acknowledges that
its decision to fund the initial Advances shall constitute evidence to the
Administrative Agent that such Lender has deemed all of the conditions set forth
in Section 3.1 to have been satisfied.
Section 10.3 Benefits of Article. None of the provisions of this Article
-------------------
shall inure to the benefit of any Person other than Lenders and, with respect to
Section 10.1(b), the Borrower; consequently, no such other Person shall be
- ---------------
entitled to rely upon, or to raise as a
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<PAGE>
defense, in any manner whatsoever, the failure of the Administrative Agent or
any Lender to comply with such provisions.
ARTICLE 11
Miscellaneous
-------------
Section 11.1 Notices.
-------
(a) All notices and other communications under this Agreement shall be in
writing (except in those cases where giving notice by telephone is expressly
permitted) and shall be deemed to have been given on the date personally
delivered or sent by telecopy (answerback received), or three days after deposit
in the mail, designated as certified mail, return receipt requested, postage-
prepaid, or one day after being entrusted to a reputable commercial overnight
delivery service, addressed to the party to which such notice is directed at its
address determined as provided in this Section. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(i) If to the Borrower, at:
4209 Barnett
Arlington, Texas 76017
Attention: Chief Executive Officer
Telephone: (817) 467-5116
Telecopier: (817) 472-9810
with a copy to:
Westar Capital L.L.C.
949 South Coast Drive, Suite 65
Costa Mesa, California 92626
Attention: Steve Sebastian
Telephone: (714) 481-5161
Telecopier: (714) 481-5166
(ii) If to the Administrative Agent, at:
NationsBank of Texas, N.A.
901 Main Street, 13th Floor
Dallas, Texas 75202-3714
Attn: Marie T. Lancaster
Telephone: (214) 508-2158
Telecopier: (214) 508-2515
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<PAGE>
(iii) If to a Lender, at its address shown below its name on the
signature pages hereof, or if applicable, set forth in its
Assignment Agreement.
(b) Any party hereto may change the address to which notices shall be
directed by giving 10 days' written notice of such change to the other parties.
Section 11.2 Expenses. The Borrower shall promptly pay:
--------
(a) all reasonable out-of-pocket expenses of the Administrative Agent in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents, the transactions contemplated hereunder
and thereunder, and the making of Advances hereunder, including without
limitation the reasonable fees and disbursements of Special Counsel;
(b) all reasonable out-of-pocket expenses, including reasonable attorneys'
fees, of the Administrative Agent in connection with the transactions
contemplated in this Agreement and the other Loan Documents and the preparation,
negotiation, execution and delivery of any waiver, amendment or consent by the
Administrative Agent relating to this Agreement or the other Loan Documents; and
(c) all reasonable out-of-pocket costs, expenses and attorneys' fees of the
Administrative Agent and each Lender incurred for enforcement, collection,
restructuring, refinancing and "work-out", or otherwise incurred in obtaining
performance under the Loan Documents, which in each case shall include without
limitation reasonable fees and expenses of consultants, counsel for the
Administrative Agent and any Lender.
Section 11.3 Waivers. The rights and remedies of the Lenders under this
-------
Agreement and the other Loan Documents shall be cumulative and not exclusive of
any rights or remedies which they would otherwise have. No failure or delay by
the Administrative Agent or any Lender in exercising any right shall operate as
a waiver of such right. The Lenders expressly reserve the right to require
strict compliance with the terms of this Agreement in connection with any
funding of a request for an Advance. In the event that any Lender decides to
fund an Advance at a time when the Borrower is not in strict compliance with the
terms of this Agreement, such decision by such Lender shall not be deemed to
constitute an undertaking by the Lender to fund any further requests for
Advances or preclude the Lenders from exercising any rights available under the
Loan Documents or at law or equity. Any waiver or indulgence granted by the
Lenders shall not constitute a modification of this Agreement, except to the
extent expressly provided in such waiver or indulgence, or constitute a course
of dealing by the Lenders at variance with the terms of the Agreement such as to
require further notice by the Lenders of the Lenders' intent to require strict
adherence to the terms of the Agreement in the future. Any such actions shall
not in any way affect the ability of the Administrative Agent or the Lenders, in
their discretion, to exercise any rights available to them under this Agreement
or under any other agreement, whether or not the Administrative Agent or any of
the Lenders are a party thereto, relating to the Borrower.
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<PAGE>
Section 11.4 Calculation by the Lenders Conclusive and Binding. Any
-------------------------------------------------
mathematical calculation required or expressly permitted to be made by the
Administrative Agent or any Lender under this Agreement shall be controlling,
absent demonstrable error.
Section 11.5 Set-Off. In addition to any rights now or hereafter granted
-------
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence and during the continuation of an Event of Default, each Lender and
any subsequent holder of any Note, and any assignee of any Note is hereby
authorized by the Borrower at any time or from time to time, without notice to
the Borrower or any other Person, any such notice being hereby expressly waived,
to set-off, appropriate and apply any deposits (general or special (except trust
and escrow accounts), time or demand, including without limitation Indebtedness
evidenced by certificates of deposit, in each case whether matured or unmatured)
and any other Indebtedness at any time held or owing by such Lender or holder to
or for the credit or the account of the Borrower, against and on account of the
Obligations and other liabilities of the Borrower to such Lender or holder,
irrespective of whether or not (a) the Lender or holder shall have made any
demand hereunder, or (b) the Lender or holder shall have declared the principal
of and interest on the Advances and other amounts due hereunder to be due and
payable as permitted by Section 8.2. Any sums obtained by any Lender or by any
-----------
assignee or subsequent holder of any Note shall be subject to pro rata treatment
of all Obligations and other liabilities hereunder in accordance with each
Lender's Total Specified Percentage.
Section 11.6 Assignment.
----------
(a) The Borrower may not assign or transfer any of its rights or
obligations hereunder or under the other Loan Documents without the prior
written consent of the Lenders.
(b) No Lender shall be entitled to assign or grant a participation in its
interest in this Agreement, its Notes or its Advances, except as hereinafter set
forth.
(c) Each Lender may sell participations to one or more banks or other
entities (the "Participants") in or to all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of the Advances or Reimbursement Obligations owing to it and the Note or
Notes held by it) (the "Participations"); provided, however, that (i) such
-------- -------
Lender's obligations under this Agreement (including, without limitation, its
Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Lender shall remain the holder of any such Note
for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement, (v) no Participant under any such Participation shall have any right
to approve any amendment or waiver of any provision of any Loan Document, or any
consent to any departure by the Borrower therefrom, except to the extent that
such amendment, waiver or consent would (A) reduce or postpone any date fixed
for payment of
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principal of, or interest on, the Notes or any fees or other amounts payable
hereunder (excluding any mandatory prepayment pursuant to Section 2.5(c), (d),
-------------- ---
(e) or (f) hereof), (B) increase the commitment of any Participant or (C)
- --- ---
release any Collateral or security for the Obligations, except pursuant to the
Loan Documents, in each case to the extent subject to such Participation, and
(vi) no Participation shall be in an amount of Commitments less than $2,000,000.
Notwithstanding the foregoing, the Borrower agrees that Participants shall be
entitled to the benefits of Article 9 hereof as though they were Lenders and the
---------
Lenders may, subject to Section 11.14 hereof, provide copies of all financial
-------------
information received from the Borrower to such Participants.
(d) Each Lender may assign to one or more Eligible Assignees its rights and
obligations under this Agreement and the other Loan Documents; provided,
--------
however, that (i) each such assignment shall be subject to the prior written
- -------
consent of the Administrative Agent and Borrower, which consents shall not be
unreasonably withheld (provided, however, notwithstanding anything herein to the
-------- -------
contrary, no consent of the Borrower is required for any assignment during any
time that an Event of Default has occurred and is continuing), (ii) no such
assignment shall be in an amount of Commitments less than $5,000,000, unless the
Commitments of a Lender are less than $5,000,000, in which case such assignment
may be in the aggregate amount of such Lender's Commitments, (iii) the
applicable Lender, Administrative Agent and Eligible Assignee shall execute and
deliver to the Administrative Agent an Assignment and Acceptance Agreement (an
"Assignment Agreement") in substantially the form of Exhibit F hereto, together
---------
with the Notes subject to such assignment and (iv) the Eligible Assignee
executing the Assignment, shall deliver to the Administrative Agent a processing
fee of $3,500. Upon such execution, delivery and acceptance from and after the
effective date specified in each Assignment, which effective date shall be at
least three Business Days after the execution thereof, (A) the Eligible Assignee
thereunder shall be party hereto and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment, have the rights
and obligations of a Lender hereunder and (B) the applicable Lender shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment, relinquish such rights and be released from such
obligations under this Agreement.
(e) Notwithstanding anything in clause (d) above to the contrary, (i) any
Lender may assign and pledge all or any portion of its Advances and Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A of F.R.S.
Board and any Operating Circular issued by such Federal Reserve Bank and (ii)
any Lender that is a fund may at any time assign or pledge all or any portion of
its rights under this Agreement to secure such Lender's indebtedness; provided,
however, that no such assignment under this clause (e) shall release the
assignor Lender from its obligations hereunder.
(f) Upon its receipt of an Assignment Agreement executed by a Lender and an
Eligible Assignee, and any Note or Notes subject to such assignment, the
Borrower shall, subject to the Borrower's rights under Section 11.6(d), within
---------------
five Business Days after its receipt of such Assignment Agreement execute and
deliver to the Administrative Agent in exchange for the surrendered Notes new
Notes to the order of such Eligible Assignee in an
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amount equal to the portion of the Advances and Commitments assigned to it
pursuant to such Assignment Agreement and new Notes to the order of the assignor
Lender in an amount equal to the portion of the Advances and Commitments
retained by it hereunder. Such new Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Notes, shall
be dated the effective date of such Assignment Agreement and shall otherwise be
in substantially the form of Exhibit A, B or C hereto, as applicable.
--------- - -
(g) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 11.6, disclose to
------------
the Eligible Assignee or Participant or proposed Eligible Assignee or
participant, any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower, provided such Person agrees in writing to
handle such information in accordance with the standards set forth in Section
-------
11.14 hereof.
- -----
(h) Except as specifically set forth in this Section 11.6, nothing in this
------------
Agreement or any other Loan Documents, expressed or implied, is intended to or
shall confer on any Person other than the respective parties hereto and thereto
and their successors and assignees permitted hereunder and thereunder any
benefit or any legal or equitable right, remedy or other claim under this
Agreement or any other Loan Documents.
(i) Notwithstanding anything in this Section 11.6 to the contrary, no
------------
Eligible Assignee or Participant (nor the assigning or participating Lender)
shall be entitled to receive (whether individually or collectively) any greater
payment under Section 2.14 or Section 9.3 or Section 9.5 than such assigning or
------------ ----------- -----------
participating Lender would have been entitled to receive with respect to the
interest assigned or participated to such Eligible Assignee or Participant.
Section 11.7 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
Section 11.8 Severability. Any provision of this Agreement or any other
------------
Loan Document which is for any reason prohibited or found or held invalid or
unenforceable by any court or governmental agency shall be ineffective to the
extent of such prohibition or invalidity or unenforceability without
invalidating the remaining provisions hereof or thereof in such jurisdiction or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 11.9 Interest and Charges. It is not the intention of any parties
--------------------
to this Agreement to make an agreement in violation of the laws of any
applicable jurisdiction relating to usury. Regardless of any provision in any
Loan Documents, no Lender shall ever be entitled to receive, collect or apply,
as interest on the Obligations, any amount in excess of the Highest Lawful
Amount. If any Lender or participant ever receives, collects or applies, as
interest, any such excess, such amount which would be excessive interest shall
be deemed a partial repayment of principal and treated hereunder as such; and if
principal is
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paid in full, any remaining excess shall be paid to the Borrower. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Highest Lawful Rate, the Borrower and the Lenders
shall, to the maximum extent permitted under Applicable Law, (a) characterize
any nonprincipal payment as an expense, fee or premium rather than as interest,
(b) exclude voluntary prepayments and the effect thereof, and (c) amortize,
prorate, allocate and spread in equal parts, the total amount of interest
throughout the entire contemplated term of the Obligations so that the interest
rate is uniform throughout the entire term of the Obligations; provided,
however, that if the Obligations are paid and performed in full prior to the end
of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Highest Lawful Rate, the Lenders
shall refund to the Borrower the amount of such excess or credit the amount of
such excess against the total principal amount of the Obligations owing, and, in
such event, the Lenders shall not be subject to any penalties provided by any
laws for contracting for, charging or receiving interest in excess of the
Highest Lawful Rate. This Section shall control every other provision of all
agreements pertaining to the transactions contemplated by or contained in the
Loan Documents.
Section 11.10 Headings. Headings used in this Agreement are for
--------
convenience only and shall not be used in connection with the interpretation of
any provision hereof.
Section 11.11 Amendment and Waiver. The provisions of this Agreement may
--------------------
not be amended, modified or waived except by the written agreement of the
Borrower and the Determining Lenders; provided, however, that no such amendment,
modification or waiver shall be made (a) without the consent of all Lenders, if
it would (i) increase the Applicable Specified Percentage or commitment of any
Lender, or (ii) extend or postpone the date of maturity of, extend the due date
for any payment of principal or interest on, reduce the amount of any
installment of principal or interest on, or reduce the rate of interest on, any
Advance, the Reimbursement Obligations or other amount owing under any Loan
Documents to which such Lender is entitled (excluding any mandatory prepayment
pursuant to Section 2.5(c), (d), (e) or (f) hereof), or (iii) release any
-------------- --- --- ---
guaranty of the Obligations or all or substantially all of the Collateral
(except, in any case, pursuant to this Agreement or the other Loan Documents),
or (iv) reduce the fees payable hereunder to which such Lender is entitled, or
(v) revise this Section 11.11, or (vi) waive the date for payment of any
-------------
principal, interest or fees hereunder or (vii) amend the definition of
"Determining Lenders", "Total Specified Percentage", "Revolving Credit Specified
Percentage", "Facility A Term Loan Specified Percentage" or "Facility B Term
Loan Specified Percentage"; (b) without the consent of the Administrative Agent,
if it, would alter the rights, duties or obligations of the Administrative
Agent; (c) without the consent of the Issuing Bank, if it would alter the
rights, duties or obligations of the Issuing Bank; or (d) without the consent of
the Swing Line Bank, if it would alter the rights, duties or obligations of the
Swing Line Bank. Notwithstanding anything in this Agreement to the contrary, no
amendment, waiver or consent that changes the allocations of payments between
the Facility A Term Loan Advances and the Facility B Term Loan Advances may be
without the express written consent of the following: Lenders holding more than
50% of all outstanding Facility A Term Loan Advances and the Lenders holding at
least 50% of all outstanding Facility B Term
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Loan Advances. Neither this Agreement nor any term hereof may be amended
orally, nor may any provision hereof be waived orally but only by an instrument
in writing signed by the Administrative Agent and, in the case of an amendment,
by the Borrower.
Section 11.12 Exception to Covenants. Neither the Borrower nor any
----------------------
Subsidiary of the Borrower shall be deemed to be permitted to take any action or
fail to take any action which is permitted as an exception to any of the
covenants contained herein or which is within the permissible limits of any of
the covenants contained herein if such action or omission would result in the
breach of any other covenant contained herein.
Section 11.13 No Liability of Issuing Bank. The Borrower assumes all
----------------------------
risks of the acts or omissions of any beneficiary or transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the Issuing
Bank nor any Lender nor any of their respective officers or directors shall be
liable or responsible for: (a) the use that may be made of any Letter of Credit
or any acts or omissions of any beneficiary or transferee in connection
therewith; (b) the validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing
Bank against presentation of documents that do not comply with the terms of a
Letter of Credit, including failure of any documents to bear any reference or
adequate reference to the Letter of Credit; or (d) any other circumstances
whatsoever in making or failing to make payment under any Letter of Credit,
except that the Borrower shall have a claim against the Issuing Bank, and the
- ------
Issuing Bank shall be liable to the Borrower, to the extent of any direct, but
not consequential, damages suffered by the Borrower that a court of competent
jurisdiction finally judicially determines were caused by (i) the Issuing Bank's
wilful misconduct or gross negligence or (ii) the Issuing Bank's wilful failure
to make lawful payment under a Letter of Credit after the presentation to it of
a draft and certificates strictly complying with the terms and conditions of the
Letter of Credit. In furtherance and not in limitation of the foregoing, the
Issuing Bank may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice or
information to the contrary.
Section 11.14 Confidentiality. Each Lender and the Administrative Agent
---------------
agrees (on behalf of itself and each of its Affiliates, directors, officers,
employees and representatives) to use reasonable efforts to keep confidential,
in accordance with customary procedures for handling confidential information of
this nature and in accordance with safe and sound banking practices, any non-
public information supplied to it by the Borrower or any of its Affiliates
pursuant to this Agreement, provided that nothing herein shall limit the
disclosure of any such information (a) to the extent required by statute, rule,
regulation or judicial process, (b) to counsel for any Lender or the
Administrative Agent, (c) to bank examiners, auditors or accountants of any
Lender, (d) to the Administrative Agent or any other Lender or any Affiliate
thereof, (e) in connection with any Litigation to which any one or more of
Lenders is a party, (f) to the extent necessary in connection with the exercise
of any remedy under this Agreement or any other Loan Document, or (g) to any
Eligible Assignee or Participant (or prospective Eligible Assignee or
Participant) or to any direct or indirect
95
<PAGE>
contractual counterparties in swap agreements or to the professional advisors of
such swap counterparties so long as such Eligible Assignee or Participant (or
prospective Eligible Assignee or Participant) or direct or indirect contractual
counterparties in swap agreements or such swap counterparties' professional
advisors agrees to handle such information in accordance with the provisions of
this Section 11.14.
-------------
Section 11.15 No Novation. This Agreement is a refinancing of the
-----------
Existing Credit Agreement, and not a novation of the "Obligations" (as defined
in the Existing Credit Agreement). All terms and provisions of this Agreement
supersede in their entirety the Existing Credit Agreement. All Liens covering
the Collateral, or any part thereof, under the collateral documents executed in
connection with the Existing Credit Agreement shall remain valid, binding and
enforceable Liens against the Persons which granted such Liens.
SECTION 11.16 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
-------------
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
TEXAS (WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS) AND THE UNITED
STATES OF AMERICA. THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS COUNTY, TEXAS,
AND THE BORROWER AND EACH SURETY, GUARANTOR, ENDORSER AND ANY OTHER PARTY EVER
LIABLE FOR PAYMENT OF ANY MONEY PAYABLE WITH RESPECT TO THE LOAN DOCUMENTS,
JOINTLY AND SEVERALLY WAIVE THE RIGHT TO BE SUED ELSEWHERE. WITHOUT EXCLUDING
ANY OTHER JURISDICTION, THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER
EACH AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS,
SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS AND HEREBY SUBMITS WITH RESPECT TO ITSELF AND ITS
PROPERTY TO THE JURISDICTION OF ANY SUCH COURT FOR THE PURPOSE OF ANY SUIT,
ACTION, PROCEEDING OR JUDGMENT RELATING TO OR ARISING OUT OF THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT.
SECTION 11.17 WAIVER OF JURY TRIAL. EACH OF THE PARENT, THE BORROWER, THE
--------------------
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY
AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS
PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS AGREEMENT
AND MAKING ANY ADVANCES HEREUNDER.
SECTION 11.18 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
----------------
OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
REGARDING THE SUBJECT MATTER
96
<PAGE>
HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
==========================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
==========================================
97
<PAGE>
IN WITNESS WHEREOF, this Credit Agreement is executed as of the date first
set forth above.
BORROWER: DOSKOCIL MANUFACTURING
COMPANY, INC.
By: /s/ DONALD J. FRITSCHEN
----------------------------------
Donald J. Fritschen
Vice President and Chief Financial
Officer
98
<PAGE>
ADMINISTRATIVE AGENT: NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent
By: /s/ HAROLD R. BEATTIE, JR.
------------------------------
Harold R. Beattie, Jr.
Attorney-In-Fact
LENDERS: NATIONSBANK OF TEXAS, N.A., as a Lender,
Swing Line Bank and Issuing Bank
Revolving Credit Specified
Percentage: 17.931034473%
Facility A Term Loan Specified By: /s/ HAROLD R. BEATTIE, JR.
Percentage: 17.931034489% ------------------------------
Harold R. Beattie, Jr.
Facility B Term Loan Specified Attorney-In-Fact
Percentage: 46.000000000%
901 Main Street, 66th Floor
Dallas, Texas 75202
Attn: Harold R. Beattie, Jr.
Total Specified Percentage:
30.909090909%
99
<PAGE>
DLJ CAPITAL FUNDING, INC.
Revolving Credit Specified
Percentage: 16.551724145%
Facility A Term Loan Specified By: _______________________________
Percentage: 16.551724133% Name:__________________________
Title:_________________________
Facility B Term Loan Specified
Percentage: 0.0000000000%
277 Park Avenue
New York, New York 10172
Total Specified Percentage:
10.909090909%
100
<PAGE>
COMERICA BANK-TEXAS
Revolving Credit Specified
Percentage: 13.793103455%
Facility A Term Loan Specified By: _______________________________
Percentage: 13.793103444% Name:__________________________
Title:_________________________
Facility B Term Loan Specified
Percentage: 0.000000000%
8828 Stemmons, Suite 441
Dallas, Texas 75247
Total Specified Percentage:
9.090909091%
101
<PAGE>
MARINE MIDLAND BANK
Revolving Credit Specified
Percentage: 13.793103455%
Facility A Term Loan Specified By: _______________________________
Percentage: 13.793103444% Name:__________________________
Title:_________________________
Facility B Term Loan Specified
Percentage: 0.000000000%
140 Broadway, 5th Floor
New York, New York 10005-1185
Total Specified Percentage:
9.090909091%
102
<PAGE>
IMPERIAL BANK, A CALIFORNIA BANKING
CORPORATION
Revolving Credit Specified
Percentage: 13.793103455%
Facility A Term Loan Specified By: _______________________________
Percentage: 13.793103444% Name:__________________________
Title:_________________________
Facility B Term Loan Specified
Percentage: 0.000000000%
9920 South LaCienega Boulevard, 14th Floor
Inglewood, California 90301
Total Specified Percentage:
9.090909091%
103
<PAGE>
CREDITANSTALT
Revolving Credit Specified
Percentage: 10.344827600%
Facility A Term Loan Specified By: _______________________________
Percentage: 10.344827578% Name:__________________________
Title:_________________________
Facility B Term Loan Specified
Percentage: 6.666666667%
Total Specified Percentage: By: _______________________________
9.090909091% Name:__________________________
Title:_________________________
Two Ravinia Drive, Suite 1680
Atlanta, Georgia 30346
104
<PAGE>
FLEET CAPITAL CORPORATION
Revolving Credit Specified
Percentage: 13.793103455%
Facility A Term Loan Specified By: _______________________________
Percentage: 13.793103444% Name:__________________________
Title:_________________________
Facility B Term Loan Specified
Percentage: 0.000000000%
15260 Ventura Boulevard, Suite 400
Sherman Oaks, California 91403
Total Specified Percentage:
9.090909091%
105
<PAGE>
PRIME INCOME TRUST
Revolving Credit Specified
Percentage: 0.000000000%
Facility A Term Loan Specified By: _______________________________
Percentage: 0.000000000% Name:__________________________
Title:_________________________
Facility B Term Loan Specified
Percentage: 18.666666667%
c/o Dean Witter InterCapital, Inc.
Two World Trade Center, 72nd Floor
New York, New York 10048
Total Specified Percentage:
6.363636364%
106
<PAGE>
KZH-SOLEIL CORPORATION
Revolving Credit Specified
Percentage: 0.000000000%
Facility A Term Loan Specified By: _______________________________
Percentage: 0.000000000% Name:__________________________
Title:_________________________
Facility B Term Loan Specified
Percentage: 18.666666667%
c/o The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001
Total Specified Percentage:
6.363636364%
107
<PAGE>
SCHEDULE 1
----------
LIBOR LENDING OFFICES
NATIONSBANK OF TEXAS, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
DLJ CAPITAL FUNDING, INC.
277 Park Avenue
New York, New York 10172
COMERICA BANK-TEXAS
8828 Stemmons, Suite 441
Dallas, Texas 75247
MARINE MIDLAND BANK
140 Broadway
New York, New York 10005-1185
IMPERIAL BANK, A CALIFORNIA BANKING CORPORATION
9920 South LaCienega Boulevard, 14th Floor
Inglewood, California 90301
CREDITANSTALT
Two Ravinia Drive, Suite 1680
Atlanta, Georgia 30346
FLEET CAPITAL CORPORATION
15260 Ventura Boulevard, Suite 400
Sherman Oaks, California 91403
108
<PAGE>
PRIME INCOME TRUST
c/o Dean Witter InterCapital, Inc.
Two World Trade Center
New York, New York 10048
KZH-SOLEIL CORPORATION
c/o The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001
109
<PAGE>
SCHEDULE 2
----------
EXISTING LIENS
PROPERTY SUBJECT AMOUNT OF
TO LIEN LIENHOLDER DEBT SECURED MATURITY DATE
------- ---------- ------------ -------------
110
<PAGE>
SCHEDULE 3
----------
EXISTING LITIGATION
111
<PAGE>
SCHEDULE 4
----------
SUBSIDIARIES
State of
Incorporation Percentage
Name or Organization of Ownership Owner
---- --------------- ------------ -----
112
<PAGE>
SCHEDULE 5
----------
EXISTING INVESTMENTS
113
<PAGE>
SCHEDULE 6
----------
EXISTING INDEBTEDNESS
114
<PAGE>
SCHEDULE 7
----------
AUTHORIZATION, QUALIFICATION AND GOOD STANDING
115
<PAGE>
SCHEDULE 8
----------
LABOR RELATIONS
116
<PAGE>
SCHEDULE 9
----------
EBIT SPECIAL ADJUSTMENTS
The following One Time Transaction Items that were also included under
"Consolidation Savings and One-Time Costs" on page 12 of the financial model
included in the Bank Information Memorandum.
<TABLE>
<CAPTION>
One-Time Transactions
---------------------
<S> <C>
Sale of Ind facility
Carrying cost 660,000
Equipment moving & rigging 1,500,000
Carrying cost of Corona facility 510,000
Bonuses for achieving savings 3,488,000
Terminated employee incentive cost 2,514,000
Relocation costs 825,000
MIS implementation 2,000,000
Outfitting new building at Doskocil 4,000,000
Racking DMC Warehouse 960,000
</TABLE>
117
<PAGE>
SCHEDULE 2
----------
Existing Liens
--------------
<TABLE>
<CAPTION>
===============================================================================
FINANCING STATEMENT
NO. (JURISDICTION)
AND FILING DATE DEBTOR SECURED PARTY
- -------------------------------------------------------------------------------
<S> <C> <C>
95-00113323 Doskocil Manufacturing Shoppa's Material
(Texas) Company, Inc. Handling, Inc.
June 8, 1995 3900 Barnette St. 525 Great Southwest
Arlington, TX 76017 Parkway
Arlington, TX 76011
Assignee: Toyota
Motor Credit Corporation
P.O. Box 3457
Torrance, CA 90510
- -------------------------------------------------------------------------------
95-00125972 Doskocil Manufacturing Shoppa's Material
(Texas) Company, Inc. Handling, Inc.
June 26, 3900 Barnette St. 525 Great Southwest
1995 Arlington, TX 76017 Parkway
Arlington, TX 76011
Assignee: Toyota
Motor Credit Corporation
P.O. Box 3457
Torrance, CA 90510
- -------------------------------------------------------------------------------
95-00217985 Doskocil Manufacturing Shoppa's Material
(Texas) Company, Inc. Handling, Inc.
November 9, 3900 Barnette St. 525 Great Southwest
1995 Arlington, TX 76017 Parkway
Arlington, TX 76011
Assignee: Toyota
Motor Credit Corporation
P.O. Box 3457
Torrance, CA 90510
- -------------------------------------------------------------------------------
95-00234882 Doskocil Manufacturing Shoppa's Material
(Texas) Company, Inc. Handling, Inc.
December 8, 3900 Barnette St. 525 Great Southwest
1995 Arlington, TX 76017 Parkway
Arlington, TX 76011
Assignee: Toyota
Motor Credit Corporation
P.O. Box 3457
Torrance, CA 90510
- -------------------------------------------------------------------------------
96-00005576 Doskocil Manufacturing Shoppa's Material
(Texas) Company, Inc. Handling, Inc.
January 1, 4209 Barnette St. 525 Great Southwest
1996 Arlington, TX 76017 Parkway
Arlington, TX 76011
Assignee: Toyota
Motor Credit Corporation
P.O. Box 3457
Torrance, CA 90510
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
FINANCING STATEMENT
NO. (JURISDICTION)
AND FILING DATE DEBTOR SECURED PARTY
- -------------------------------------------------------------------------------
<S> <C> <C>
96-00016193 Doskocil Manufacturing Shoppa's Material
(Texas) Company, Inc. Handling, Inc.
January 25, 1996 4209 Barnette St. 525 Great Southwest
Arlington, TX 76017 Parkway
Arlington, TX 76011
Assignee: Toyota
Motor Credit Corporation
P.O. Box 3457
Torrance, CA 90510
- -------------------------------------------------------------------------------
96-00038309 Doskocil Manufacturing Advanced Image Systems
(Texas) Company, Inc. 3000 Gateway Dr.
February 26, 1996 4209 Barnette St. Irving, TX 75603
Arlington, TX 76017
- -------------------------------------------------------------------------------
F194000132 (Tarrant Doskocil Manufacturing S I T Inc.
County, Texas) Company, Inc. 124 Water St.
December 12, 1994 4304 Larry Lane Quincy, MA 02169
Arlington, TX 76017
- -------------------------------------------------------------------------------
96-00013711 Doskocil Manufacturing S I T Inc.
(Texas) Company, Inc. 124 Water St.
January, 22, 1996 4209 Barnette St. Quincy, MA 02169
Arlington, TX 76017
- -------------------------------------------------------------------------------
97-00102377 Doskocil Manufacturing Sanwa Leasing
(Texas) Company, Inc. Corporation
May 16, 1997 4304 Larry Lane P.O. Box 7023
Arlington, TX 76017 Troy, MI 48007
- -------------------------------------------------------------------------------
93-00246955 Doskocil Manufacturing S I T Inc.
(Texas) Company, Inc. 124 Water St.
December 30, 1993 4209 Barnette St. Quincy, MA 02169
Arlington, TX 76017
- -------------------------------------------------------------------------------
94-037040 Doskocil Manufacturing Advanced Image Systems
(Texas) Company, Inc. 4333 Edgewood Road
February 28, 1994 4209 Barnette St. NE, Suite 400
Arlington, TX 76017 Cedar Rapids, IA 52411
- -------------------------------------------------------------------------------
97179119 Spectrum Polymers, Ltd. Toyota Motor Credit
(Texas) Corporation
August 27, 1997 P.O. Box 3457
Torrance, CA 90510
- -------------------------------------------------------------------------------
97-00014194 Doskocil Manufacturing Sanwa Leasing
(Texas) Company, Inc. Corporation
January 27, 1997 4304 Larry Lane P.O. Box 7023
Arlington, TX 76017 Troy, MI 48007
- -------------------------------------------------------------------------------
93110420 Dogloo, Inc. Crown Credit Company
(California) 1241 Old Temescal Road 40 South Washington
June 1, 1993 Corona, CA 91719 Street
New Bremen, OH 45869
- -------------------------------------------------------------------------------
93149046 Dogloo, Inc. Associates Leasing
(California) 1241 Old Temescal Road Inc.
July 22, 1993 Corona, CA 91719 P.O. Box 2340
Newport Beach, CA
92658
- -------------------------------------------------------------------------------
9431860209 Dogloo, Inc. Leverage Leasing
(California) 1241 Old Temescal Road Company
October 21, 1994 Corona, CA 91719 4125 S. 94th St.
Omaha, NE 68127
- -------------------------------------------------------------------------------
</TABLE>
Schedule 2-2
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
FINANCING STATEMENT
NO. (JURISDICTION)
AND FILING DATE DEBTOR SECURED PARTY
- -------------------------------------------------------------------------------
<S> <C> <C>
9435460186 Dogloo, Inc. Associates Commercial
(California) 1241 Old Temescal Road Corp.
December 2, 1994 Corona, CA 91719 P.O. Box 2340
Newport Beach, CA 92658
- -------------------------------------------------------------------------------
9508261146 Dogloo, Inc. Winthrop Resources
(California) 1241 Old Temescal Road Corporation
March 23, 1995 Corona, CA 91719 1015 Opus Center
9900 Bren Road East
Minnetonka, MN 55343
Assignee: Norwest
Equipment Finance,
Inc.
Investors Building,
Suite 300
733 Marquette Avenue
Minneapolis, MN 55479
- -----------------------------------------------------------------------------
9522860893 Dogloo, Inc. Winthrop Resources
(California) 1241 Old Temescal Road Corporation
August 14, 1995 Corona, CA 91719 1015 Opus Center
9900 Bren Road East
Minnetonka, MN 55343
Assignee: Norwest
Equipment Finance,
Inc.
Investors Building,
Suite 300
733 Marquette Avenue
Minneapolis, MN 55479
- -----------------------------------------------------------------------------
9629260790 Dogloo, Inc. AT&T Credit
(California) 1241 Old Temescal Road Corporation
October 18, 1996 Corona, CA 91719 2 Gatehall Drive
Parsippany, NJ 07054
- ------------------------------------------------------------------------------
009321 Dogloo, Inc. OKI Systems, Inc.
(Marion 1241 Old Temescal Road 4665 Interstate Dr.
County, IN) Corona, CA 91719 Cincinnati, OH 45246
November 7, 1996
- -----------------------------------------------------------------------------
002273 Dogloo, Inc. OKI Systems, Inc.
(Marion 1241 Old Temescal Road 4665 Interstate Dr.
County, IN) Corona, CA 91719 Cincinnati, OH 45246
March 20, 1996
- -----------------------------------------------------------------------------
2089773 Dogloo, Inc. OKI Systems, Inc.
(Indiana) 1241 Old Temescal Road 4665 Interstate Dr.
November 21, 1996 Corona, CA 91719 Cincinnati, OH 45246
- -----------------------------------------------------------------------------
2045311 Dogloo, Inc. OKI Systems, Inc.
(Indiana) 1241 Old Temescal Road 4665 Interstate Dr.
April 2, 1996 Corona, CA 91719 Cincinnati, OH 45246
- -----------------------------------------------------------------------------
201635 Dogloo, Inc. EMCO Enterprises
(Indiana) 1241 Old Temescal Road Des Moines, IA
July 27, 1995 Corona, CA 91719
- ------------------------------------------------------------------------------
2085342 Dogloo, Inc. AT&T Credit
(Indiana) 1241 Old Temescal Road Corporation
October 28, 1996 Corona, CA 91719 2 Gatehall Drive
Parsippany, NJ 07054
==============================================================================
</TABLE>
Schedule 2-3
<PAGE>
SCHEDULE 3
----------
Existing Litigation
-------------------
1. Doskocil Manufacturing Company, Inc. v. London Industries, Inc. (cause no.
141-660339-96) (No. 4: 96-CV-737-A) U.S. Dist. Ct. N.D. Texas, Ft. Worth
Division (Borrower is plaintiff):
This case was settled and $150,000 has been received by Borrower. A copy
of the signed settlement papers is being requested from Borrower's counsel
and will be forwarded to Administrative Agent as soon as available.
2. Current litigation by former Spectrum employee Robert Taylor:
Robert Taylor and Jacquelyn Taylor v. Doskocil Manufacturing Company, Inc.
and Spectrum Polymers, Ltd., pending in the 17th Judicial District Court of
Tarrant County, Texas, Cause No. 17-160896-95. Filed in September 1995.
Plaintiff Robert Taylor is claiming he injured his back while lifting heavy
equipment while at work at Spectrum. Attorneys for Borrower and Plaintiff
have exchanged written discovery, but no depositions have been taken.
Plaintiff is presently demanding the sum of $300,000 to settle the claim.
The claim was originally set for trial in March 1997, but has been
continued at Plaintiff's request. The case is still pending.
3. Pending litigation by Daniel Boatang (on-the-job injury):
Pending in County Court at Law No. 2 in Tarrant County, Texas, cause no.
95-65494-2. Plaintiff Boatang claims that he was injured in a fight with
another person (Eric Smith) at the plant and is suing Borrower for
negligent hiring and failure to supervise. Other than filing the suit,
Plaintiff has done nothing in this matter. The court will set a trial date
in September 1997, which is tentatively scheduled for sometime in November
1997. Plaintiff is demanding $35,000. Eric Smith was a temporary employee
sent to Borrower by a temporary agency, Personnel Connection.
4. Pending Litigation by Cyndy Ward (on-the job injury):
Pending in County Court of Tarrant County, Texas, cause no. 97-73920-1.
Plaintiff, a former employee of Borrower, alleges that she fell and injured
herself in July 1995 and that such injury was caused by Borrower's
negligence. Plaintiff further alleges that Borrower operated its tuggers
in an unsafe manner and caused her to have an accident earlier in that same
month of July. Suit was filed in July 1997 and the case is currently in
the discovery phase. No specific amount of damages has been claimed to
date.
5. Pending litigation by Cheryl Ray (sexual harassment/discrimination):
Pending in U.S. Dist. Ct., N.D. Texas, Dallas Division, No. 3:97-CV-1217-T.
Plaintiff, a former employee of Borrower who left Borrower in April 1996,
alleges she was sexually harassed while employed by Borrower. Plaintiff
filed a $100,000 claim with the EEOC, which "dropped" the case and issued a
"right to sue" letter. The pending case was filed on August 14, 1997 and
is scheduled to go to trial in October 1998. No specific amount damages
has been claimed to date in the pending litigation.
6. Borrower has received letters from attorneys representing the following
former employees of Borrower presenting the following claims:
a. Carol Lee (on-the-job injury):
Former employee of Borrower who left Borrower in June 1996. Ms. Lee
alleges that in April
Schedule 2-1
<PAGE>
1997 she injured her back when another employee tripped and partially
fell on her, landing on her as she was picking up something. Ms. Lee
claims that Borrower was responsible for causing this alleged
accident. Borrower received a letter from Ms. Lee's attorney, Don
Hinds of Hinds, Shahan & Snyder, on July 3, 1996, and Borrower's
counsel, on behalf of Borrower, responded with a letter on July 9,
1996. No amount was requested and there has been no further
communication with Mr. Hinds. On June 9, 1997, Borrower received a
letter from another attorney, Christian Jenkins, P.C., stating that he
is now representing Ms. Lee.
b. Mary Stokes (on-the-job injury):
Current employee of Borrower who claims to have injured herself while
lifting heavy boxes at work. Borrower has offered to transfer Ms.
Stokes to another position with Borrower where she would not be
required to lift heavy objects. Ms. Stokes is currently considering
Borrower's offer.
c. Hector E. Zammoron (on-the-job injury):
Former employee of Borrower who claims he injured his back on his
third day of work at Borrower's facilities. Mr. Zammoron, through his
attorneys, is demanding a $25,000 settlement.
7. Dogloo has received letters from Robert and Susan Baillie (and the Baillie
Corporation) alleging patent infringement by Dogloo in connection with its
test marketing of a cat litter containment system. Dogloo was originally
contacted by the Baillies with an offer to sell certain intellectual
property rights held by the Baillies in a similar system. After
consultation with Dogloo's patent counsel (Vance, Romero & Montague),
Dogloo manufactured and test marketed 1,000 litter containment systems of
its own design. The product did not perform well in the test markets and
Dogloo decided not to proceed with its development. A representative of the
Baillies has sent a letter to Dogloo seeking $100,000 in damages and
threatening litigation if such amounts are not paid. Dogloo has refused to
pay any amount and has not heard from the Baillies or their representative
for several weeks. No suit has been filed.
8. Dogloo has received letters from Steven G. Lisa, an attorney representing a
Mr. Finnegan, alleging patent infringement on the part of Dogloo in
connection with Dogloo's development of a gravity feeding and watering
system. Dogloo had been previously contacted by Mr. Finnegan with an offer
by him to sell certain intellectual property rights in a gravity watering
system. The watering system offered by Mr. Finnegan has a patent-protected
diaphragm valve which prohibits backflow of water into the water storage
compartment. After negotiations with Mr. Finnegan were unsuccessful (and
in consultation Dogloo's patent counsel Vance, Romero & Montague), Dogloo
developed and marketed a gravity feeding and watering system which does not
contain the diaphragm valve. On September 16, 1997, Mr. Finnegan filed
suit against Dogloo in the United States District Court for the District of
Arizona (Case No. CIV97-1920PCT EHC), alleging design patent infringement,
breach of contract, trade secret violations and unfair competition.
9. Orchard's Hardware, which sells some of Dogloo's products, has recently
made a demand to Dogloo for $10,482.00, which represents attorneys' fees,
costs and settlement funds paid to a customer of Orchard's who was injured
when one of Dogloo's products fell on the customer while shopping at
Orchard's. Orchard's claims that Dogloo was obligated to have insurance in
place to cover any injuries caused by its products, but failed to do so.
Dogloo's attorneys are negotiating with Orchard's regarding the dispute and
no complaint has yet been filed.
Schedule 3-2
<PAGE>
SCHEDULE 4
----------
Subsidiaries
------------
None.
Schedule 4-1
<PAGE>
SCHEDULE 5
----------
Existing Investments
--------------------
None.
Schedule 5-1
<PAGE>
SCHEDULE 6
----------
Existing Indebtedness
---------------------
None.
Schedule 6-1
<PAGE>
SCHEDULE 7
----------
Jurisdictions of Qualification
------------------------------
and Good Standing
-----------------
1. Texas
2. California
3. Indiana
Schedule 7-1
<PAGE>
SCHEDULE 8
----------
Labor Relations
---------------
None.
Schedule 8-1
<PAGE>
SCHEDULE 1
----------
Equipment and Inventory Locations
---------------------------------
1241 Old Temescal Road
Corona, California 91719
Accessory Wire Products
1710 E. Philadelphia St.
Ontario, California 91761
American Mold & Engineer Co.
7230 Commerce Circle W.
Fridley, Minnesota 55432
Building A
4209 Barnett St.
Arlington, Texas 76017
Building B
4300 Barnett St.
Arlington, Texas 76017
Building C
4408 Barnett St.
Arlington, Texas 76017
Building D
4401 Barnett St.
Arlington, Texas 76017
Building E
4209 Larry Lane
Arlington, Texas 76017
Building F
4209 Larry Lane
Arlington, Texas 76017
Building G
800 W. Stephens St.
Arlington, Texas 76017
Carson Industries
2120 Auto Center Drive
Glendora, California 91740
Casco South
3719 E. 12th Street
Winfield, Kansas 67156
Clack Corporation
4462 Duraform Lane
Windsor, Wisconsin 53598-0500
<PAGE>
Como Products
2860 North National Road
Columbus, Indiana 47201
Decatur Plastic Products
P.O. Box 965
3250 North State Hwy 7
North Vernon, Indiana 47265
Excel Tool, Inc.
2020 1st Ave. Freeman Field
Seymour, Indiana 47274
Groff Building
4301 Kathy Drive
Arlington, Texas 76017
Metal Building
4209 Barnett St.
Arlington, Texas 76017
Metro Plastic Technologies, Inc.
4755 Middle Road
Columbus, Indiana 47203
Peyco Building
1708, 1712 S. Peyco Dr.
Arlington, Texas 76017
Spectrum
600 Justice Lane
Mansfield, Texas 76063
Victor Plastics Inc.
2135 B Avenue
Victor, Iowa 52347
Willamette Industries Inc.
2900 North Franklin Road
Indianapolis, Indiana 46219
Jurisdictions Where Collateral Located
--------------------------------------
1. Texas
2. Oklahoma
3. California
4. Indiana
5. Minnesota
6. Wisconsin
7. Iowa
<PAGE>
Chief Place of Business, Chief Executive Office and
---------------------------------------------------
Location of Books and Records
-----------------------------
Building A (accounts receivable records)
4209 Barnett St.
Arlington, Texas 76017
Building B
4300 Barnett St.
Arlington, Texas 76017
Building E (chief executive office)
4209 Larry Lane
Arlington, Texas 76017
Building F
4209 Larry Lane
Arlington, Texas 76017
Spectrum
600 Justice Lane
Mansfield, Texas 76063
1241 Old Temescal Road
Corona, CA 91719
Schedule 1-3
<PAGE>
Lease and Lease Recording Information
-------------------------------------
1. Industrial Real Estate Lease dated July 1, 1997 between Benjamin L. and
Mary Frances Doskocil, as landlord, and Borrower, as tenant, with respect
to certain real property known as 4209 Barnett, Arlington, Texas, as more
particularly described as Building A in Exhibit A to the Leasehold Deed of
Trust, Assignment of Leases and Rents, Security Agreement and Fixture
Filing (the "DEED OF TRUST") and attached hereto.
2. Industrial Real Estate Lease dated July 1, 1997 between Benjamin L.
Doskocil, as landlord, and Borrower, as tenant, with respect to certain
real property known as 4300 Barnett, Arlington, Texas, as more particularly
described as Building B in Exhibit A to the Deed of Trust and attached
hereto.
3. Industrial Real Estate Lease dated July 1, 1997 between Benjamin L.
Doskocil, as landlord, and Borrower, as tenant, with respect to certain
real property known as 4408 Barnett, Arlington, Texas, as more particularly
described as Building C in Exhibit A to the Deed of Trust and attached
hereto.
4. Industrial Real Estate Lease dated July 1, 1997 between Benjamin L. and
Mary Frances Doskocil, as landlord, and Borrower, as tenant, with respect
to certain real property known as 4401 Barnett, Arlington, Texas, as more
particularly described as Building D in Exhibit A to the Deed of Trust and
attached hereto.
5. Industrial Real Estate Lease dated July 1, 1997 between Benjamin L. and
Mary Frances Doskocil, as landlord, and Borrower, as tenant, with respect
to certain real property known as 4208 Larry Lane, Arlington, Texas, as
more particularly described as Building E in Exhibit A to the Deed of Trust
and attached hereto.
6. Industrial Real Estate Lease dated July 1, 1997 between Benjamin L. and
Mary Frances Doskocil, as landlord, and Borrower, as tenant, with respect
to certain real property known as 4207 Larry Lane, Arlington, Texas, as
more particularly described as Building F in Exhibit A to the Deed of Trust
and attached hereto.
7. Industrial Real Estate Lease dated July 1, 1997 between Benjamin L. and
Mary Frances Doskocil, as landlord, and Borrower, as tenant, with respect
to certain real property known as 4207 Larry Lane, Arlington, Texas, as
more particularly described as F Parking in Exhibit A to the Deed of Trust
and attached hereto.
8. Industrial Real Estate dated July 1, 1997 between Marybe Investments, Ltd.,
as landlord, and Borrower, as tenant, with respect to certain real property
known as 800 Stephens,
Arlington, Texas, as more particularly described as Building G in Exhibit A
to the Deed of Trust and attached hereto.
9. Industrial Real Estate Lease dated July 1, 1997 between Benjamin L.
Doskocil, as landlord, and Borrower, as tenant, with respect to certain
real property known as 4205 Barnett, Arlington, Texas, as more particularly
described as Building J in Exhibit A to the Deed of Trust and attached
hereto.
10. Industrial Real Estate Lease dated July 1, 1997 between Benjamin L.
Doskocil, as landlord, and Borrower, as tenant, with respect to certain
real property known as 720 and 722 West I-20, Arlington, Texas, as more
particularly described as I-20 Parking in Exhibit A to the Deed of Trust
and attached hereto.
11. Industrial Real Estate Lease dated July 1, 1997 between Benjamin L. and
Mary Frances Doskocil, as landlord, and Borrower, as tenant, with respect
to certain real property known as 600 Justice, Mansfield, Texas, as more
particularly described as Spectrum in Exhibit A to the Deed of Trust and
attached hereto.
Schedule 1-4
<PAGE>
12. Industrial Real Estate Lease dated July 1, 1997 between Benjamin L.
Doskocil, as landlord, and Borrower, as tenant, with respect to certain
real property known as 1708 and 1712 South Peyco Drive, Arlington, Texas,
as more particularly described as Peyco Drive in Exhibit A to the Deed of
Trust and attached hereto.
13. Commercial-Industrial Lease Agreement, dated December 4, 1996, between Col.
Met. Properties, Inc., as landlord, and Borrower, as tenant, with respect
to certain property known as 4301 Kathy Drive, Arlington, Texas, as more
particularly described as Groff Building in Exhibit A to the Deed of Trust
and attached hereto.
14. Lease Agreement for the property located at 1241 Old Temescal Road, Corona,
CA 91719, dated December 1, 1996 between Patrician Associates, Inc., a
general partnership, also known as "Old Temescal Road Partnership," as
landlord, and Dogloo, Inc. as tenant. The Agreement expires November 30,
1999. Monthly rent for the first year is $23,809.95. Monthly rent for the
second year is $24,625.78. Monthly rent for the third year is $25,495.61.
15. Lease Agreement for the property located at 212 South Belmont,
Indianapolis, IN 46241, dated January 1, 1997 between Belmont Warehousing
Complex, Inc. as landlord, and Dogloo, Inc. as tenant. The Agreement
expires December 31, 1998. Monthly rent is 23.437.50.
Schedule 1-5
<PAGE>
SCHEDULE 2
----------
Trade Names
-----------
1. Doskocil
2. Petmate
3. Woodstream (license)
4. Dogloo
Schedule 2-1
<PAGE>
SCHEDULE 3
----------
Restricted Accounts
-------------------
[TO COME]
Schedule 3-1
<PAGE>
SCHEDULE 4
----------
Rolling Stock
-------------
<TABLE>
<CAPTION>
Vehicle Year Serial Number
- ------- ---- -------------
<S> <C> <C>
Mach 3 Ton Van Truck 1988 VG6BA01B1JB001794
International Tractor Truck 1993 2HSFEB7R9PC064446
</TABLE>
Schedule 4-1
<PAGE>
ANNEX A-1
---------
Patents
-------
<TABLE>
<CAPTION>
==================================================================
NATURE OF ISSUE COUNTRY
INTEREST DESCRIPTION PATENT NUMBER DATE OF
ISSUE
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
owner Portable Pet Des. 308,429 6/05/90 USA
Carrier
- ------------------------------------------------------------------
owner Portable Pet Des. 312,333 11/21/90 USA
Kennel
- ------------------------------------------------------------------
owner Portable Pet Des. 314,251 1/29/91 USA
Kennel
- ------------------------------------------------------------------
owner Pet Kennel Des. 364,712 11/28/95 USA
- ------------------------------------------------------------------
owner Vented Pet Des. 367,732 3/5/96 USA
Kennel
- ------------------------------------------------------------------
owner Kennel Door Des. 351,688 10/18/94 USA
- ------------------------------------------------------------------
owner Combined Des. 367,734 3/5/96 USA
Kennel Door
and Latch
- ------------------------------------------------------------------
owner Handle Des. 368,636 4/9/96 USA
- ------------------------------------------------------------------
owner Latching 4,930,819 5/5/90 USA
Mechanism
- ------------------------------------------------------------------
owner Latching 5,016,926 5/21/91 USA
Mechanism
- ------------------------------------------------------------------
owner Kennel Latch 5,071,176 12/10/91 USA
- ------------------------------------------------------------------
owner Kennel Hull 5,462,015 10/31/95 USA
Latch
- ------------------------------------------------------------------
owner Kennel Door 5,499,850 3/19/96 USA
Latch
- ------------------------------------------------------------------
owner Pet House Des. 349,980 8/23/94 USA
- ------------------------------------------------------------------
owner Doghouse Des. 360,709 7/25/95 USA
- ------------------------------------------------------------------
owner Stump Dog Des. 366,736 1/30/96 USA
House
- ------------------------------------------------------------------
owner Pet Feeder Des. 330,098 10/6/92 USA
- ------------------------------------------------------------------
owner Pet Feeder Des. 350,841 9/20/94 USA
- ------------------------------------------------------------------
owner Pet Feeder Des. 351,689 10/18/94 USA
- ------------------------------------------------------------------
owner Pet Feeder Des. 364,942 12/05/95 USA
- ------------------------------------------------------------------
owner Combined Des. 367,735 3/5/96 USA
Feeder and
Waterer
- ------------------------------------------------------------------
owner Pet Dish Des. 313,486 1/1/91 USA
- ------------------------------------------------------------------
owner Pet Dish Des. 313,487 1/1/91 USA
- ------------------------------------------------------------------
owner Pet Dish Des. 313,488 1/1/91 USA
- ------------------------------------------------------------------
owner Pet Dish Des. 313,489 1/1/91 USA
- ------------------------------------------------------------------
owner Pet Dish Des. 341,449 11/16/93 USA
- ------------------------------------------------------------------
</TABLE>
Annex A-1-1
<PAGE>
<TABLE>
<CAPTION>
==================================================================
NATURE OF DESCRIPTION PATENT NUMBER ISSUE COUNTRY
INTEREST DATE OF
ISSUE
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
owner Toy for 4,722,299 2/2/88 USA
Entertaining
a Cat
- ------------------------------------------------------------------
owner Toy for 335,553 5/11/93 USA
Entertaining
a Cat
- ------------------------------------------------------------------
owner Toy for 335,554 5/11/93 USA
Entertaining
a Cat
- ------------------------------------------------------------------
owner Feline 353,029 11/29/94 USA
Domicile
- ------------------------------------------------------------------
owner Feline 355,057 1/31/95 USA
Scratching
Post
- ------------------------------------------------------------------
owner Feline Des. 361,876 8/29/95 USA
Scratching
Post
- ------------------------------------------------------------------
owner Litter Scoop Des. 347,497 5/31/94 USA
- ------------------------------------------------------------------
owner Cat Litter Des. 300,965 5/2/89 USA
Box
- ------------------------------------------------------------------
owner Cat Litter Des. 300,966 5/2/89 USA
Box
- ------------------------------------------------------------------
owner Cat Litter Des. 300,967 5/2/89 USA
Box
- ------------------------------------------------------------------
owner Cat Litter Des. 300,968 5/2/89 USA
Box
- ------------------------------------------------------------------
owner Feline Des. 361,175 8/8/95 USA
Litter Pan
- ------------------------------------------------------------------
licensee Hand Reel 4,143,746 3/13/79 USA
- ------------------------------------------------------------------
owner Cord Storage Des. 314,910 2/26/91 USA
Reel
- ------------------------------------------------------------------
owner Chair Des. 362,556 9/26/95 USA
- ------------------------------------------------------------------
owner Chair Des. 361,902 9/5/95 USA
- ------------------------------------------------------------------
owner Chair Des. 361,903 9/5/95 USA
- ------------------------------------------------------------------
owner Armchair Des. 360,537 7/25/95 USA
- ------------------------------------------------------------------
owner Table Des. 369,702 5/14/96 USA
- ------------------------------------------------------------------
owner Table Des. 367,976 3/19/96 USA
- ------------------------------------------------------------------
owner Table Des. 367,787 3/12/96 USA
- ------------------------------------------------------------------
owner Decorative Des. 361,853 8/29/95 USA
Lawn Edging
- ------------------------------------------------------------------
owner Fence Unit Des. 359,130 6/6/95 USA
- ------------------------------------------------------------------
owner Firearm Des. 367,380 2/27/96 USA
Storage
Cabinet
- ------------------------------------------------------------------
</TABLE>
Annex A-1-2
<PAGE>
<TABLE>
<CAPTION>
==================================================================
NATURE OF DESCRIPTION PATENT NUMBER ISSUE COUNTRY
INTEREST DATE OF
ISSUE
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
owner Bow Case Des. 358,254 5/16/95 USA
- ------------------------------------------------------------------
owner Storage Case Des. 300,583 4/11/89 USA
- ------------------------------------------------------------------
owner Handle Des. 289,970 5/26/87 USA
- ------------------------------------------------------------------
owner Tackle Box Des. 246,071 10/11/77 USA
- ----------------------------------------------- ------------------
owner Tackle Box Des. 352,393 11/15/94 USA
- ------------------------------------------------------------------
owner Bow Case Des. 358,254 5/16/95 USA
- ------------------------------------------------------------------
owner Tackle Box 4,139,096 2/13/79 USA
Improvement
- ------------------------------------------------------------------
owner Container 4,245,422 1/20/81 USA
Including
Pull-Out
Stacking
Tray
Structure
- ------------------------------------------------------------------
owner Latch 4,023,840 5/17/77 USA
Assembly
- ------------------------------------------------------------------
owner Detachable 4,344,646 8/17/82 USA
Latch
- ------------------------------------------------------------------
owner Separable 4,576,307 3/18/86 USA
Elements
Held
Together by
a Sliding
Latch
- ------------------------------------------------------------------
owner Hand-Held 4,862,636 9/5/89 USA
Trotline
Holder
- ------------------------------------------------------------------
owner Tackle Box 5,169,018 12/8/92 USA
with Lid-
Latching
Handle
- ------------------------------------------------------------------
owner Wall 5,350,150 9/27/94 USA
Mounting
Bracket for
Carrying
Case
- ------------------------------------------------------------------
owner Case for a Des. 278,189 4/2/85 USA
Gun or the
Like
- ------------------------------------------------------------------
owner Gun Case Des. 320,113 9/24/91 USA
- ------------------------------------------------------------------
owner Rifle Case Des. 336,984 7/6/93 USA
- ------------------------------------------------------------------
owner Gun Case Des. 347,322 5/31/94 USA
- ------------------------------------------------------------------
owner Rifle Case Des. 358,255 5/16/95 USA
- ------------------------------------------------------------------
owner Golf Bag Des. 349,402 8/9/94 USA
Case
- ------------------------------------------------------------------
owner Camera Case Des. 335,764 5/25/93 USA
- ------------------------------------------------------------------
owner Camera Case Des. 335,765 5/25/93 USA
- ------------------------------------------------------------------
</TABLE>
Annex A-1-3
<PAGE>
<TABLE>
<CAPTION>
==================================================================
NATURE OF DESCRIPTION PATENT NUMBER ISSUE COUNTRY
INTEREST DATE OF
ISSUE
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
owner Storage Case Des. 353,048 12/6/94 USA
- ------------------------------------------------------------------
owner Combination Des. 286,333 10/21/86 USA
Food &
Waterer Pet
Feed
- ------------------------------------------------------------------
owner Pet Waterer Des. 350,842 9/20/94 USA
- ------------------------------------------------------------------
owner Pelletized 4,513,688 4/30/85 USA
Material
Feeder
- ------------------------------------------------------------------
owner Pelletized 4,651,679 3/24/87 USA
Material
Feeder &
Waterer
- ------------------------------------------------------------------
owner Hand-Held Des. 312,294 11/20/90 USA
Trotline
Holder
- ------------------------------------------------------------------
owner Hanging Des. 377, 863 2/11/97 USA
Storage Case
- ------------------------------------------------------------------
owner Tackle Box 5,176,281 1/5/93 USA
with Lid-
Latching
Handle
- ------------------------------------------------------------------
owner Chair 78068 3/7/96 Canada
- ------------------------------------------------------------------
owner Chair 78069 3/7/96 Canada
- ------------------------------------------------------------------
owner Armchair 78070 3/7/96 Canada
- ------------------------------------------------------------------
owner Table 76209 4/20/95 Canada
- ------------------------------------------------------------------
owner Container 1,152,034 8/16/83 Canada
Including
Pull-Out
Stacking
Tray
Structure
- ------------------------------------------------------------------
owner Detachable 1,147,299 5/31/83 Canada
Latch
- ------------------------------------------------------------------
owner Canadian 61,892 10/25/88 Canada
Industrial
Design
Patent
- ------------------------------------------------------------------
owner Utility 4,962,729 10/16/90 USA
Patent
- ------------------------------------------------------------------
owner DINGHYLOO Des. 338,284 8/10/93 USA
- ------------------------------------------------------------------
owner Utility 5,136,981 8/11/92 USA
Patent Form
Fitted
Bedding
- ------------------------------------------------------------------
owner CAT TEE PEE Des. 326,740 6/2/92 USA
- ------------------------------------------------------------------
owner CAT TEE PEE Des. 328,162 7/21/92 USA
- ------------------------------------------------------------------
owner DOG TEE PEE Des. 327,341 6/23/92 USA
- ------------------------------------------------------------------
owner DOG TEE PEE Des. 327,340 6/23/92 USA
- ------------------------------------------------------------------
owner AUTOLOO Des. 348,248 4/19/94 USA
- ------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
==================================================================
NATURE OF DESCRIPTION PATENT NUMBER ISSUE COUNTRY
INTEREST DATE OF
ISSUE
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
owner INNOVATOR Des. 374,510 10/8/96 USA
- ------------------------------------------------------------------
owner FURRARRI 29/017,619 3/5/96 USA
- ------------------------------------------------------------------
owner ANIMAL 4,470,371 9/11/84 USA
WATERING
MEANS
- ------------------------------------------------------------------
owner PET WATERING Des. 335,197 4/27/93 USA
DISH
- ------------------------------------------------------------------
owner PET WATERING Des. 278,371 4/9/85 USA
DISH OR
SIMILAR
ARTICLE
- ------------------------------------------------------------------
owner Tackle Box 5,205,429 4/27/93 USA
with Sliding
Trays
- ------------------------------------------------------------------
owner Tackle Bow 5,226,553 7/13/93 USA
with Lid-
latching
Handle and
Removable
Carrying
Case
==================================================================
</TABLE>
Annex A-1-5
<PAGE>
ANNEX A-2
---------
Patent Applications
-------------------
<TABLE>
<CAPTION>
==================================================================
COUNTRY
NATURE OF FILING OF
INTEREST DESCRIPTION SERIAL NUMBER DATE FILING
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
owner Container 08/662,883 6/13/96 USA
Having
Injection
Molded
Gasket
- ------------------------------------------------------------------
owner Portable 08/692,811 7/30/96 USA
Kennel and
Method of
Construction
- ------------------------------------------------------------------
owner AUTOMATIC 08/415,258 3/6/97 USA
WATERING
DISH Mr. Dew
Drop
- ------------------------------------------------------------------
owner PCT PCT/US96/04174 4/3/98 USA
AUTOMATIC
WATERING
DISH
Mr. Dew Drop
- ------------------------------------------------------------------
owner Container 80/662,883 USA
Having
Injection
Molded
Gasket
- ------------------------------------------------------------------
owner Portable 08/692,811 USA
Kennel &
Method of
Construction
- ------------------------------------------------------------------
owner Animal 08/547,058 USA
Shelter
Formed in
the Shape of
a Natural
Object
- ------------------------------------------------------------------
owner Vari Dlx 7-119374 Japan
Latch
- ------------------------------------------------------------------
owner Vari Dlx 7-119375 Japan
Hull
=================================================================
</TABLE>
Annex A-2-1
<PAGE>
ANNEX B-1
---------
Registered Trademarks
---------------------
<TABLE>
<CAPTION>
=============================================================================================================
NATURE OF REGISTERED REGISTRATION INT'L CLASS GOODS OR REGISTRATION COUNTRY OF
INTEREST TRADEMARK NUMBER COVERED SERVICES DATE REGISTRATION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
owner AGGRESSOR 2076360 13 goods 7/1/97 USA
- -------------------------------------------------------------------------------------------------------------
owner AGGRESSOR 474319 n/a goods 4/8/97 Canada
- -------------------------------------------------------------------------------------------------------------
owner "A STRONG 4009632 21 goods 6/6/97 Japan
CASE . . ."
- -------------------------------------------------------------------------------------------------------------
owner ATV FIELD CASE GUN 2025952 13 goods 12/24/96 USA
GUARD & DESIGN
- -------------------------------------------------------------------------------------------------------------
owner BALL A BOUT 2031072 28 goods 1/14/97 USA
- -------------------------------------------------------------------------------------------------------------
owner BARKHOUSE 2027842 19 goods 12/31/96 USA
- -------------------------------------------------------------------------------------------------------------
owner BAT 'N BOBBLE 2046677 28 goods 3/18/97 USA
- -------------------------------------------------------------------------------------------------------------
owner BOW GUARD 1537489 28 goods 5/2/89 USA
- -------------------------------------------------------------------------------------------------------------
owner CABIN KENNEL 1315778 18 goods 1/22/85 USA
(stylized)
- -------------------------------------------------------------------------------------------------------------
owner CAMERA GUARD 1779511 9 goods 6/29/93 USA
- -------------------------------------------------------------------------------------------------------------
owner CAT A BALL 2019928 28 goods 11/26/96 USA
- -------------------------------------------------------------------------------------------------------------
owner CAT TRACK 1675566 28 goods 2/11/92 USA
- -------------------------------------------------------------------------------------------------------------
owner CAT TRACK 347131 n/a goods 10/28/96 Canada
- -------------------------------------------------------------------------------------------------------------
owner CAT TRACK 3156783 28 goods 5/31/96 Japan
- -------------------------------------------------------------------------------------------------------------
owner CONNECT-A-PLUG 1744084 9 goods 12/29/92 USA
- -------------------------------------------------------------------------------------------------------------
owner CORDSTAND 1638758 20 goods 3/19/91 USA
- -------------------------------------------------------------------------------------------------------------
owner CORDWHEEL 1410942 9 goods 9/23/86 USA
- -------------------------------------------------------------------------------------------------------------
owner CORDWHEEL 2026841 9 goods 12/31/96 USA
- -------------------------------------------------------------------------------------------------------------
owner CORDWRAP 1529425 9 goods 3/14/89 USA
- -------------------------------------------------------------------------------------------------------------
owner COURTYARD DESIGN 2016720 20 goods 11/19/96 USA
- -------------------------------------------------------------------------------------------------------------
owner CRAZY CIRCLE 1678128 28 goods 3/03/92 USA
- -------------------------------------------------------------------------------------------------------------
owner DINNERMATE 1671468 21 goods 1/07/92 USA
- -------------------------------------------------------------------------------------------------------------
owner DOGWOOD 2044773 19 goods 3/11/97 USA
- -------------------------------------------------------------------------------------------------------------
owner DOSKOCIL & DESIGN 2076979 9, 13, 16 goods 7/08/97 USA
18, 20, 21,
28
- -------------------------------------------------------------------------------------------------------------
owner DOSKOCIL & DESIGN 4009633 21 goods 6/6/97 Japan
- -------------------------------------------------------------------------------------------------------------
owner DOSKOCIL & DESIGN 4009634 21 goods 6/6/97 Japan
- -------------------------------------------------------------------------------------------------------------
owner DOSKOCIL & DESIGN 3223868 20 goods 11/29/96 Japan
- -------------------------------------------------------------------------------------------------------------
owner DOSKOCIL (design) 3300794 28 goods 5/2/97 Japan
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================
NATURE OF REGISTERED REGISTRATION INT'L CLASS GOODS OR REGISTRATION COUNTRY OF
INTEREST TRADEMARK NUMBER COVERED SERVICES DATE REGISTRATION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
owner DOSKOCIL & DESIGN 2065514 20 goods 5/27/97 USA
(Resin Furniture)
- -------------------------------------------------------------------------------------------------------------
owner DOSKOCIL, A STRONG 2019221 13, 28 goods 11/26/96 USA
CASE FOR QUALITY &
DESIGN
- -------------------------------------------------------------------------------------------------------------
owner DOSKOCIL, A STRONG 3258359 28 goods 2/24/97 Japan
CASE FOR QUALITY
(design)
- -------------------------------------------------------------------------------------------------------------
owner DOSKOCIL, A STRONG 3223867 20 goods 11/29/96 Japan
CASE FOR QUALITY &
DESIGN
- -------------------------------------------------------------------------------------------------------------
owner DOSKOCIL, A STRONG 330790 0- 21 goods 5/16/97 Japan
CASE FOR QUALITY & 3300794
DESIGN
- -------------------------------------------------------------------------------------------------------------
owner DOSKOCIL BARNHOME 2057815 19 goods 4/29/97 USA
- -------------------------------------------------------------------------------------------------------------
owner FIELD LOCKER 1962851 13, 28 goods 3/19/96 USA
- -------------------------------------------------------------------------------------------------------------
owner FISHERKID 1289211 28 goods 8/7/84 USA
- -------------------------------------------------------------------------------------------------------------
owner GOLF GUARD 1891771 28 goods 4/25/95 USA
- -------------------------------------------------------------------------------------------------------------
owner GOLF GUARD 457660 n/a goods 5/24/96 Canada
- -------------------------------------------------------------------------------------------------------------
owner GUN GUARD 1026167 13 goods 12/2/75 USA
- -------------------------------------------------------------------------------------------------------------
owner HANG-N-HIDE 2046835 13 goods 3/18/97 USA
- -------------------------------------------------------------------------------------------------------------
owner HOT LIDS (block 1755359 20 goods 3/2/93 USA
form)
- -------------------------------------------------------------------------------------------------------------
owner JUNIOR PAL 454512 n/a goods 2/23/96 Canada
FISHERKID KIT
- -------------------------------------------------------------------------------------------------------------
owner KENNEL CAB 1318126 18 goods 2/5/85 USA
(stylized)
- -------------------------------------------------------------------------------------------------------------
owner LID-LOCKER 1604799 28 goods 7/3/90 USA
- -------------------------------------------------------------------------------------------------------------
owner LITEWRAP 1590915 20 goods 4/10/90 USA
- -------------------------------------------------------------------------------------------------------------
owner OLD PAL 981545 22, 32 goods 4/2/74 USA
- -------------------------------------------------------------------------------------------------------------
owner OLD PAL 798497 22 goods 11/9/65 USA
- -------------------------------------------------------------------------------------------------------------
owner OLD PAL 162562 n/a goods 5/2/69 Canada
- -------------------------------------------------------------------------------------------------------------
owner OLD PAL 244265 n/a goods 5/2/80 Canada
- -------------------------------------------------------------------------------------------------------------
owner PET DOME 1967703 18, 19 goods 4/16/96 USA
- -------------------------------------------------------------------------------------------------------------
owner PET ESCORT 2042064 18 goods 3/4/97 USA
- -------------------------------------------------------------------------------------------------------------
owner PET PORTER 1305901 18 goods 11/20/84 USA
(stylized)
- -------------------------------------------------------------------------------------------------------------
owner PET TAXI 1346155 18 goods 7/2/85 USA
(stylized)
- -------------------------------------------------------------------------------------------------------------
owner PET-MATE 1371337 21 goods 11/19/85 USA
- -------------------------------------------------------------------------------------------------------------
owner PETMATE 409575 n/a goods 3/12/93 Canada
- -------------------------------------------------------------------------------------------------------------
owner PETMATE 2042829 16, 19, 20, goods 3/11/97 USA
21, 28
- -------------------------------------------------------------------------------------------------------------
owner PETMATE (logo) 2042828 16, 19, 20, goods 3/11/97 USA
21, 28
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Annex B-1-2
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================
NATURE OF REGISTERED REGISTRATION INT'L CLASS GOODS OR REGISTRATION COUNTRY OF
INTEREST TRADEMARK NUMBER COVERED SERVICES DATE REGISTRATION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
owner PETMATE & DESIGN 1638366 16 goods 3/19/91 USA
- -------------------------------------------------------------------------------------------------------------
owner PETMATE & DESIGN 1629183 18 goods 12/25/90 USA
- -------------------------------------------------------------------------------------------------------------
owner PETMATE & DESIGN 1629184 18 goods 12/25/90 USA
- -------------------------------------------------------------------------------------------------------------
owner PETMATE & DESIGN 1629207 20 goods 12/25/90 USA
- -------------------------------------------------------------------------------------------------------------
owner PETMATE & DESIGN 1629214 21 goods 12/25/90 USA
- -------------------------------------------------------------------------------------------------------------
owner PETMATE PETBARN 2067510 18, 19 goods 6/3/97 USA
- -------------------------------------------------------------------------------------------------------------
owner PETMATE PETDOME 1967703 18, 19 goods 4/16/96 USA
- -------------------------------------------------------------------------------------------------------------
owner PRODUCT 1987755 28 goods 7/16/96 USA
CONFIGURATION
(Small Cat Circle)
- -------------------------------------------------------------------------------------------------------------
owner PRODUCT 1987756 28 goods 7/16/96 USA
CONFIGURATION
(Large Cat Circle)
- -------------------------------------------------------------------------------------------------------------
owner SEAL-TIGHT 1838387 9 goods 5/31/94 USA
- -------------------------------------------------------------------------------------------------------------
owner SKY KENNEL 950176 3 goods 1/9/73 USA
(stylized)
- -------------------------------------------------------------------------------------------------------------
owner SLEEPY HOLLOW 2022604 20 goods 12/10/96 USA
- -------------------------------------------------------------------------------------------------------------
owner TACKLE BOX (logo) 1155738 28 goods 5/26/81 USA
- -------------------------------------------------------------------------------------------------------------
owner TACKLE-LOCKER 2085908 28 goods 8/5/97 USA
- -------------------------------------------------------------------------------------------------------------
owner TIP 'N TOTTER 2048354 28 goods 3/25/97 USA
- -------------------------------------------------------------------------------------------------------------
owner TROTLINE 1512200 28 goods 11/8/88 USA
- -------------------------------------------------------------------------------------------------------------
owner VARI KENNEL 1585672 18 goods 3/6/90 USA
- -------------------------------------------------------------------------------------------------------------
owner DOGLOO 1,526,929 Principal goods 2/28/89 USA
- -------------------------------------------------------------------------------------------------------------
owner DOGLOO 1,631,630 20 goods 1/15/91 USA
- -------------------------------------------------------------------------------------------------------------
owner PET SHELTER MAT 1,637,628 20 goods 3/12/91 USA
- -------------------------------------------------------------------------------------------------------------
owner SNUGGLYLOO 1,730,342 20 goods 11/3/92 USA
- -------------------------------------------------------------------------------------------------------------
owner CAT TEE PEE DLX 1,781,449 20 goods 7/13/93 USA
- -------------------------------------------------------------------------------------------------------------
owner DOG TEE PEE 1,781,450 20 goods 7/13/93 USA
- -------------------------------------------------------------------------------------------------------------
owner CAT TEE PEE 1,685,060 20 goods 11/19/91 USA
- -------------------------------------------------------------------------------------------------------------
owner DOG TEE PEE 1,685,059 20 goods 11/19/91 USA
- -------------------------------------------------------------------------------------------------------------
owner RUFF HAUZ 1,791,632 19 goods 9/7/93 USA
- -------------------------------------------------------------------------------------------------------------
owner DINGHYLOO 1,713,721 20 goods 9/8/92 USA
- -------------------------------------------------------------------------------------------------------------
owner DINGHYLOO 1,736,621 20 goods 12/1/92 USA
- -------------------------------------------------------------------------------------------------------------
owner CAT TEE PEE 1,781,451 20 goods 7/13/93 USA
- -------------------------------------------------------------------------------------------------------------
owner DOG TEE PEE DLX 1,781,452 20 goods 7/13/93 USA
- -------------------------------------------------------------------------------------------------------------
owner INNOVATORS IN PET 1,789,413 19, 20 goods 8/24/93 USA
COMFORT
- -------------------------------------------------------------------------------------------------------------
owner AUTOLOO 1,764,544 20 goods 4/13/93 USA
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Annex B-1-3
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================
NATURE OF REGISTERED REGISTRATION INT'L CLASS GOODS OR REGISTRATION COUNTRY OF
INTEREST TRADEMARK NUMBER COVERED SERVICES DATE REGISTRATION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
owner DOG KABIN 1,824,411 19 goods 3/1/94 USA
- -------------------------------------------------------------------------------------------------------------
owner FURRARI 1,842,378 18 goods 8/28/94 USA
- -------------------------------------------------------------------------------------------------------------
owner INNOVATOR 1,873,300 21 goods 1/10/95 USA
- -------------------------------------------------------------------------------------------------------------
owner BA BA LOO 1,832,234 20 goods 4/19/94 USA
- -------------------------------------------------------------------------------------------------------------
owner WOOLY WOOLY 1,858,175 20 goods 10/11/94 USA
- -------------------------------------------------------------------------------------------------------------
owner BARNEY 2,012,169 20 goods 10/29/96 USA
- -------------------------------------------------------------------------------------------------------------
owner BRIK HAUZ 1,904,998 19 goods 7/11/95 USA
- -------------------------------------------------------------------------------------------------------------
owner BLUES 1,845,627 20 goods 7/19/94 USA
- -------------------------------------------------------------------------------------------------------------
owner CHEW LOO 1,922,233 28 goods 9/26/95 USA
- -------------------------------------------------------------------------------------------------------------
owner CAT-A-TRAIL 1,877,658 20 goods 2/7/95 USA
- -------------------------------------------------------------------------------------------------------------
owner DOGLOO TMA456, 571 goods 4/19/96 Canada
App#
751, 658
- -------------------------------------------------------------------------------------------------------------
owner DOGLOO II 2,074,208 20 goods 6/24/97 USA
- -------------------------------------------------------------------------------------------------------------
owner DOGLOO III 2,034,161 20 goods 1/28/97 USA
(INDIGO)
- -------------------------------------------------------------------------------------------------------------
owner INDIGO 2,058,702 19 goods 5/6/97 USA
- -------------------------------------------------------------------------------------------------------------
owner BAUX'R 1,993,366 19 goods 8/13/96 USA
- -------------------------------------------------------------------------------------------------------------
owner CAT TEE PEE T-11,168 3 goods 10/2/91 USA
GEORGIA ST. TM
- -------------------------------------------------------------------------------------------------------------
owner CAT TEE PEE T-11,154 32 goods 10/2/91 USA
GEORGIA ST. TM
- -------------------------------------------------------------------------------------------------------------
owner CAT TEE PEE T-11,155 32 goods 10/2/91 USA
GEORGIA ST. TM
- -------------------------------------------------------------------------------------------------------------
owner CAT TEE PEE T-11,153 3 goods 10/2/91 USA
GEORGIA ST. TM
- -------------------------------------------------------------------------------------------------------------
owner DOGLOO 284,298 20, 21 goods 7/16/97 Uruguay
================================================================================================================
</TABLE>
Annex B-1-4
<PAGE>
ANNEX B-2
---------
Trademark Applications
----------------------
<TABLE>
<CAPTION>
=============================================================================================================================
NATURE OF TRADEMARK APPLICATION RELATES TO SERIAL NO. INT' L GOODS OR DATE OF COUNTRY OF
INTEREST FOLLOWING TRADEMARK NO. CLASS SERVICES APPLICATION APPLICATION
COVERED
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
owner CABIN KENNEL (STYLIZED 99059/93 18 goods Japan
- -----------------------------------------------------------------------------------------------------------------------------
owner CAT TRACK 99062/93 28 goods 12/1/95 Japan
- -----------------------------------------------------------------------------------------------------------------------------
owner DOSKOCIL 75/032730 9, 10, 13, goods 12/14/95 USA
16, 20, 21
- -----------------------------------------------------------------------------------------------------------------------------
owner DOSKOCIL 708921 9, 13, 16, goods 5/20/96 Australia
20, 21, 28
- -----------------------------------------------------------------------------------------------------------------------------
owner DRI-LOC 75/108039 13, 21, 28 goods 5/22/96 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner DRI-LOC 829648 n/a goods 11/22/96 Canada
- -----------------------------------------------------------------------------------------------------------------------------
owner GUN GUARD & DESIGN 74/619548 13 goods USA
- -----------------------------------------------------------------------------------------------------------------------------
owner HOMESTEAD 75/165529 20 goods 9/11/96 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner MFS 75/079590 28 goods 3/27/96 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner MFS 829650 n/a goods 11/20/96 Canada
- -----------------------------------------------------------------------------------------------------------------------------
owner PET CAB 75/105974 20 goods 5/16/96 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner PET TAXI (stylized) 99063/93 18 goods 9/29/93 Japan
- -----------------------------------------------------------------------------------------------------------------------------
owner PET-MATE 99065/93 21 goods 9/29/93 Japan
- -----------------------------------------------------------------------------------------------------------------------------
owner PETMATE 702179 20, 21 goods 2/9/96 Australia
- -----------------------------------------------------------------------------------------------------------------------------
owner PRO GUARD 75/272076 28 goods 4/9/97 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner SPECTRUM POLYMERS 75/167005 1, 42 goods 9/13/96 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner S & DESIGN 75/222601 42 goods 12/20/96 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner SPECTRACOOL 75/287318 1 goods 5/6/97 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner SPECTRAGLIDE 75/287324 1 goods 5/6/97 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner VARI KENNEL 99061/93 18 goods 9/29/93 Japan
- -----------------------------------------------------------------------------------------------------------------------------
owner WOODSTONE MANOR 75/165511 19 goods 9/11/96 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner PETPOURRI 74/506,766 20, 5 goods 3/29/94 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner INNOVATOR 74/463,798 18 goods 11/29/93 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner FURRARI 74/463,797 18 goods 11/29/93 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner FURRELLI 74/523,368 18 goods 4/26/94 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner FURRINI 74/517,522 18 goods 4/26/94 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner PETLOO 74/576,155 19, 20, 21 goods 9/20/94 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner CATLOO 75/976,232 19, 20, 21 goods 9/20/94 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner BIRDLOO 74,570,864 19, 21, 28 goods 9/7/94 USA
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Annex B-2-1
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
NATURE OF TRADEMARK APPLICATION RELATES TO SERIAL NO. INT' L GOODS OR DATE OF COUNTRY OF
INTEREST FOLLOWING TRADEMARK NO. CLASS SERVICES APPLICATION APPLICATION
COVERED
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
owner KIDLOO 74,570,790 28 goods 9/7/94 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner CAPE COD 74,580,496 20 goods 9/3/94 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner AVIATOR 74,589,063 18 goods 10/21/94 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner LEBISTRO 75,242,288 31 goods 2/14/97 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner AN ACTIVE IMAGINATION 75/252,166 18, 20, 25, goods 3/4/97 USA
28
- -----------------------------------------------------------------------------------------------------------------------------
owner DESIGN LOTO STYLIZED IGLOO 75/252,226 20, 21 goods 3/4/97 USA
- -----------------------------------------------------------------------------------------------------------------------------
owner DOGLOO 338,288 20, 21 goods 7/23/96 Chile
- -----------------------------------------------------------------------------------------------------------------------------
owner DOGLOO COD/INK/ 20 goods 2/19/97 Argentina
2070.975
- -----------------------------------------------------------------------------------------------------------------------------
owner European Comm. TMM Appl. Pending 9, 18, 20, goods 5/20/97 EU
STYLIZED LOGO IGLOO SHAPED 21, 28
- -----------------------------------------------------------------------------------------------------------------------------
owner DOGLOO Pending goods Brazil
- -----------------------------------------------------------------------------------------------------------------------------
owner DOGLOO Pending goods Japan
- -----------------------------------------------------------------------------------------------------------------------------
owner CANADIAN TM APPL STYLIZED Pending goods Canada
LOGO IGLOO SHAPED
=============================================================================================================================
</TABLE>
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
---------------------
Dallas, Texas $__________________ September 19, 1997
DOSKOCIL MANUFACTURING COMPANY, INC., a Texas corporation (the
"Borrower"), for value received, promises to pay to the order of
_________________________________________ ("Lender"), at the principal office of
NationsBank of Texas, N.A., in lawful money of the United States of America, the
principal sum of ____________________________________________________________
($_____________), or such lesser sum as shall be due and payable from time to
time hereunder, as hereinafter provided. All terms used but not defined herein
shall have the meanings set forth in the Credit Agreement described below.
Principal of and interest on the unpaid principal balance of Revolving
Credit Advances under this Revolving Credit Note (the "Note") from time to time
outstanding shall be due and payable as set forth in the Credit Agreement.
This Note is issued pursuant to and evidences Revolving Credit Advances
under a Credit Agreement, dated as of September 19, 1997, among the Borrower,
NationsBank of Texas, N.A., as Administrative Agent, and the lenders parties
thereto (as amended, restated, supplemented, renewed, extended or otherwise
modified from time to time, "Credit Agreement"), to which reference is made for
a statement of the rights and obligations of the Lender and the duties and
obligations of the Borrower in relation thereto; but neither this reference to
the Credit Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal sum
of and interest on this Note when due.
THIS NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW), AND OF THE UNITED STATES OF AMERICA. THE
BORROWER AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS,
TEXAS SHALL HAVE JURISDICTION OVER THE PROCEEDINGS IN CONNECTION WITH THIS NOTE
AND THE OTHER LOAN DOCUMENTS.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL
A-1
<PAGE>
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
DOSKOCIL MANUFACTURING COMPANY, INC.
By:
Name:
Title:
A-2
<PAGE>
EXHIBIT B
FACILITY A TERM LOAN NOTE
-------------------------
Dallas, Texas $ ______________________ September 19, 1997
DOSKOCIL MANUFACTURING COMPANY, INC., a Texas corporation (the
"Borrower"), for value received, promises to pay to the order of
_____________________________________ ("Lender"), at the principal office of
NationsBank of Texas, N.A., in lawful money of the United States of America, the
principal sum of ____________________________________________________________
___________________________ ($______________), or such lesser sum as shall be
due and payable from time to time hereunder, as hereinafter provided. All terms
used but not defined herein shall have the meanings set forth in the Credit
Agreement described below.
Principal of and interest on the unpaid principal balance of Facility A
Term Loan Advances under this Facility A Term Loan Note from time to time
outstanding shall be due and payable as set forth in the Credit Agreement.
This Facility A Term Loan Note is issued pursuant to and evidences Facility
A Term Loan Advances under a Credit Agreement, dated as of September 19, 1997,
among the Borrower, NationsBank of Texas, N.A., as Administrative Agent, and the
lenders parties thereto (as amended, restated, supplemented, renewed, extended
or otherwise modified from time to time, "Credit Agreement"), to which reference
is made for a statement of the rights and obligations of the Lender and the
duties and obligations of the Borrower in relation thereto; but neither this
reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Borrower to pay the
principal sum of and interest on this Facility A Term Loan Note when due.
THIS FACILITY A TERM LOAN NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS
(WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW), AND OF THE UNITED STATES OF
AMERICA. THE BORROWER AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED
IN DALLAS, TEXAS SHALL HAVE JURISDICTION OVER THE PROCEEDINGS IN CONNECTION WITH
THIS FACILITY A TERM LOAN NOTE AND THE OTHER LOAN DOCUMENTS.
THIS FACILITY A TERM LOAN NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS,
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
B-1
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC.
By:
Name:
Title:
B-2
<PAGE>
EXHIBIT C
FACILITY B TERM LOAN NOTE
-------------------------
Dallas, Texas $ ______________________ September 19, 1997
DOSKOCIL MANUFACTURING COMPANY, INC., a Texas corporation (the "Borrower"),
for value received, promises to pay to the order of _________________________
("Lender"), at the principal office of NationsBank of Texas, N.A., in lawful
money of the United States of America, the principal sum of _________________
____________________________________________________________ ($______________),
or such lesser sum as shall be due and payable from time to time hereunder, as
hereinafter provided. All terms used but not defined herein shall have the
meanings set forth in the Credit Agreement described below.
Principal of and interest on the unpaid principal balance of Facility B
Term Loan Advances under this Facility B Term Loan Note from time to time
outstanding shall be due and payable as set forth in the Credit Agreement.
This Facility B Term Loan Note is issued pursuant to and evidences Facility
B Term Loan Advances under a Credit Agreement, dated as of September 19, 1997,
among the Borrower, NationsBank of Texas, N.A., as Administrative Agent, and the
lenders parties thereto (as amended, restated, supplemented, renewed, extended
or otherwise modified from time to time, "Credit Agreement"), to which reference
is made for a statement of the rights and obligations of the Lender and the
duties and obligations of the Borrower in relation thereto; but neither this
reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Borrower to pay the
principal sum of and interest on this Facility B Term Loan Note when due.
THIS FACILITY B TERM LOAN NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS
(WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW), AND OF THE UNITED STATES OF
AMERICA. THE BORROWER AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED
IN DALLAS, TEXAS SHALL HAVE JURISDICTION OVER THE PROCEEDINGS IN CONNECTION WITH
THIS FACILITY B TERM LOAN NOTE AND THE OTHER LOAN DOCUMENTS.
THIS FACILITY B TERM LOAN NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS,
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
C-1
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC.
By:
Name:
Title:
C-2
<PAGE>
EXHIBIT D
SECURITY AGREEMENT
Between
DOSKOCIL MANUFACTURING COMPANY, INC.
as Debtor
and
NATIONSBANK OF TEXAS, N.A.
as Administrative Agent
September 19, 1997
D-1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
I. GRANT
-----
<C> <S> <C>
1.1. Assignment and Grant of Security......................... 1
1.2. Description of Obligations............................... 4
1.3. Debtor Remains Liable.................................... 5
1.4. Delivery of Security and Instrument Collateral........... 5
II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1. Representations and Warranties........................... 5
III. COVENANTS
---------
3.1. Further Assurances....................................... 7
3.2. Equipment, Fixtures and Inventory........................ 8
3.3. Insurance................................................ 9
3.4. Place of Perfection; Records; Collection of
Receivables, Chattel Paper and Instruments............... 10
3.5. Transfers and Other Liens................................ 11
3.6. Rights to Dividends and Distributions.................... 11
3.7. Right of Administrative Agent to Notify Issuers.......... 12
3.8. Administrative Agent Appointed Attorney-in-Fact.......... 12
IV. RIGHTS AND POWERS OF Administrative Agent
-----------------------------------------
4.1. Administrative Agent May Perform......................... 13
4.2. Administrative Agent's Duties............................ 13
4.3. Remedies................................................. 13
4.4. Further Approvals Required............................... 16
4.5. Indemnity and Expenses................................... 16
V. MISCELLANEOUS
-------------
5.1. Cumulative Rights........................................ 17
5.2. Modifications; Amendments; Etc........................... 17
5.3. Continuing Security Interest............................. 17
5.4. GOVERNING LAW; TERMS..................................... 17
5.5. WAIVER OF JURY TRIAL..................................... 18
5.6. Administrative Agent's Right to Use Agents............... 18
5.7. No Interference, Compensation or Expense................. 18
5.8. Waivers of Rights Inhibiting Enforcement................. 18
5.9. Notices and Deliveries................................... 18
(a) Manner of Delivery.................................. 18
(b) Addresses........................................... 19
(c) Effectiveness....................................... 19
5.10. Successors and Assigns................................... 20
5.11. Loan Document............................................ 20
5.12. Consent to Jurisdiction; Waiver of Immunities............ 20
</TABLE>
D-2
<PAGE>
<TABLE>
<C> <S> <C>
5.13. Severability............................................. 20
5.14. Obligations Not Affected................................. 20
5.15. Counterparts............................................. 21
5.16. No Novation.............................................. 21
-----------
5.17. ENTIRE AGREEMENT......................................... 21
</TABLE>
D-3
<PAGE>
SCHEDULES:
Schedule 1 - Equipment, and Inventory Locations
Schedule 2 - Trade Names
Schedule 3 - Restricted Accounts
Schedule 4 - Rolling Stock
D-4
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Agreement"), dated as of September 19, 1997, made
by Doskocil Manufacturing Company, Inc., a Texas corporation ("Debtor"), in
favor of NationsBank of Texas, N.A., a national banking association, as
Administrative Agent ("Administrative Agent") for itself and each other lender a
party to the Credit Agreement described below (singly, a "Secured Party", and
collectively, the "Secured Parties").
BACKGROUND:
----------
(1) Debtor, Administrative Agent and Secured Parties entered into the
Credit Agreement dated as of September 19, 1997 (as the same may hereafter be
supplemented, amended, modified and restated from time to time, being the
"Credit Agreement"; the terms defined therein and not otherwise defined herein
being used herein as therein defined).
(2) It is the intention of the parties hereto that this Agreement create a
first priority security interest securing the payment of the obligations set
forth in Section 1.2 hereof, subject only to Permitted Liens as provided in the
-----------
Loan Documents.
(3) It is a condition precedent to the obligation of the Secured Parties to
make the Advances, and issue, or participate in the issuance of, Letters of
Credit under the Credit Agreement that Debtor shall have executed and delivered
this Agreement.
AGREEMENT.
---------
NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and in order to induce Secured Parties to make the Advances
and issue, or participate in the issuance of, Letters of Credit under the Credit
Agreement, Debtor hereby agrees with Administrative Agent for its benefit and
the ratable benefit of Secured Parties, as hereinafter set forth.
I. GRANT
-----
1.a. Assignment and Grant of Security. Debtor hereby assigns, pledges,
hypothecates and transfers to Administrative Agent, for its benefit and the
ratable benefit of Secured Parties, and hereby grants to Administrative Agent,
for its benefit and the ratable benefit of Secured Parties, a security interest
in, the entire right, title and interest of Debtor, in and to the following
assets of Debtor, whether now owned or hereafter acquired ("Collateral"):
D-5
<PAGE>
(a) all writings which evidence both a monetary obligation and a security
interest in or a lease of specific goods ("Chattel Paper");
(b) all documents, warehouse receipts, bills of lading, including, without
limitation, documents of title (as defined in the UCC) or other receipts
covering, evidencing or representing collateral ("Documents");
(c) all equipment (as defined in the UCC), and (whether or not included in
such definition) all vehicles, tractors, trailers, rolling stock, machinery,
chattels, tools, parts, furniture, furnishings, and supplies, of every nature,
wherever located, all additions, accessories and improvements thereto and
substitutions therefor and all accessories, parts and equipment which may be
attached to or which are necessary for the operation and use of such personal
property, whether or not the same shall be deemed to be affixed to real
property, together with all accessions thereto, and all rights under or arising
out of present or future contracts relating to the foregoing, excluding,
however, any such Equipment or other property which is financed with
Indebtedness permitted to be incurred pursuant to Sections 7.1(c) and 7.1(h) of
the Credit Agreement ("Equipment");
(d) all equipment, fixtures and articles of personal property now or
hereafter attached to or used in or about any building or buildings now erected
or hereafter to be erected on any real property now or hereafter owned or leased
by Debtor (the "Property"), which are necessary to the complete and comfortable
use and occupancy of such building or buildings for the purposes for which they
were or are to be erected; all materials to be delivered to the Property and
used or to be used in connection with the construction of any building to be
constructed on the Property, including, but not limited to, all masonry, siding,
roof shingles, flooring, doors, windows, tile, shutters, stoves, ovens, awnings,
screens, cabinets, shades, blinds, carpets, draperies, furniture, furnishings,
plumbing, heating, air conditioning, lighting, ventilating, refrigerating,
cooking, laundry and incinerating equipment and all fixtures and appurtenances
thereto, and such other goods and chattels and personal property as are ever
used or furnished in operating such buildings or the activities conducted
therein, and all building materials and equipment now or hereafter delivered to
the Property and intended to be installed thereon ("Fixtures");
(e) all general intangibles (as defined in the UCC), and (whether or not
included in such definition) all contract rights; all trade secrets, inventions,
processes, production methods, proprietary information and know-how; and all
licenses or other agreements granted to Debtor with respect to any of the
foregoing (excluding, however, any such licenses or agreements which prohibit
the assignment thereof or the granting of a security interest therein or are
otherwise terminated or rendered void as a result
D-6
<PAGE>
thereof); all information, advertising lists, customer lists, identification of
suppliers, data, plans, blueprints, specifications, designs, drawings, recorded
knowledge, surveys, engineering reports, test reports, manuals, materials
standards, processing standards, performance standards, telephone numbers and
telephone listings, catalogs, books, records, computer and automatic machinery
software and programs, and the like pertaining to operations by or the business
of Debtor; all field accounting information and all media in which or on which
any of the information or knowledge or data or records may be recorded or stored
and all computer programs used for the compilation or printout of such
information, knowledge, records or data; all licenses, consents, permits,
variances, certifications and approvals of all Tribunals now or hereafter held
by Debtor pertaining to operations or business now or hereafter conducted; all
rights to receive return of deposits and trust payments; all rights to payment
under letters of credit and similar agreements; and all causes of action,
rights, claims and warranties now or hereafter owned or acquired by Debtor
("General Intangibles");
(f) all instruments and letters of credit (each as defined in the UCC, and
(whether or not included in such definitions) all promissory notes, drafts,
bills of exchange and trade acceptances ("Instruments");
(g) all inventory in all of its forms, wherever located, now or hereafter
existing, including, but not limited to, (i) all raw materials and work in
process therefor, finished goods thereof, and materials used or consumed in the
manufacture or production thereof, (ii) goods in which Debtor has an interest in
mass or a joint or other interest or right of any kind (including, without
limitation, goods in which Debtor has an interest or right as consignee but only
to the extent of Debtor's interest therein), and (iii) goods which are returned
to or repossessed by Debtor, and all accessions thereto and products thereof and
documents therefor (any and all such inventory, accessions, products and
documents being the "Inventory");
(h) all accounts, contract rights, chattel paper, documents, instruments,
deposit accounts, general intangibles, tax refunds (including, without
limitation, all federal and state income tax refunds and benefits of net
operating loss carry forwards) and other obligations of any kind owing to
Debtor, now or hereafter existing, whether or not arising out of or in
connection with the sale or lease of goods or the rendering of services, and all
rights now or hereafter existing in and to all security agreements, leases, and
other contracts securing or otherwise relating to any such accounts, contract
rights, chattel paper, documents, instruments, deposit accounts, general
intangibles or obligations (any and all such accounts, contract rights, chattel
paper, documents, instruments, deposit accounts, general intangibles and
obligations being the "Receivables");
D-7
<PAGE>
(i) all agreements with each manufacturer, vendor, sales agent, sales
representative and each other Person pursuant to which Debtor receives,
maintains, sells, leases or otherwise disposes of Inventory, including all
agreements permitting the use of each such Person's name, logo, trademarks,
tradenames and advertising ("Vendor Agreements");
(j) all right, title and interest of Debtor in, to and under each contract
and other agreement relating to the lease, sale or other disposition of
Collateral;
(k) all rights, claims and benefits of Debtor against any Person arising
out of, relating to or in connection with Collateral purchased by Debtor,
including, without limitation, any such rights, claims or benefits against any
Person storing or transporting such Collateral;
(l) the balance of every deposit account of Debtor under control of
Administrative Agent and each other Secured Party and each of their respective
Affiliates and any other claim of Debtor against Administrative Agent and each
other Secured Party, now or hereafter existing, liquidated or unliquidated, and
all money, instruments, securities, documents, chattel paper, credits, claims,
demands, income, and any other property, rights and interests of Debtor which at
any time shall come into the possession or custody or under the control of
Administrative Agent or any Secured Party or any of its agents, affiliates or
correspondents, for any purpose, and the proceeds of any thereof (Administrative
Agent and each other Secured Party shall be deemed to have possession of any of
the Collateral in transit to or set apart for it or any of its agents,
affiliates or correspondents).
(m) 100% of the issued and outstanding capital stock of each Domestic
Subsidiary of Debtor, together with all Dividends, cash, proceeds, profits,
instruments, distributions and other property from time to time distributed in
respect thereof, and any subscription rights or warrants to acquire any interest
in such Subsidiary;
(n) 65% of the issued and outstanding capital stock of each Foreign
Subsidiary of Debtor, together with all Dividends, cash, proceeds, profits,
instruments, distributions and other property from time to time distributed in
respect thereof and any subscription rights or warrants to acquire any interest
in such Subsidiary;
(o) all insurance policies and bonds and claims and payments under any
Collateral;
(p) all property similar to the above hereafter acquired by Debtor; and
D-8
<PAGE>
(q) all accessions to, substitutions for and replacements, proceeds and
products of any and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property of the types described in this
Section 1.1) and, to the extent not otherwise included, all (i) payments under
- -----------
insurance (whether or not Administrative Agent is the loss payee thereof), or
any indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Collateral and (ii) cash.
1.b. Description of Obligations. This Agreement creates a first priority
security interest in the Collateral, subject only to Permitted Liens as provided
in the Loan Documents, to secure the payment and performance of any and all
obligations now or hereafter existing of Debtor, each other Obligor and any
other Person under the Credit Agreement and the other Loan Documents, including
any extensions, modifications, substitutions, amendments and renewals thereof,
whether for principal, interest, fees, premium, expenses, reimbursement
obligations, indemnification or otherwise (all such obligations of Debtor, each
other Obligor and each other Person being the "Obligations"). Without limiting
the generality of the foregoing, this Agreement secures the payment of all
amounts which constitute part of the Obligations and would be owed by Debtor,
each other Obligor and any other Person to Administrative Agent or any Secured
Party under any Loan Document, but for the fact that they are unenforceable or
not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding under any Debtor Relief Law involving Debtor, any other Obligor or
any other Person (including all such amounts which would become due or would be
secured but for the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding of Debtor, any other Obligor
or any other Person under any Debtor Relief Law). Notwithstanding anything
herein to the contrary, the Obligations secured hereby shall be limited to an
aggregate amount which is equal to the largest amount that would not render the
Lien granted herein subject to avoidance under Section 548 of the Bankruptcy
Code or any applicable provisions of comparable state law.
1.c. Debtor Remains Liable. Anything herein to the contrary
notwithstanding, (a) Debtor shall remain 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 Administrative Agent of any
of the rights hereunder shall not release Debtor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) neither Administrative Agent nor any Secured Party shall have any obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall Administrative Agent or any Secured Party be
obligated to perform any of the obligations or duties of Debtor thereunder or to
take
D-9
<PAGE>
any action to collect or enforce any claim for payment assigned hereunder.
1.d. Delivery of Security and Instrument Collateral. All certificates
(except certificates of title with respect to motor vehicles shall only be
required to be delivered upon request of Administrative Agent) or instruments
representing or evidencing the Collateral shall be delivered to and held by or
on behalf of Administrative Agent pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed instruments
of transfer or assignment in blank, all in form and substance satisfactory to
Administrative Agent. Administrative Agent shall have the right, as provided in
Section 3.6, after the occurrence, and during the continuance, of an Event of
- -----------
Default, but without any requirement for prior written notice to Debtor, to
transfer to or to register in the name of Administrative Agent or any of its
nominees any or all of such Collateral. In addition, Administrative Agent shall
have the right at any time after the occurrence, and during the continuance, of
an Event of Default to exchange certificates or instruments representing or
evidencing Collateral for certificates or instruments of smaller or larger
denominations. Except as provided in Section 3.8(d), Debtor maintains the
--------------
voting rights in the Securities Collateral (as defined below) which was granted
in the Securities Collateral pursuant to Section 1.1(m) and (n).
-------------- ---
II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.a. Representations and Warranties. Debtor represents and warrants to
Administrative Agent and each Secured Party, with respect to itself and the
Collateral, as follows:
(a) All of the Equipment, Fixtures and Inventory pledged by Debtor
hereunder are located at the places specified on Schedule 1 hereto (as
----------
supplemented from time to time by Debtor by written notice to Administrative
Agent) or in transit to a place specified on Schedule 1 hereto (as supplemented
----------
from time to time by Debtor by written notice to Administrative Agent) or in
transit for sale to a third-party purchaser that upon such sale will become the
obligor under a Receivable or promptly pay for such Equipment, Fixtures and
Inventory. The chief place of business and chief executive office of Debtor and
the office where Debtor keeps all of its records concerning the Receivables, are
located at the place specified on Schedule 1 hereto. Schedule 1 is a complete
---------- ----------
and correct list of, as to any leased property on which any Collateral is
located, the lease or other agreement (and all amendments thereto) pursuant to
which Debtor has use of such property (complete and correct copies of which have
been provided to Administrative Agent), the lessor pursuant to such agreement,
the recording information for such agreement, the description of such property
sufficient for recording and the name of the record owner of such property. All
Chattel Paper, promissory notes or other
D-10
<PAGE>
instruments evidencing the Receivables (excluding checks) have been delivered
and pledged to Administrative Agent duly endorsed and accompanied by such duly
executed instruments of transfer or assignment as are necessary for such pledge,
to be held as pledged collateral. All Equipment of Debtor consisting of
vehicles, tractors, trailers and other rolling stock with a net book value of
$15,000 or more are identified on Schedule 4.
----------
(b) Debtor is the legal and beneficial owner of the Collateral pledged by
it free and clear of any Lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement and
permitted pursuant to Section 7.2 of the Credit Agreement and any other Lien
-----------
permitted by the Credit Agreement. No effective financing statement or other
similar document used to perfect and preserve a security interest under the laws
of any jurisdiction covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of Administrative
Agent relating to this Agreement and with respect to any Lien permitted by the
Credit Agreement. As of the date hereof, Debtor has the trade names set forth
on Schedule 2 (and no others). To the best of Debtor's knowledge, Debtor
----------
(including any corporate or partnership predecessor) has not existed or operated
under any name other than as stated on Schedule 2 since the date three years
----------
preceding the date of this Agreement.
(c) This Agreement and the pledge of the Collateral pursuant hereto,
together with the filing of financing statements containing the description of
the Collateral in the jurisdictions set forth on Schedule 1, which will be made
----------
immediately following the date of closing, creates a valid and perfected first
priority security interest in the Collateral in which a security interest can be
perfected by filing a UCC financing statement, securing the payment of the
Obligations; provided that additional actions may be required with respect to
--------
the perfection of proceeds of the Collateral; further provided that Secured
------- --------
Party retains physical possession of any Collateral, the possession of which is
required for perfection.
(d) No consent of any Person and no authorization, approval or other action
by, and no notice to or filing with, any Tribunal is required (i) for the pledge
by Debtor of the Collateral pledged by it hereunder, for the grant by Debtor of
the security interest granted hereby or for the execution, delivery or
performance of this Agreement by Debtor, (ii) for the perfection or maintenance
of the pledge, assignment and security interest created hereby (including the
first priority nature of such pledge, assignment and security interest as
provided herein) (except for the filing of financing and continuation statements
under the UCC, fixture filings and filings with the United States Patent and
Trademark Office) or (iii) for the exercise by Administrative Agent of the
rights provided for in this Agreement (except for consents of landlords pursuant
to the Landlords' Waivers and as otherwise
D-11
<PAGE>
required by law, including pursuant to Section 4.4 of this Agreement).
-----------
(e) None of the Collateral described in Sections 1.1(m) and 1.1(n)
--------------- ------
("Securities Collateral") is subject to any unpaid capital call or dispute, any
buy-sell, voting trust, transfer restriction, preferential right to purchase or
similar agreement or any option, warrant, put or call or similar agreement
except to the extent permitted by the Credit Agreement. All of the Securities
Collateral are duly authorized, validly issued and non-assessable and were not
issued in violation of the Rights of any Person.
(f) All Inventory produced in the United States of America has been
produced in substantial compliance with the Fair Labor Standards Act.
III. COVENANTS
---------
3.a. Further Assurances. (a) Debtor agrees that where any agreement
existing as of the date hereof or hereafter to which Debtor is a party contains
any restriction that could reasonably be expected to prohibit Debtor from
granting any security interest under this Agreement, Debtor will use its best
efforts to obtain the necessary consent to or waiver of such restriction from
any Person so as to enable Debtor to effectively grant to Administrative Agent
such security interest under this Agreement.
(b) Debtor agrees that from time to time, at the expense of Debtor, Debtor
will promptly execute and deliver all further instruments and documents
(including supplements to all schedules), and take all further action, that may
be necessary or desirable, and that Administrative Agent may reasonably request,
in order to perfect and protect any pledge, assignment or security interest
granted or purported to be granted hereby, and the priority thereof, or to
enable Administrative Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of
the foregoing, upon reasonable written request by Administrative Agent, Debtor
will: (i) mark conspicuously each Chattel Paper included in Receivables, and,
at the reasonable request of Administrative Agent, each of its records
pertaining to the Collateral with the following legend:
THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT TO A
SECURITY AGREEMENT DATED SEPTEMBER 19, 1997 (AS THE SAME HAS BEEN AND MAY
HEREAFTER BE AMENDED, MODIFIED OR RESTATED) MADE BY DOSKOCIL MANUFACTURING
COMPANY, INC. IN FAVOR OF NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE
AGENT FOR CERTAIN LENDERS, AND PURSUANT TO A CREDIT AGREEMENT DATED AS OF
SEPTEMBER 19, 1997 (AS THE SAME HAS BEEN AND MAY HEREAFTER BE AMENDED,
MODIFIED OR RESTATED)
D-12
<PAGE>
or such other legend, in form and substance reasonably satisfactory to and as
specified by Administrative Agent, indicating that such Chattel Paper or
Collateral is subject to the pledge, assignment and security interest granted
hereby; (ii) if any Collateral shall be evidenced by a promissory note or other
instrument or be Chattel Paper, deliver and pledge to Administrative Agent
hereunder such note, instrument or Chattel Paper duly indorsed and accompanied
by duly executed instruments of transfer or assignment, all in form and
substance reasonably satisfactory to Administrative Agent; and (iii) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as
Administrative Agent may reasonably request, in order to perfect and preserve
the pledge, assignment and security interest granted or purported to be granted
hereby.
(c) In addition to such other information as shall be specifically provided
for herein, Debtor will furnish to Secured Party from time to time statements
and schedules further identifying and describing the Collateral and such other
lists, documents, reports, and product, service and sales documents in
connection with the Collateral as Secured Party may reasonably request, all in
reasonable detail. In connection with its enforcement of the security interest,
Administrative Agent may use such information or transfer it to any assignee
permitted hereunder for such assignee's use.
(d) Debtor hereby authorizes Administrative Agent to file one or more
financing or continuation statements relating to all or any part of the
Collateral without the signature of Debtor where permitted by law provided
Administrative Agent shall give reasonably prompt notice of any such filings to
Debtor. A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.
(e) Debtor will not, and will not permit any Person to, materially revise,
modify, amend or restate the articles of incorporation of any corporation the
stock or other interest in which is Collateral or the partnership, joint venture
or other organizational document of any partnership or joint venture any
interest in which is Collateral or terminate, cancel or dissolve any such
Person, except as permitted under the Credit Agreement.
3.b. Equipment, Fixtures and Inventory.
(a) Debtor shall not keep the Equipment, Fixtures and Inventory pledged by
it hereunder (other than Inventory sold in the ordinary course of business) in
any location other than the places specified in Schedule 1 unless the Debtor has
----------
delivered to Administrative Agent a financing statement for such Equipment,
Fixtures and Inventory kept by Debtor at such location or such other
documentation in the opinion of Administrative Agent which is
D-13
<PAGE>
necessary to properly perfect or maintain the perfection of the security
interest granted herein in such Collateral.
(b) Debtor shall cause the Equipment and Fixtures pledged by it hereunder
that are necessary for Debtor's business to be maintained and preserved in the
same condition, repair and working order as when purchased, ordinary wear and
tear excepted in accordance with Debtor's past practices, and shall forthwith,
or in the case of any material loss or damage to any of the Equipment or
Fixtures as quickly as practicable after the occurrence thereof, make or cause
to be made all reasonable repairs, replacements, and other improvements in
connection therewith which are necessary or desirable to such end. Debtor shall
promptly furnish to Administrative Agent a statement respecting any loss or
damage which singly or in the aggregate equals or exceeds $150,000 for any
fiscal year to any of the Equipment pledged by it hereunder. Debtor shall
promptly furnish to Administrative Agent a statement respecting any loss or
damage which singly or in the aggregate equals or exceeds $150,000 for any
fiscal year to any of the Inventory pledged by it hereunder.
(c) Debtor shall comply with all requirements of the Fair Labor Standards
Act.
3.c. Insurance. Debtor shall, at its own expense, maintain insurance with
respect to the Collateral in accordance with the terms set forth in Section 5.5
-----------
of the Credit Agreement. Debtor further covenants and agrees to keep the
Collateral which is Inventory, Equipment, Fixtures and other tangible personal
property insured in such amounts, against such risks and with such insurers as
is consistent with customary industry practice, provided that none of such
insurance shall be in amounts less than the greater of (i) the replacement value
and (ii) the original cost of the covered property (less any deduction standard
in the industry for such type of property), subject in the case of any property
damage insurance to normal and customary rights granted in the ordinary course
of business to (A) any landlord (with respect to the property covered by any
lease), (B) in the case of any equipment financing, to any equipment lessor or
lender (with respect to the equipment covered thereby), or (C) mortgagees of any
real property. All such policies of insurance shall be written for the benefit
of Administrative Agent and Debtor, as their interests may appear, and shall
provide for at least thirty days' prior written notice of cancellation or change
of coverage to Administrative Agent. Debtor shall promptly furnish to
Administrative Agent evidence of such insurance in form and content satisfactory
to Administrative Agent. If Debtor fails to maintain the insurance it is
required to maintain with respect to the Collateral in accordance with this
Section 3.3, upon notice to Debtor, Administrative Agent may at its own option
- -----------
obtain insurance on only Administrative Agent's interest in such Collateral, any
premium thereby paid by Administrative Agent to become part of the Obligations,
bear interest prior to the existence of an Event of Default, at the then
applicable Base Rate
D-14
<PAGE>
Basis, and during the existence of an Event of Default, at the Default Rate. In
the event Administrative Agent maintains such substitute insurance, the
additional premium for such insurance shall be due on demand and payable by
Debtor to Administrative Agent in accordance with any notice delivered to Debtor
by Administrative Agent. Debtor hereby grants Administrative Agent a security
interest in any refunds of unearned premiums in connection with any
cancellation, adjustment or termination of any policy of insurance required by
Administrative Agent and in all proceeds of such insurance and hereby appoints
Administrative Agent its attorney-in-fact (exercisable from and after the
occurrence of an Event of Default which is continuing) to endorse any check or
draft that may be payable to Debtor in order to collect such refunds or
proceeds. Proceeds of insurance shall be applied as follows: first, to
-----
reimburse Administrative Agent for all costs and expenses, if any, including
reasonable attorneys' fees, incurred in connection with the collection of such
proceeds; second, if an Event of Default has not occurred and is continuing or
------
the amount of proceeds in respect of any one loss or damage does not exceed
$750,000, the proceeds shall be used to repair or replace the Collateral and
Debtor shall provide Administrative Agent with evidence satisfactory to
Administrative Agent of such use; and third, if an Event of Default has occurred
-----
and is continuing or the proceeds in respect of any one loss or damage is equal
to or greater than $750,000, the proceeds shall, at Administrative Agent's
direction, be used to repair or replace the Collateral or applied to the
Obligations as provided in the Credit Agreement.
3.d. Place of Perfection; Records; Collection of Receivables, Chattel Paper
and Instruments.
(a) Debtor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Receivables, and
the originals of all Chattel Paper and Instruments, at the location therefor
specified in Section 2.1(a), in each case which may be changed upon written
--------------
notice to the Administrative Agent at least 30 days prior to such change.
Debtor will hold and preserve such records and Chattel Paper and Instruments and
will permit representatives of Administrative Agent at any time during normal
business hours and after reasonable notice to inspect and make abstracts from
and copies of such records and Chattel Paper and Instruments.
(b) Except as otherwise provided in this Section 3.4(b), Debtor shall
--------------
continue to collect, at its own expense, all amounts due or to become due Debtor
under the Receivables, Chattel Paper and Instruments. In connection with such
collections, Debtor may take (and, upon the occurrence and during the
continuance of an Event of Default at Administrative Agent's direction, shall
take) such action as Debtor or, after the occurrence and during the continuance
of an Event of Default, Administrative Agent, may deem necessary or advisable to
enforce collection of the Receivables, Chattel Paper and Instruments; provided,
--------
however, that
- -------
D-15
<PAGE>
Administrative Agent shall have the right (upon an Event of Default which has
occurred and is continuing and upon notice to Debtor) to notify the account
debtors or obligors under any Receivables, Chattel Paper and Instruments of the
assignment of such Receivables, Chattel Paper and Instruments to Administrative
Agent and to direct such account debtors or obligors to make payment of all
amounts due or to become due to Debtor thereunder directly to Administrative
Agent and, upon such notification at the expense of Debtor, to enforce
collection of any such Receivables, Chattel Paper and Instruments, and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as Debtor might have done or as Administrative Agent
deems appropriate. Upon the occurrence and during the continuance of an Event
of Default, all amounts and proceeds (including Instruments) received by Debtor
in respect of the Receivables, Chattel Paper and Instruments shall be received
in trust for the benefit of Administrative Agent hereunder, shall be segregated
from other funds of Debtor and, after receipt of notice from Administrative
Agent, shall be forthwith paid over to Administrative Agent in the same form as
so received (with any necessary indorsement) to be applied as provided in the
Credit Agreement. Upon the occurrence and during the continuation of an Event
of Default, Debtor shall not adjust, settle or compromise the amount or payment
of any Receivable, Chattel Paper or Instrument, release wholly or partly any
account debtor or obligor thereof, or allow any credit or discount thereon other
than those made in the ordinary course of business.
3.e. Transfers and Other Liens. Debtor shall not (i) sell, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Collateral, except as permitted under the Credit
Agreement, or (ii) create or permit to exist any Lien, security interest, option
or other charge or encumbrance upon or with respect to any of the Collateral,
except for the security interest under this Agreement (and except as provided
for in the Credit Agreement).
3.f. Rights to Dividends and Distributions. With respect to any
certificates, bonds, or other instruments or securities constituting a part of
the Collateral, Administrative Agent shall have authority during the continuance
of an Event of Default, either to have the same registered in Administrative
Agent's name or in the name of a nominee, and, with or without such
registration, upon such notification to demand of the issuer thereof, and to
receive and receipt for, any and all Dividends (including any stock or similar
dividend or distribution) payable in respect thereof, whether they be ordinary
or extraordinary. If Debtor shall become entitled to receive or shall receive
any interest in or certificate (including, without limitation, any interest in
or certificate representing a Dividend or a distribution in connection with any
reclassification, increase, or reduction of capital, or issued in connection
with any reorganization), or any option or rights arising from or relating
D-16
<PAGE>
to any of the Collateral that is evidenced by a certificate or other instrument
or security, whether as an addition to, in substitution of, as a conversion of,
or in exchange for any of the Collateral, or otherwise, Debtor agrees to accept
the same as Administrative Agent's agent and to hold the same in trust on behalf
of and for the benefit of Administrative Agent, and to deliver the same
immediately to Administrative Agent in the exact form received, with appropriate
undated stock or similar powers, duly executed in blank, to be held by
Administrative Agent, subject to the terms hereof, as Collateral. Unless an
Event of Default is in existence, Debtor shall be entitled to receive all cash
Dividends paid in respect of any of the Collateral (subject to the restrictions
of any other Loan Document). Upon the occurrence and during the continuance of
an Event of Default, Administrative Agent shall be entitled to all Dividends,
and to any sums paid upon or in respect of any Collateral, and to any additional
securities issued in respect of the Securities Collateral, upon the liquidation,
dissolution, or reorganization of the issuer thereof, all of which shall be paid
to Administrative Agent to be held by it as additional collateral security for
the Obligations and application to the Obligations at the discretion of
Administrative Agent. All Dividends paid or distributed in respect of the
Collateral which are received by Debtor in violation of this Agreement shall,
until paid or delivered to Administrative Agent, be held by Debtor in trust as
additional Collateral for the Obligations.
3.g. Right of Administrative Agent to Notify Issuers. At any time during
the continuance of an Event of Default, Administrative Agent may notify issuers
of the Securities Collateral to make payments of all Dividends directly to
Administrative Agent and Administrative Agent may take control of all proceeds
of any Securities Collateral. Until Administrative Agent elects to exercise
such rights, during the continuance of an Event of Default, Debtor, as agent of
Administrative Agent, shall collect and segregate all Dividends and other
amounts paid or distributed with respect to the Securities Collateral. To the
extent that Administrative Agent has notified any issuer of Securities
Collateral of an Event of Default and such Event of Default is cured or
otherwise waived, Administrative Agent shall promptly notify such issuer of such
fact.
3.h. Administrative Agent Appointed Attorney-in-Fact. Debtor hereby
irrevocably appoints Administrative Agent Debtor's attorney-in-fact (exercisable
from and after the occurrence of an Event of Default which is continuing), with
full authority in the place and stead of Debtor and in the name of Debtor or
otherwise to take any action and to execute any instrument which Administrative
Agent may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to Administrative
Agent in accordance with Section 3.3,
-----------
D-17
<PAGE>
(b) to ask for, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral,
(c) to receive, indorse, and collect any drafts or other Instruments,
documents and Chattel Paper, in connection with clauses (a) or (b) above, and
(d) to file any claims or take any action or institute any proceedings
which Administrative Agent may deem necessary or desirable for the collection of
any of the Collateral or otherwise to enforce compliance with the terms and
conditions of any Collateral or the rights of Administrative Agent with respect
to any of the Collateral. DEBTOR HEREBY IRREVOCABLY GRANTS TO ADMINISTRATIVE
AGENT DEBTOR'S PROXY (EXERCISABLE FROM AND AFTER THE OCCURRENCE OF AN EVENT OF
DEFAULT WHICH IS CONTINUING) TO VOTE ANY SECURITIES COLLATERAL AND APPOINTS
ADMINISTRATIVE AGENT DEBTOR'S ATTORNEY-IN-FACT (EXERCISABLE FROM AND AFTER THE
OCCURRENCE OF AN EVENT OF DEFAULT WHICH IS CONTINUING) TO PERFORM ALL
OBLIGATIONS OF DEBTOR UNDER THIS AGREEMENT AND TO EXERCISE ALL OF ADMINISTRATIVE
AGENT'S RIGHTS HEREUNDER. THE PROXY AND EACH POWER OF ATTORNEY HEREIN GRANTED
ARE COUPLED WITH AN INTEREST AND ARE IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL
OF THE OBLIGATIONS.
Secured Party shall not exercise any powers granted pursuant to this
appointment as attorney-in-fact at any time that Debtor is fully performing its
obligations hereunder. This appointment as attorney-in-fact shall terminate
upon the termination of this Agreement pursuant to Section 5.3 hereof.
-----------
IV. RIGHTS AND POWERS OF Administrative Agent
-----------------------------------------
4.a. Administrative Agent May Perform. If Debtor fails to perform any
agreement contained herein, Administrative Agent may itself perform, or cause
performance of, such agreement, and the reasonable expenses of Administrative
Agent incurred in connection therewith shall be payable by Debtor under Section
-------
4.5.
- ----
4.b. Administrative Agent's Duties. The powers conferred on Administrative
Agent hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the duty to
exercise reasonable care in respect of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Administrative Agent
shall have no duty as to any Collateral, as to ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Collateral, whether or not Administrative Agent has or
is deemed to have knowledge of such matters, or as to the taking of any
necessary steps to preserve rights against prior parties. The Administrative
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if
D-18
<PAGE>
such Collateral is accorded treatment substantially equal to that which
Administrative Agent accords its own property, except to the extent of any gross
negligence or willful misconduct of the Administrative Agent. Except as
provided in this Section 4.2, Administrative Agent shall not have any duty or
-----------
liability to protect or preserve any Collateral or to preserve rights pertaining
thereto. Nothing contained in this Agreement shall be construed as requiring or
obligating Administrative Agent, and Administrative Agent shall not be required
or obligated, to (i) present or file any claim or notice or take any action,
with respect to any Collateral or in connection therewith or (ii) notify Debtor
of any decline in the value of any Collateral.
4.c. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) Administrative Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code in effect in the State of Texas at that time (the "UCC")
(whether or not the UCC applies to the affected Collateral), and also may (i)
require Debtor to, and Debtor hereby agrees that it will at its expense and upon
request of Administrative Agent forthwith, assemble all or part of the
Collateral which is capable of being assembled as directed by Administrative
Agent and make it available to Administrative Agent at a place to be designated
by Administrative Agent which is reasonably convenient to both parties or (ii)
without notice, except as specified below, sell the Collateral or any portion
thereof in one or more parcels at public or private sale, at any of
Administrative Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Administrative Agent may deem
commercially reasonable. Debtor agrees that, to the extent notice of sale shall
be required by law, ten days' written notice to Debtor 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. Administrative Agent shall not be obligated
to make any sale of Collateral regardless of notice of sale having been given.
Administrative Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
(b) All cash proceeds received by Administrative Agent upon any sale of,
collection of, or other realization upon, all or any part of the Collateral
shall be applied as follows:
First: To the payment of all reasonable out-of-pocket costs and expenses
-----
incurred in connection with the sale of, collection of or other realization
upon Collateral, including reasonable attorneys' fees and disbursements;
D-19
<PAGE>
Second: To the payment of the Obligations as provided in the Credit
------
Agreement and in such order and in such manner consistent with Applicable
Laws as Administrative Agent in its discretion shall decide (with Debtor
remaining liable for any deficiency); and
Third: To the extent of the balance (if any) of such proceeds, to Debtor
-----
or other Person legally entitled thereto.
(c) All payments received by Debtor under or in connection with any
Collateral shall be received in trust for the benefit of Administrative Agent,
shall be segregated from other funds of Debtor and shall be forthwith paid over
to Administrative Agent in the same form as so received (with any necessary
indorsement).
(d) Because of the Securities Act of 1933, as amended ("Securities Act"),
and other laws, including without limitation state "blue sky" laws, or
contractual restrictions or agreements, there may be legal restrictions or
limitations affecting Administrative Agent in any attempts to dispose of the
Collateral and the enforcement of its rights hereunder. For these reasons,
Administrative Agent is hereby authorized by Debtor, but not obligated, during
the continuance of any Event of Default, to sell or otherwise dispose of any of
the Collateral at private sale, subject to an investment letter, or in any other
manner which will not require the Collateral, or any part thereof, to be
registered in accordance with the Securities Act, or the rules and regulations
promulgated thereunder, or any other law. Debtor clearly understands that
Administrative Agent may in its discretion approach a restricted number of
potential purchasers and that a sale under such circumstances may yield a lower
price for the Collateral than would otherwise be obtainable if same were
registered and sold in the open market. No sale so made in good faith by
Administrative Agent shall be deemed to be not "commercially reasonable" because
so made. Debtor agrees that in the event Administrative Agent shall, during the
continuance of an Event of Default, sell the Collateral or any portion thereof
at any private sale or sales, Administrative Agent shall have the right to rely
upon the advice and opinion of appraisers and other Persons, which appraisers
and other Persons are acceptable to Administrative Agent, as to the best price
reasonably obtainable upon such a private sale thereof. In the absence of
actual fraud, such reliance shall be conclusive evidence that Administrative
Agent handled such matter in a commercially reasonable manner under Applicable
Law.
(e) If Administrative Agent shall determine to exercise its right to sell
any or all of the Collateral, and if in the opinion of counsel for
Administrative Agent it is necessary, or if in the opinion of Administrative
Agent it is advisable, to have the Collateral or that portion thereof to be
sold, registered under the provisions of the Securities Act, Debtor will, to the
fullest extent it has the capability to do so, cause the issuers of the
D-20
<PAGE>
Collateral contemplated to be sold to execute and deliver, and cause the
directors and officers of each thereof to execute and deliver, all at Debtor's
expense, all such instruments and documents, and to do or cause to be done all
such other acts and things, as may be necessary or, in the opinion of
Administrative Agent, advisable to register the Collateral or that portion
thereof to be sold, under the provisions of the Securities Act and to cause the
registration statement relating thereto to become effective and to remain
effective for such period as Administrative Agent may deem appropriate to
facilitate the sale or other disposition of such Collateral from the date of the
first public offering of the Collateral or that portion thereof to be sold, and
to make all amendments thereto and/or to the related prospectus which, in the
opinion of Administrative Agent, are necessary or advisable, all in conformity
with the requirements of the Securities Act. Debtor shall use its reasonable
best efforts to cause each issuer of Collateral to comply with the provisions of
the securities or "blue sky" laws of any jurisdiction which Administrative Agent
shall designate and to cause each Issuer to make available to its security
holders, as soon as practicable, an earnings statement which will satisfy the
provisions of the Securities Act and applicable "blue sky" laws.
(f) i) Debtor will maintain the accounts listed as restricted and blocked
accounts on Schedule 3 (the "Restricted Accounts") with Administrative
----------
Agent, in the name of Debtor, but such Restricted Accounts shall be under
the sole control and dominion of Administrative Agent.
ii) It shall be a term and condition of each Restricted Account,
notwithstanding any term or condition to the contrary in any other
agreement relating to such Restricted Account, that no amount (including
interest and other proceeds of the cash and other property in the
Restricted Account) shall be paid or released to or for the account of, or
withdrawn by or for the account of, Debtor or any other Person from such
Restricted Account.
iii) After the occurrence and continuance of an Event of Default,
Debtor will promptly instruct each account debtor in respect of Receivables
arising from any sale of Inventory in the ordinary course of business to
make payment to the Restricted Accounts.
Debtor understands and acknowledges that Administrative Agent may and permits
Administrative Agent to remove amounts from the Restricted Accounts from time to
time and use the amounts to reduce the Obligations.
4.d. Further Approvals Required.
(a) In connection with the exercise by Administrative Agent of its rights
hereunder that effects the disposition of or use of
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<PAGE>
any Collateral, it may be necessary to obtain the prior consent or approval of
Tribunals and other Persons to a transfer or assignment of Collateral.
(b) Debtor hereby agrees, during the continuance of an Event of Default, to
execute, deliver, and file, and hereby appoints Administrative Agent as its
attorney-in-fact, during the continuance of an Event of Default, to execute,
deliver, and file on Debtor's behalf and in Debtor's name, all applications,
certificates, filings, instruments, and other documents (including without
limitation any application for an assignment or transfer of control or
ownership) that may be necessary or appropriate, in Administrative Agent's
opinion, to obtain such consents, waivers, or approvals. Upon request by
Administrative Agent, Debtor further agrees to use its reasonable best efforts
to obtain the foregoing consents, waivers, and approvals, including receipt of
consents, waivers, and approvals under applicable agreements prior to a Default
or Event of Default. Debtor acknowledges that there is no adequate remedy at
law for failure by it to comply with the provisions of this Section 4.4 and that
-----------
such failure would not be adequately compensable in damages, and therefore
agrees that this Section 4.4 may be specifically enforced. This appointment as
-----------
attorney-in-fact shall terminate upon the termination of this Agreement pursuant
to Section 5.3 hereof.
-----------
4.e. Indemnity and Expenses. (a) Debtor agrees to indemnify
Administrative Agent and each Secured Party from and against any and all claims,
losses and liabilities (including reasonable attorneys' fees) growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), expressly including such claims, losses or liabilities arising
out of mere negligence of Administrative Agent or any Secured Party, except
claims, losses or liabilities as finally judicially determined by a court of
competent jurisdiction to have resulted from Administrative Agent's or any
Secured Party's gross negligence or willful misconduct.
(b) Debtor will upon demand pay to Administrative Agent the amount of any
and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which Administrative Agent may incur in
connection with (i) the administration 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, (iii) the exercise or enforcement of
any of the rights of Administrative Agent hereunder or (iv) the failure by
Debtor to perform or observe any of the provisions hereof.
V. MISCELLANEOUS
-------------
5.a. Cumulative Rights. All rights of Administrative Agent and each other
Secured Party under the Loan Documents are
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<PAGE>
cumulative of each other and of every other right which Administrative Agent and
each other Secured Party may otherwise have at law or in equity or under any
other contract or other writing for the enforcement of the security interest
herein or the collection of the Obligations. The exercise of one or more rights
shall not prejudice or impair the concurrent or subsequent exercise of other
rights.
5.b. Modifications; Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by Debtor here
from, shall in any event be effective unless the same shall be in writing and
signed by Administrative Agent (and Debtor, in case of amendment), and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
5.c. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the final payment in full of the
Obligations and all amounts payable under this Agreement and (ii) the expiration
or termination of the obligation of all Secured Parties to extend credit to
Debtor and the expiration of all Letters of Credit, (b) be binding upon Debtor,
its successors and assigns, and (c) inure to the benefit of, and be enforceable
by, Administrative Agent and its successors, transferees and assigns. Upon any
such termination, Administrative Agent will, at Debtor's expense, execute and
deliver to Debtor such documents as Debtor shall reasonably request to evidence
such termination. Debtor agrees that to the extent that Administrative Agent or
any Secured Party receives any payment or benefit and such payment or benefit,
or any part thereof, is subsequently invalidated, declared to be fraudulent or
preferential, set aside or is required to be repaid to a trustee, receiver, or
any other party under any Debtor Relief Law, common law or equitable cause, then
to the extent of such payment or benefit, the Obligations or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if such payment or benefit had not been made and, further, any such repayment
by Administrative Agent or any Secured Party, to the extent that Administrative
Agent or any Secured Party did not directly receive a corresponding cash
payment, shall be added to and be additional Obligations payable upon demand by
Administrative Agent or any Secured Party and secured hereby, and, if the lien
and security interest hereof shall have been released, such lien and security
interest shall be reinstated with the same effect and priority as on the date of
execution hereof all as if no release of such lien or security interest had ever
occurred.
5.D. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW), EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR
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<PAGE>
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
TEXAS. UNLESS OTHERWISE DEFINED HEREIN OR IN THE CREDIT AGREEMENT, TERMS USED
IN ARTICLE 9 OF THE UCC ARE USED HEREIN AS THEREIN DEFINED.
5.E. WAIVER OF JURY TRIAL. ADMINISTRATIVE AGENT AND DEBTOR HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
5.f. Administrative Agent's Right to Use Agents. Administrative Agent may
exercise its rights under this Agreement through an agent or other designee.
5.g. No Interference, Compensation or Expense. Administrative Agent may
exercise its rights under this Agreement (a) without resistance or interference
by Debtor and (b) without payment of any rent, license fee or compensation of
any kind to Debtor.
5.h. Waivers of Rights Inhibiting Enforcement. To the extent not
prohibited by Applicable Law, Debtor waives (a) any claim that, as to any part
of the Collateral, a public sale, should Administrative Agent elect so to
proceed, is, in and of itself, not a commercially reasonable method of sale for
such Collateral, (b) except as otherwise provided in this Agreement, NOTICE OR
JUDICIAL HEARING IN CONNECTION WITH ADMINISTRATIVE AGENT'S DISPOSITION OF ANY OF
THE COLLATERAL INCLUDING ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY
PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT DEBTOR WOULD OTHERWISE
HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE,
AND ALL OTHER REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE OR OTHER
REQUIREMENTS WITH RESPECT TO THE ENFORCEMENT OF ADMINISTRATIVE AGENT'S RIGHTS
HEREUNDER and (c) all rights of redemption, appraisal, valuation or to the
marshalling of assets.
5.i. Notices and Deliveries.
(a) Manner of Delivery. All notices and other communications provided for
hereunder shall be in writing and mailed, telecopied or delivered by reputable
overnight delivery service or by hand, if to the Debtor, addressed to it at its
address specified on the signature pages hereof, if to the Administrative Agent,
addressed to it at its address specified in the Credit Agreement, or, as to each
party, at such other address as shall be designated by such party in a written
notice to each other party complying as to delivery with the terms of this
Section 5.9. All such notices and other communications shall, when mailed,
telecopied, or delivered, be effective three days after being deposited in the
mails, when telecopied with confirmation of receipt, or when delivered by
reputable overnight delivery service or by hand to the addressee or its agent,
respectively.
D-24
<PAGE>
(b) Addresses. All notices, communications and materials to be given or
delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
i) if to Debtor, to it at:
Doskocil Manufacturing Company, Inc.
4209 Barnett
Arlington, Texas 76017
Telephone No.: (817) 467-5116
Telecopier No.: (817) 472-9810
Attention: Donald J. Fritschen
Chief Financial Officer
with a copy to:
Westar Limited
949 South Coast Drive, Suite 650
Costa Mesa, California 92626
Telephone No.: (714) 481-5161
Telecopier No.: (714) 481-5166
Attention: Steve Sebastian
ii) if to Administrative Agent, to it at:
NationsBank of Texas, N.A.
901 Main Street, 66th Floor
Dallas, Texas 75202
Telephone No.: (214) 508-0962
Telecopier No.: (214) 508-2881
Attention: Harold R. Beattie, Jr.
or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".
(c) Effectiveness. Each notice, communication and any material to be given
or delivered to Administrative Agent or Debtor pursuant to this Agreement shall
be effective or deemed delivered or furnished (i) if sent by mail, on the fifth
Business Day after such notice, communication or material is deposited in the
mail, addressed as above provided, (ii) if sent by telecopier, when such notice,
communication or material is transmitted to the appropriate number determined as
above provided in this Section 5.9 and the appropriate receipt is received or
-----------
otherwise acknowledged and
D-25
<PAGE>
(iii) if sent by hand delivery or overnight courier, when left at the address of
the addressee addressed as above provided.
5.j. Successors and Assigns. All of the provisions of this Agreement shall
be binding and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
5.k. Loan Document. This Agreement is a Loan Document executed pursuant to
the Credit Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
thereof.
5.l. Consent to Jurisdiction; Waiver of Immunities.
(a) Debtor hereby irrevocably submits to the non-exclusive jurisdiction of
any United States Federal or Texas State courts sitting in Dallas, Texas in any
action or proceeding arising out of or relating to this Agreement, and Debtor
hereby irrevocably waives any objection it may now or hereafter have as to the
venue of any such suit, action or proceeding brought in such court or that such
court is an inconvenient forum.
(b) Nothing in this section shall limit the right of Administrative Agent
or any Secured Party to bring any action or proceeding against Debtor or its
property in the courts of any other jurisdictions.
(c) Any judicial proceeding by Debtor against Administrative Agent or any
Secured Party involving, directly or indirectly, any matter in any way arising
out of, related to, or connected with this Agreement shall be brought only in a
court in Dallas, Texas to the extent that jurisdiction may be effected against
such Person in Dallas, Texas.
5.m. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws during the term
thereof, such provision shall be fully severable, this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part hereof, and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance herefrom. Furthermore,
in lieu of such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Agreement a legal, valid, and enforceable
provision as similar in terms to the illegal, invalid, or unenforceable
provision as may be possible.
5.n. Obligations Not Affected. To the fullest extent permitted by
Applicable Law, the obligations of Debtor under this Agreement shall remain in
full force and effect without regard to, and shall not be impaired or affected
by:
D-26
<PAGE>
(a) any amendment or modification or addition or supplement to any other
Loan Document, any instrument delivered in connection therewith or any
assignment or transfer thereof;
(b) any exercise, non-exercise, or waiver by Administrative Agent or any
Secured Party of any right, remedy, power or privilege under or in respect of,
or any release of any guaranty, any collateral or the Collateral or any part
thereof provided pursuant to, this Agreement or any other Loan Document;
(c) any waiver, consent, extension, indulgence or other action or inaction
in respect of this Agreement or any other Loan Document or any assignment or
transfer of any thereof; or
(d) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or the like of Debtor, any other Obligor or any other
Person, whether or not Debtor shall have notice or knowledge of any of the
foregoing.
5.o. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
5.p. No Novation. The execution, delivery and effectiveness of this
-----------
Agreement shall not discharge or release the Lien or priority of any security
agreement, pledge agreement or other instrument securing the Debtor's
obligations for the payment of money outstanding under the Existing Credit
Agreement. Nothing herein contained shall be construed as a substitution or
novation of any Collateral Documents (as defined in the Existing Credit
Agreement) or the Liens granted hereby, all of which shall continue and remain
in full force and effect, except as modified hereby, or by instrument executed
concurrently herewith.
5.q. ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER
LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
============================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
============================================
D-27
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective duly authorized officers as of the
date first above written.
DEBTOR:
DOSKOCIL MANUFACTURING COMPANY, INC.
By:
Name:
Title:
ADMINISTRATIVE AGENT:
NATIONSBANK OF TEXAS, N.A.
By:
Name:
Title:
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<PAGE>
Schedule 1
Equipment and Inventory Locations
Chief Place of Business, Chief Executive Office and
Location of Books and Records
*To Be Provided By Debtor*
==========================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
==========================================================
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<PAGE>
Schedule 2
Trade Names
*To Be Provided By Debtor*
==========================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
==========================================================
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<PAGE>
Schedule 3
Restricted Accounts
*To Be Provided By Debtor*
==========================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
==========================================================
D-31
<PAGE>
Schedule 4
Rolling Stock
*To Be Provided By Debtor*
==========================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
==========================================================
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<PAGE>
EXHIBIT E
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTELLECTUAL PROPERTY SECURITY AGREEMENT AND ASSIGNMENT
Between
DOSKOCIL MANUFACTURING COMPANY, INC.
as Debtor
and
NATIONSBANK OF TEXAS, N.A.
Administrative Agent
September 19, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
I. GRANT OF SECURITY INTEREST
--------------------------
<S> <C> <C>
1.01. Assignment and Grant of Security Interest. 1
1.02. Security for Obligations.................. 1
1.03. Validity and Priority of Security Interest 2
1.04. Maintenance of Status of Security Interest,
Collateral and Rights 2
(a) Required Action 2
(b) Protection of Collateral.... ............... 2
(c) Authorized Action 3
(d) Registrations 3
1.05. Debtor Remains Obligated; Administrative Agent
and Secured Parties Not Obligated......... 3
1.06. Termination............................... 3
1.07. Security Interest Absolute................ 4
II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.01. Authorization; Enforceability; Required
Consents; Absence of Conflicts... 4
2.02. Rights of Debtor................. 5
2.03. Perfection....................... 5
2.04. Registrations.................... 5
2.05. Other Property................... 5
III. COVENANTS
---------
3.01. Chief Executive Office......... 5
3.02. Preservation of Existence and Preservation of
Enforceability................. 5
3.03. Requested Information.......... 6
3.04. No Disposition of Collateral... 6
3.05. Additional Property............ 6
IV. EVENT OF DEFAULT
----------------
4.01. Application of Proceeds... 7
4.02. Remedies 7
4.03. Indemnity and Expenses.... 9
V. INTERPRETATION
--------------
5.01. Definitional Provision............ 9
(a) Certain Terms Defined by Reference 9
(b) Other Defined Terms 9
(c) Other Definitional Provisions..... 12
5.02. Power of Attorney................. 12
VI. MISCELLANEOUS
-------------
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
6.01. Expenses of Debtor's Agreements and Duties... 12
6.02. Administrative Agent's Right to Perform on
Debtor's Behalf.............................. 12
6.03. Administrative Agent's Right to Use Agents... 13
6.04. No Interference, Compensation or Expense..... 13
6.05. Limitation of Administrative Agent's
Obligations With Respect to Collateral....... 13
6.06. Rights of Administrative Agent under UCC and
Applicable Law............................... 13
6.07. Waivers of Rights Inhibiting Enforcement..... 13
6.08. Notices and Deliveries....................... 14
6.09. Rights and Remedies Cumulative............... 14
6.10. Amendments; Waivers.......................... 14
6.11. GOVERNING LAW................................ 14
6.12. WAIVER OF JURY TRIAL......................... 15
6.13. Consent to Jurisdiction; Waiver of
Immunities................................... 15
6.14. Severability of Provisions................... 15
6.15. Counterparts................................. 15
6.16. Successors and Assigns....................... 15
6.17. Loan Documents............................... 15
6.18. Obligations Not Affected..................... 16
6.19. No Novation.................................. 16
-----------
6.20. ENTIRE AGREEMENT............................. 16
</TABLE>
E-3
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
INTELLECTUAL PROPERTY SECURITY AGREEMENT, dated as of September 19, 1997,
between Doskocil Manufacturing Company, Inc., a Texas corporation ("Debtor"),
------
and NationsBank of Texas, N.A., a national banking association, as
Administrative Agent ("Administrative Agent"), for itself and each other lender
--------------------
a party to the Credit Agreement described below (singly, a "Secured Party" and
-------------
collectively, "Secured Parties").
---------------
RECITALS.
--------
(1) Administrative Agent, Debtor, and Secured Parties entered into the
Credit Agreement dated as of September 19, 1997 (as the same has been and may
hereafter be supplemented, amended, modified and restated from time to time,
being the "Credit Agreement"; the terms defined therein and not otherwise
-----------------
defined herein being used herein as therein defined).
(2) It is the intention of the parties hereto that this Agreement create a
first priority security interest in certain collateral of Debtor securing the
payment of the obligations set forth in Section 1.02 hereof, subject to only
------------
Permitted Liens as provided in the Loan Documents.
(3) It is a condition precedent to the effectiveness of the Credit
Agreement that Debtor shall have executed and delivered this Agreement.
AGREEMENT.
---------
NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and in order to induce Secured Parties to, among other
things, make Advances under the Credit Agreement, Debtor hereby agrees with
Administrative Agent for its benefit and the ratable benefit of Secured Parties
as hereinafter set forth.
I. GRANT OF SECURITY INTEREST
--------------------------
1.01. Assignment and Grant of Security Interest. Debtor hereby assigns
to, and pledges and grants to Administrative Agent for its benefit and the
ratable benefit of Secured Parties a security interest in, the entire right,
title and interest of Debtor, in and to the Collateral.
1.02. Security for Obligations. This Agreement creates a first priority
security interest as provided herein, securing the
E-4
<PAGE>
payment and performance of any and all obligations now or hereafter existing of
Debtor, each Obligor and any other Person under the Credit Agreement and the
other Loan Documents, including any extensions, modifications, substitutions,
amendments and renewals thereof, whether for principal, interest, fees,
expenses, indemnification or otherwise) (all such obligations of Debtor, each
Obligor and each other Person being the "Obligations"). Without limiting the
-----------
generality of the foregoing, this Agreement secures the payment of all amounts
which constitute part of the Obligations and would be owed by Debtor, each other
Obligor and any other Person to Administrative Agent or any Secured Party under
any Loan Document, but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding under
any Debtor Relief Law involving Debtor, any other Obligor or any other Person
(including all such amounts which would become due or would be secured but for
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding of Debtor, any other Obligor or any other
Person under any Debtor Relief Law). Notwithstanding anything herein to the
contrary, the Obligations secured hereby shall be limited to an aggregate amount
which is equal to the largest amount that would not render the Lien granted
herein subject to avoidance under Section 548 of the Bankruptcy Code or any
applicable provisions of comparable state law.
1.03. Validity and Priority of Security Interest. Debtor agrees that
the Security Interest shall at all times be valid, perfected, continuing and
binding and enforceable against Debtor and all other Persons, in accordance with
the terms hereof, as security for the Obligations, and that the Collateral shall
not at any time be subject to any Lien, except as permitted in the Loan
Documents.
1.04. Maintenance of Status of Security Interest, Collateral and
Rights.
(a) Required Action. Debtor shall take all action that may be necessary or
that Administrative Agent may reasonably request, so as at all times (i) to
maintain the validity, perfection, enforceability and priority of the Security
Interest in the Collateral in conformity with the requirements of Section 1.03,
------------
and (ii) to protect and preserve, and to enable the exercise or enforcement of,
the rights of Administrative Agent hereunder, including (A) immediately
discharging all Liens, except as permitted in the Loan Documents, and (B)
executing and delivering financing or continuation statements, instruments of
pledge, notices and instructions in each case in form and substance reasonably
satisfactory to Administrative Agent.
(b) Protection of Collateral. Debtor shall protect, preserve, renew and
maintain, in each case in a manner consistent with reasonably responsible
business and legal practices, all rights of Debtor in the Collateral, including
(i) prosecuting such
E-5
<PAGE>
suits, proceedings or other actions for infringement, unfair competition,
dilution or other damage as Debtor in its reasonable business judgment deems
appropriate under the circumstances or (ii) appearing in and defending any
action or proceeding that may materially adversely affect Debtor's title to or
Administrative Agent's security interest in all or any material part of the
Collateral, when such action is in Debtor's reasonable business judgment
necessary to protect Debtor's Collateral. Any reasonable expenses incurred by
Debtor in protecting, preserving, renewing and maintaining the Collateral shall
be borne by Debtor. To the maximum extent permitted by Laws, after an Event of
Default shall have occurred and be continuing, Administrative Agent shall have
the right, without taking title to any Collateral, to bring suit to enforce any
or all Collateral or its Security Interest in any or all of the Collateral, in
which event Debtor shall, at the reasonable request of Administrative Agent, do
any and all lawful acts and execute any and all proper documents reasonably
required by Administrative Agent in aid of such enforcement. All reasonable
costs, reasonable expenses and other moneys reasonably advanced by
Administrative Agent in connection with the foregoing shall, whether or not
there are then outstanding any amounts under the Credit Agreement, be treated as
Obligations, but the making of any Advances by Administrative Agent or any
Secured Party shall not relieve Debtor of any default hereunder.
(c) Authorized Action. Administrative Agent is hereby authorized to file
one or more financing or continuation statements, amendments thereto and
instruments of pledge, notices and instructions without the signature of or in
the name of Debtor when permitted by Applicable Law provided that Administrative
Agent shall give reasonably prompt notice of any such filings to Debtor. A
carbon, photographic or other reproduction of this Agreement or of any financing
statement filed in connection with this Agreement shall be sufficient as a
financing statement.
(d) Registrations. Debtor shall renew or maintain, as specified in and
permitted by any Applicable Law, and shall make any filings necessary to renew
or maintain the Registrations referred to in Section 2.04, provided that Debtor
------------
shall not be required to renew or maintain any Registration to the extent that
the failure to so renew or maintain could not reasonably be expected to have a
Material Adverse Effect.
1.05. Debtor Remains Obligated; Administrative Agent and Secured
Parties Not Obligated. The grant by Debtor to Administrative Agent of the
Security Interest shall not relieve Debtor from the performance of any term,
covenant, condition or agreement on its part to be performed or observed
(including by virtue of the exercise by Administrative Agent of any of its
rights hereunder), or from any liability to any Person, under or in respect of
any of the Collateral or impose any obligation on Administrative Agent or any
Secured Party or impose any liability
E-6
<PAGE>
on Administrative Agent or any Secured Party for any act or omission on the part
of Debtor relative thereto.
1.06. Termination.
(a) In the event that the Obligations shall have been finally paid in full,
and all commitments by Secured Parties to extend credit shall have been
terminated and Administrative Agent shall have delivered to Debtor a written
termination agreement and any other releases reasonably requested by Debtor in
appropriate form for filing in the Patent and Trademark Office, or any other
governmental office, foreign or domestic, in which Administrative Agent has made
a filing to reflect the Security Interest granted herein, then this Agreement
shall also terminate and be of no further force and effect (except as provided
in Section 1.06(b)) and all rights to the Collateral shall revert to the Debtor.
---------------
(b) Debtor agrees that, if at any time all or any part of any payment
theretofore applied by Administrative Agent and Secured Parties to any of the
Obligations is or must be rescinded or returned by any Person for any reason
whatsoever (including the insolvency, bankruptcy or reorganization of Debtor or
any other Person), such Obligations shall, for the purposes of this Agreement,
to the extent that such payment is or must be rescinded or returned, be deemed
to have continued in existence, notwithstanding such application by
Administrative Agent or any Secured Party, and the Security Interest granted
hereunder shall continue to be effective or be reinstated, as the case may be,
as to such Obligations, all as though such application by Administrative Agent
or any Secured Party had not been made.
1.07. Security Interest Absolute. All rights of Administrative Agent
and Secured Parties and the Security Interest granted to Administrative Agent
hereunder, and all obligations of Debtor hereunder, shall, to the extent
permitted by Laws, be absolute and unconditional, irrespective of
(a) any lack of validity or enforceability of any Loan Documents;
(b) any change in the time, manner or place of payment or performance of,
or in any other term of, all or any of the Obligations or any other amendment to
or waiver of or any consent to departure from any Loan Documents;
(c) any exchange, release or non-perfection of any collateral (including
the Collateral or any part thereof), or any release of or amendment to or waiver
of or consent to departure from any guaranty, for all or any of the Obligations;
or
(d) any other circumstances which might otherwise constitute a defense
available to, or a discharge of, Debtor, any other Obligor or any other Person.
E-7
<PAGE>
II. REPRESENTATIONS AND WARRANTIES
------------------------------
Debtor represents and warrants as follows:
2.01. Authorization; Enforceability; Required Consents; Absence of
Conflicts. Debtor has the legal power, and has taken all necessary action to
authorize it, to execute, deliver and perform in accordance with its terms this
Agreement and to execute and deliver all financing statements and other filings
contemplated hereby, including those supplementary or additional filings
referred to in Section 3.05. This Agreement has been duly executed and
------------
delivered by Debtor and is the legal, valid and binding obligation of Debtor,
enforceable in accordance with its terms subject to (i) equitable principles
generally and (ii) Debtor Relief Laws (insofar as such laws relate to the
bankruptcy, insolvency or similar event of Debtor). The execution, delivery and
performance in accordance with its terms by Debtor of this Agreement does not
and (absent any change in any Law) will not (a) except for the filing and
acceptance of financing statements and continuation statements in connection
therewith delivered to Administrative Agent describing this Agreement and the
Collateral under the Code, the timely filing of this Agreement with the United
States Patent and Trademark Office and acceptance thereof to the extent
permitted by Applicable Law and those supplementary or additional filings
referred to in Section 3.05, require any Governmental Approval or any other
------------
consent or approval, including any consent or approval of any shareholder of
Debtor, (b) violate or conflict with its organizational documents, or (c)
violate or conflict with, result in a breach of, constitute a default under, or
result in or require the creation of any Lien (other than the Security Interest)
upon any assets of Debtor under any contract or agreement or Applicable Laws the
result of which could reasonably be expected to have a Material Adverse Effect.
2.02. Rights of Debtor. Debtor is the legal and beneficial owner of
the Collateral free and clear of any Lien or other charge or encumbrance,
including, without limitation, pledges, assignments, licenses, shop rights and
covenants by Debtor not to sue any Person, except for the security interests and
assignment created by this Agreement any other Liens permitted under the Credit
Agreement, and by any license entered into in the ordinary course of business.
No effective financing statement or other instrument similar in effect naming
Debtor as "debtor" covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of Administrative
Agent relating to this Agreement or as otherwise permitted under the Loan
Documents.
2.03. Perfection. This Agreement, together with the filings referred
to in Section 2.01(a) above, will create in favor of Administrative Agent valid
and perfected security interests in the Collateral and such security interests
will be a first priority
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<PAGE>
security interest on existing Registrations, subject only to Permitted Liens;
provided that additional actions may be required with respect to the perfection
- --------
of proceeds of the Collateral held on the date hereof.
2.04. Registrations. Annexes A-1, A-2, B-1 and B-2, as applicable, set
-----------------------------
forth a true and complete list of all Registrations in the United States Patent
and Trademark Office and related state filings owned by Debtor as of the date
hereof.
2.05. Other Property. On the date hereof, Debtor has no interest in
any Copyrights that is material to operation of Debtor's existing and
anticipated business and that are registered or subject to any application for
registration and Debtor does not believe, after appropriate review of all
relevant facts and circumstances, that any registration or filing with respect
to any interest Debtor may have in any property which may constitute Copyrights
is material to the operation of Debtor's existing and anticipated business.
III. COVENANTS
---------
3.01. Chief Executive Office. Debtor shall maintain its chief
executive office and the office where the books and records relating to the
Collateral are kept only at the location specified on Schedule 1 to the Security
Agreement.
3.02. Preservation of Existence and Preservation of Enforceability.
Debtor shall, so long as any of the Obligations remain outstanding, take all
reasonable action and obtain all consents and Government Approvals reasonably
required so that its obligations under this Agreement will at all times be
legal, valid and binding and enforceable in accordance with its terms, subject
to (i) equitable principles generally and (ii) Debtor Relief Laws (insofar as
such laws relate to the bankruptcy, insolvency or similar event of Debtor).
3.03. Requested Information. In addition to such other Information as
shall be specifically provided for herein, Debtor shall furnish to
Administrative Agent such other Information with respect to the Collateral as
Administrative Agent may reasonably request from time to time in connection with
the Collateral, or the protection, preservation, maintenance or enforcement of
the Security Interest or the Collateral, including, without limitation, all
documents and things in Debtor's possession, or subject to its demand for
possession, related to the production and sale by Debtor, or any subsidiary,
licensee or subcontractor thereof, of products or services sold by or under the
authority of Debtor in connection with the Collateral, including by way of
example, without limiting the interest granted by this Agreement: (i) all lists
and ancillary documents which identify and describe any of Debtor's customers,
or licensees, for products sold or services
E-9
<PAGE>
rendered under or in connection with the Collateral, including without
limitation, such existing lists and ancillary documents which contain each
customer's full name and address, the full name and address of all of its
warehouses and branches, the identity of the Person or Persons having the
principal responsibility on each customer's behalf for ordering products or
services of the kind supplied by Debtor, the credit, payment, discount, delivery
and other sale terms applicable to such customer, together with detailed
information setting forth the total purchases, by brand, product, style and
size, and the patterns of such purchases; (ii) all product and service
specification documents and production and quality of services sold under or in
connection with the Collateral; (iii) all documents which reveal the names and
addresses of all sources of supply, and all terms of purchase and delivery, for
all materials and components used in the production or products or provision of
services, sold under or in connection with the Collateral; and (iv) all
documents constituting or concerning the then current or proposed advertising
and promotion by Debtor, licensees or subcontractors of products or services
sold under or in connection with the Collateral, including, by way of example
and not in limitation, all documents which reveal the media used or to be used
and the cost for all such advertising conducted within the described period or
planned for such products or services. In connection with its enforcement of
the Security Interest, Administrative Agent may use such Information or transfer
it to any assignee or sublicensee permitted hereunder for such assignee's or
sublicensee's use.
3.04. No Disposition of Collateral. Except to the extent permitted by
the Credit Agreement, Debtor shall not sell, transfer or otherwise dispose of
any of the Collateral or any interest therein that is material to Debtor's
business, or grant any license thereunder, except for licenses granted or other
dispositions in the ordinary course of business.
3.05. Additional Property. Prior to the application for, use or
acquisition or any interest in any Registration which is within the definition
of "Collateral" or modification, reformulation or other alteration to any
Registration that is material to Debtor's business, Debtor shall execute and
deliver to Administrative Agent all documents and instruments Administrative
Agent may reasonably require to grant to Administrative Agent a perfected first
priority Lien therein (subject only to Permitted Liens) and to subject to all of
such interest to this Agreement, including but not limited to any new,
supplementary or additional filings.
IV. EVENT OF DEFAULT
----------------
Upon the occurrence and during the continuance of an Event of Default:
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<PAGE>
4.01. Application of Proceeds. All cash proceeds received by
Administrative Agent upon any sale of, collection of, or other realization upon,
all or any part of the Collateral shall be applied as follows:
First: To the payment of all reasonable out-of-pocket costs and expenses
-----
incurred in connection with the sale of, collection of or other realization upon
Collateral, including reasonable attorneys' fees and disbursements;
Second: To the payment of the Obligations as provided in the Credit
------
Agreement (with Debtor remaining liable for any deficiency); and
Third: To the extent of the balance (if any) of such proceeds, to the
-----
payment to Debtor or other Person entitled thereto.
4.02. Remedies.
(a) If an Event of Default has occurred and is continuing, Administrative
Agent may exercise in respect of the Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the Uniform Commercial Code in
effect in the State of Texas at that time (the "UCC") (whether or not the
---
Uniform Commercial Code applies to the affected Collateral), and also may (i)
require Debtor to, and Debtor hereby agrees that it will at its expense and upon
request of Administrative Agent forthwith, assemble all or part of the
Collateral (to the extent capable of being assembled) as directed by
Administrative Agent and make it available to Administrative Agent at a place to
be designated by Administrative Agent, which is reasonably convenient to both
parties or (ii) without notice, except as specified below, sell the Collateral
or any portion thereof in one or more parcels at public or private sale, at any
of Administrative Agent's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as Administrative Agent may deem
commercially reasonable. Debtor agrees that, to the extent notice of sale shall
be required by Applicable Law, ten days' written notice to Debtor 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 that ten days' written
notice does not violate any Applicable Law. Administrative Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. Administrative Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. Administrative Agent may be the purchaser at any sale of the
Collateral and pay all or any part of the purchase price thereof by cancelling
part or all of the Obligations.
E-11
<PAGE>
(b) If an Event of Default has occurred and is continuing, Administrative
Agent may obtain the appointment of a receiver of the Collateral.
(c) If an Event of Default has occurred and is continuing, Administrative
Agent may without notice to Debtor and at such time or times as Administrative
Agent in its sole discretion may determine, exercise any or all of Debtor's
rights in, to and under, or in any way connected with or related to, any or all
of the Collateral, including (i) enforcing the performance of, and exercising
any or all of Debtor's rights with respect to the Collateral, in each case by
legal proceedings or otherwise and (ii) settling, adjusting, compromising,
extending, renewing, discharging and releasing any or all of, and any legal
proceedings brought with respect to any or all of, Debtor's rights with respect
to the Collateral.
(d) If an Event of Default has occurred and is continuing, Administrative
Agent may exercise any other right or remedy available under any other Loan
Document or Laws.
(e) Debtor agrees that, in any sale of any of the Collateral,
Administrative Agent is authorized to comply with any limitation or restriction
in connection with such sale as counsel may advise Administrative Agent is
necessary in order to avoid any violation of applicable Law (including
compliance with such procedures as may restrict the number of prospective
bidders or purchasers, require that such prospective bidders and purchasers have
certain qualifications, and restrict such prospective bidders and purchasers to
Persons who will represent and agree that they are purchasing for their own
account or investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchase by any Tribunal, and Debtor further agrees that such compliance shall
not result in such sale being considered or deemed not to have been made in a
commercially reasonable manner, nor shall Administrative Agent or any Secured
Party be liable or accountable to Debtor for any discount allowed by reason of
the fact that such Collateral was sold in compliance with any such limitation or
restriction.
(f) Upon written demand of Administrative Agent, Debtor shall execute and
deliver to Administrative Agent an assignment or assignments of the Collateral
and such other documents as are reasonably necessary and appropriate to carry
out the intent and purposes of this Agreement. Debtor agrees that such an
assignment and/or recording shall be applied to reduce the Obligations
outstanding only to the extent that Administrative Agent or any Lenders receives
cash proceeds in respect of the sale of, or realization upon, the Collateral.
E-12
<PAGE>
(g) For the purpose of enabling the Administrative Agent to exercise rights
and remedies under this Section 4.02 at such time as the Administrative Agent
------------
shall be lawfully entitled to exercise such rights and remedies, and for no
other purpose, Debtor hereby grants to the Administrative Agent, to the extent
assignable, an irrevocable, non-exclusive license (exercisable without payment
of royalty or other compensation to Debtor) to use, assign, license or
sublicense any of the Collateral now owned or hereafter acquired by Debtor,
wherever the same may be located, including in such license reasonable access to
all media in which any of the licensed items may be recorded or stored and to
all computer programs used for the compilation or printout thereof.
4.03. Indemnity and Expenses.
(a) DEBTOR AGREES TO INDEMNIFY (WHICH SHALL BE PAYABLE FROM TIME TO TIME ON
DEMAND) ADMINISTRATIVE AGENT AND SECURED PARTIES FROM AND AGAINST ANY AND ALL
CLAIMS, LOSSES AND LIABILITIES GROWING OUT OF OR RESULTING FROM THIS AGREEMENT
(INCLUDING ENFORCEMENT OF THIS AGREEMENT), EXPRESSLY INCLUDING SUCH CLAIMS,
LOSSES, OR LIABILITIES ARISING OUT OF MERE NEGLIGENCE OF ADMINISTRATIVE AGENT OR
ANY SECURED PARTY, EXCEPT CLAIMS, LOSSES OR LIABILITIES RESULTING SOLELY FROM
ADMINISTRATIVE AGENT'S OR ANY SECURED PARTY'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(b) Debtor will upon demand pay to Administrative Agent the amount of any
and all reasonable expenses, including the reasonable fees and disbursements of
its counsel and of any experts and agents, which Administrative Agent may incur
in connection with (i) the administration 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, (iii) the exercise or enforcement of
any of the rights of Administrative Agent hereunder, or (iv) the failure by
Debtor to perform or observe any of the provisions hereof.
V. INTERPRETATION
--------------
5.01. Definitional Provision.
(a) Certain Terms Defined by Reference. The terms "collateral",
"inventory", "rights", and "security interest" shall have the meanings ascribed
thereto in the UCC, or, when capitalized, the meanings specified in subsection
----------
(b) below.
- ---
(b) Other Defined Terms. For purposes of this Agreement:
"Agreement" means this Agreement, including all schedules, annexes and
---------
exhibits hereto.
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<PAGE>
"Collateral" means Debtor's rights, title and interests, (whatever they may
----------
be) in each of the following, in each case whether now or hereafter existing or
now owned or hereafter acquired by Debtor and whether or not the same is subject
to Article 9 of the UCC, and wherever the same may be located:
(i) the Trademarks and Goodwill;
(ii) the Patents;
(iii) all registrations or letters patent issued or applied for (now or
hereafter) with respect to the Trademarks and Patents and renewals thereof in
the United States and any state thereof (the "Registrations");
(iv) any renewal, reissue, re-examination certificate, extension or
the like with respect to the Trademarks and Patents;
(v) all rights to use the Trademarks as trade names or assumed names
in all aspects of its business;
(vi) all inventions, processes, production methods, proprietary
information, know-how and trade secrets;
(vii) all licenses, sublicenses or user or other agreements granted in
favor of or from Debtor with respect to any of the foregoing to the extent
assignable without violation thereof, together with any Goodwill connected with
or symbolized by any such licenses and agreements and the right to prepare for
sale and sell any and all inventory of Debtor now or hereafter covered by such
licenses and agreements;
(viii) all information, customer lists, identification of suppliers,
data, plans, blueprints, specifications, designs, drawings, recorded knowledge,
surveys, engineering reports, test reports, manuals, materials standards,
processing standards, performance standards, catalogs, computer and automatic
machinery software and programs;
(ix) all field repair data, sales data and other information relating
to sales or service of products now or hereafter manufactured;
(x) all accounting information and all media in which or on which any
information or knowledge or data or records may be recorded or stored and all
computer programs used for the compilation or printout of such information,
knowledge, records or data;
(xi) all proceeds and products of the foregoing. The inclusion of
"proceeds" of Collateral in the definition of "Collateral" shall not be deemed a
consent by Administrative Agent
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<PAGE>
to any sale or other disposition of any Collateral not otherwise specifically
permitted by the terms hereof.
"Copyright" means any copyright, copyright registration and applications
---------
for such registration, all subject matter related to such copyrights, in any and
all forms, and all copyrights and applications for registration of copyrights
related to such copyrights.
"Credit Agreement" is defined in the recitals.
---------------- --------
"Goodwill" means the goodwill of the businesses connected with the use of
--------
(or associated with) and symbolized by the Trademarks, but not any other
goodwill.
"Governmental Approval" means any authorization, consent, approval, license
---------------------
or exemption of, registration or filing with, or report or notice to, any
Tribunal.
"Information" means data, certificates, reports, statements (including
-----------
financial statements), documents and other information in form (including
electronic media) acceptable to Administrative Agent.
"Obligations" is defined in Section 1.02.
----------- ------------
"Patents" means all patents, all inventions and subject matter related to
-------
such patents, in any and all forms, and all patents and applications for patents
related to such patents, including but not limited to the patents listed on
Annex A-1 attached hereto, all inventions and all subject matter related to such
- ---------
patents, in any and all forms, and all patents and applications for patents
related to such patents, including those patents and applications listed on
Annex A-2 attached hereto, together with the reissues, divisions, continuations,
- ---------
renewals, extensions and continuations-in-part thereof, all income, royalties,
damages and payments now or hereafter due and payable under and with respect
thereto, including, without limitation, damages for past or future infringements
thereof and the right to sue for past, present and future infringements thereof.
"Security Interest" means the continuing security interest of
-----------------
Administrative Agent in the Collateral intended to be effected by the terms of
this Agreement or any financing and continuation statements or other filings
contemplated hereby.
"Trademarks" means all trade names, trademarks, and service marks, in any
----------
and all forms, and all trade name, trademark and service mark registrations and
applications for registration related to such trademarks, trade names and
service marks, including but not limited to the registered trade names,
trademarks, and service marks listed on Annex B-1 attached hereto, and all
---------
applications for registration of trade names, trademarks,
E-15
<PAGE>
and service marks, including those applications listed on Annex B-2 attached
---------
hereto, all common law rights to such trade names, trademarks and service marks,
the right to recover for all past, present and future infringements thereof, and
all other rights of any kind whatsoever accruing thereunder or pertaining
thereto.
"UCC" means Article 9 of the Uniform Commercial Code as in effect from time
---
to time in the State of Texas.
(c) Other Definitional Provisions. (i) Except as otherwise specified
herein, all references herein (A) to any Person shall be deemed to include such
Person's successors and assigns, (B) to any Applicable Law referred to herein
shall be deemed references to such Applicable Law as the same may have been or
may be amended or supplemented from time to time and (C) to this Agreement or
other agreement defined or referred to herein shall be deemed a reference to
this Agreement or other agreement as the terms thereof may have been or may be
amended, supplemented, waived or otherwise modified from time to time.
(ii) Whenever the context so requires, the neuter gender includes the
masculine or feminine, the masculine gender includes the feminine, and the
singular number includes the plural, and vice versa.
(iii) Except as otherwise indicated, any reference herein to the
"Collateral", the "Obligations" or any other collective or plural term shall be
- ----------- -----------
deemed to be a reference to each and every item included within the category
described by such collective or plural term, so that a reference to the
"Collateral" or the "Obligations" shall be deemed a reference to any or all of
- ----------- -----------
the Collateral or the Obligations, as the case may be.
(iv) Capitalized Terms not otherwise defined herein have the meaning
specified in the Credit Agreement, and, to the extent of any conflict, terms as
defined in the Credit Agreement shall control (provided, that a more expansive
--------
or explanatory definition shall not be deemed a conflict).
5.02. Power of Attorney. Each power of attorney, license and other
authorization in favor of Administrative Agent or any other Person granted by or
pursuant to this Agreement shall be deemed to be irrevocable and coupled with an
interest.
VI. MISCELLANEOUS
-------------
6.01. Expenses of Debtor's Agreements and Duties. Administrative Agent
and Secured Parties shall not be liable for the costs and expenses of Debtor
arising out of Debtor's performance or observance of the terms, conditions,
covenants and agreements to be observed or performed by Debtor under this
Agreement.
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<PAGE>
6.02. Administrative Agent's Right to Perform on Debtor's Behalf. If
Debtor shall fail to observe or perform any of the terms, conditions, covenants
and agreements to be observed or performed by it under this Agreement, Secured
Party may (but shall not be obligated to) do the same or cause it to be done or
performed or observed, either in its name or in the name and on behalf of
Debtor, and in the event that Debtor shall have failed to observe or perform any
of the terms, conditions, covenants and agreements to be observed or performed
by it under this Agreement, then Debtor hereby authorizes Secured Party to do
so, and Debtor hereby appoints the Secured Party, and any other Person Secured
Party may designate, as Debtor's attorney-in-fact (exercisable from and after
the occurrence of an Event of Default which is continuing) to do, or cause to be
done, in the name, place and stead of Debtor in any way in which Debtor itself
could do, or cause to be done, any or all things necessary to observe or perform
the terms, conditions, covenants and agreements to be observed or performed by
Debtor under this Agreement. In addition, Debtor hereby irrevocably appoints
Secured Party as Debtor's attorney-in-fact (exercisable from and after the
occurrence of an Event of Default which is continuing) to execute and deliver in
Debtor's name and stead to any purchaser at any sale held under Section 4.02
------------
hereof any and all documents and instruments of assignment, transfer and
conveyance necessary or appropriate to transfer to such purchaser the Collateral
sold at such sale. Secured Party shall not exercise any powers granted pursuant
to this appointment as attorney-in-fact at any time that Debtor is fully
performing its obligations hereunder. This appointment as attorney-in-fact
shall terminate upon the termination of this Agreement.
6.03. Administrative Agent's Right to Use Agents. Administrative Agent
may exercise its rights under this Agreement through an agent or other designee.
6.04. No Interference, Compensation or Expense. Administrative Agent
may exercise its rights under this Agreement (a) without resistance or
interference by Debtor and (b) without payment of any royalty, rent, license fee
or compensation of any kind to Debtor.
6.05. Limitation of Administrative Agent's Obligations With Respect to
Collateral. (a) Administrative Agent shall not have any duty or liability to
protect or preserve any Collateral or to preserve rights pertaining thereto,
except to the extent of any gross negligence or willful misconduct of the
Administrative Agent.
(b) Nothing contained in this Agreement shall be construed as requiring or
obligating Administrative Agent, and Administrative Agent shall not be required
or obligated, to (i) present or file any claim or notice or take any action,
with respect to any Collateral or in connection therewith or (ii) notify Debtor
of any decline in the value of any Collateral.
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<PAGE>
6.06. Rights of Administrative Agent under UCC and Applicable Law.
Administrative Agent shall have, with respect to the Collateral, in addition to
all of their rights under this Agreement, (a) the rights of a secured party
under the UCC, whether or not the UCC would otherwise apply to the collateral in
question, and (b) the rights of a secured party under all other Applicable Laws.
6.07. Waivers of Rights Inhibiting Enforcement. To the extent not
prohibited by Applicable Law, Debtor waives (a) any claim that, as to any part
of the Collateral, a public sale, should Administrative Agent elect so to
proceed, is, in and of itself, not a commercially reasonable method of sale for
such Collateral, (b) except as otherwise provided in this Agreement, NOTICE OR
JUDICIAL HEARING IN CONNECTION WITH ADMINISTRATIVE AGENT'S DISPOSITION OF ANY OF
THE COLLATERAL INCLUDING ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY
PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT DEBTOR WOULD OTHERWISE
HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE,
AND ALL OTHER REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE OR OTHER
REQUIREMENTS WITH RESPECT TO THE ENFORCEMENT OF ADMINISTRATIVE AGENT'S RIGHTS
HEREUNDER and (c) all rights of redemption, appraisement, or marshalling of
assets.
6.08. Notices and Deliveries. All notices and other communications
provided for hereunder shall be in writing and mailed, telecopied or delivered
by reputable overnight delivery service or by hand, if to the Debtor, addressed
to it at its address specified on the signature pages hereof, if to the
Administrative Agent, addressed to it at its address specified in the Credit
Agreement, or, as to each party, at such other address as shall be designated by
such party in a written notice to each other party complying as to delivery with
the terms of this Section 6.08. All such notices and other communications
shall, when mailed, telecopied, or delivered, be effective three days after
being deposited in the mails, when telecopied with confirmation of receipt, or
when delivered by reputable overnight delivery service or by hand to the
addressee or its agent, respectively.
6.09. Rights and Remedies Cumulative. Each of Administrative Agent's
rights and remedies under this Agreement shall be in addition to all of its
other rights and remedies under this Agreement and Applicable Law, and nothing
herein shall be construed as limiting any such rights or remedies.
6.10. Amendments; Waivers. Any term, covenant, agreement or condition
of this Agreement may be amended, and any right under this Agreement may be
waived, if, but only if, such amendment or waiver is in writing and is signed by
Administrative Agent and, in the case of an amendment, by Debtor. Unless
otherwise specified in such waiver, a waiver of any right under this Agreement
shall be effective only in the specific instance and for the specific
E-18
<PAGE>
purpose for which given. No election not to exercise, failure to exercise or
delay in exercising any right, nor any course of dealing or performance, shall
operate as a waiver of any right of the Administrative Agent under this
Agreement or Applicable Law, nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right of Administrative Agent under this Agreement or Applicable Law.
6.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS (WITHOUT REFERENCE TO
PRINCIPALS OF CONFLICTS OF LAWS) AND THE UNITED STATES OF AMERICA, EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE REQUIRED TO BE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS.
6.12. WAIVER OF JURY TRIAL. ADMINISTRATIVE AGENT AND DEBTOR HEREBY
WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP
ESTABLISHED HEREUNDER.
6.13. Consent to Jurisdiction; Waiver of Immunities.
(a) Debtor hereby irrevocably submits to the non-exclusive jurisdiction of
any United States Federal or Texas State courts sitting in Dallas, Texas, in any
action or proceeding arising out of or relating to this Agreement, and Debtor
hereby irrevocably waives any objection it may now or hereafter have as to the
venue of any such suit, action or proceeding brought in such court or that such
court is an inconvenient forum.
(b) Nothing in this section shall limit the right of Administrative Agent
or any Secured Party to bring any action or proceeding against Debtor or its
property in the courts of any other jurisdictions.
(c) Any judicial proceeding by Debtor against Administrative Agent or any
Secured Party involving, directly or indirectly, any matter in any way arising
out of, related to, or connected with this Agreement shall be brought only in a
court in Dallas, Texas to the extent that jurisdiction may be effected against
such Person in Dallas, Texas.
6.14. Severability of Provisions. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof in that
jurisdiction or affecting the validity or enforceability of such provision in
any other
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<PAGE>
jurisdiction. In the event that any change in Applicable Law would render
invalid or unenforceable any provision of this Agreement, Debtor agrees to enter
into such amendments or modifications to this Agreement to provide
Administrative Agent with benefits intended to be granted by such provision.
6.15. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.
6.16. Successors and Assigns. All of the provisions of this Agreement
shall be binding and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, Debtor may not assign its
--------
rights or obligations under this Agreement without the prior written consent of
the Lenders.
6.17. Loan Documents. This Agreement is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions thereof.
6.18. Obligations Not Affected. To the fullest extent permitted by
Applicable Law, the obligations of Debtor under this Agreement shall remain in
full force and effect without regard to, and shall not be impaired or affected
by:
(a) any amendment or modification or addition or supplement to any Loan
Documents or any instrument delivered in connection therewith or any assignment
or transfer thereof;
(b) any exercise, non-exercise, or waiver by Administrative Agent or any
Secured Party of any right, remedy, power or privilege under or in respect of,
or any release of any guaranty or the Collateral or any part thereof provided
pursuant to, this Agreement or any other Loan Documents;
(c) any waiver, consent, extension, indulgence or other action or inaction
in respect of this Agreement, any other Loan Documents or any assignment or
transfer of any thereof; or
(d) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or the like of Debtor or any other Person, whether or
not Debtor shall have notice or knowledge of any of the foregoing.
6.19. No Novation. The execution, delivery and effectiveness of this
-----------
Agreement shall not discharge or release the Lien or priority of any security
agreement, pledge agreement or other instrument securing the Debtor's
obligations for the payment of money outstanding under the Existing Credit
Agreement. Nothing herein contained shall be construed as a substitution or
novation
E-20
<PAGE>
of any Collateral Documents (as defined in the Existing Credit Agreement) or the
Liens granted hereby, all of which shall continue and remain in full force and
effect, except as modified hereby, or by instrument executed concurrently
herewith.
6.20. ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL ARGUMENTS BETWEEN THE
-------------------------------------------------
PARTIES.
- --------
=============================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
=============================================
E-21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers all as of the date first above
written.
DEBTOR:
DOSKOCIL MANUFACTURING COMPANY, INC.
Name:
Title:
4209 Barnett
Arlington, Texas 76017
Telephone No.: (817) 467-5116
Telecopier No.: (817) 472-9810
Attention: Donald J. Fritschen
Chief Financial Officer
with a copy to:
Westar Capital
949 South Coast Drive, Suite 650
Costa Mesa, California 92626
Telephone No.: (714) 481-5161
Telecopier No.: (714) 481-5166
Attention: Steve Sebastian
SECURED PARTY:
NATIONSBANK OF TEXAS, N.A., as
Administrative Agent
By:
Name:
Title:
E-22
<PAGE>
Annex A-1
---------
Patents
-------
Nature of Interest Country of
(e.g. owner, Patent No. Issue Date Issue
------------ ---------- ---------- ----------
licensee)
---------
E-23
<PAGE>
Annex A-2
Patent Applications
-------------------
Nature of Interest Serial Country of
(e.g. owner, No. Filing Issue
------------ ------ ------ ----------
licensee) Date
--------- ----
E-24
<PAGE>
Annex B-1
Registered Trademarks
---------------------
<TABLE>
<CAPTION>
Nature of
Interest of Goods or
(e.g. owner, Registered Registration Int'l Services Date Country
licensee Trademark No. Class Covered Registered of
------------ ---------- ------------ Covered -------- ---------- Reg.
------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
E-25
<PAGE>
Annex B-2
Trademark Applications
----------------------
<TABLE>
<CAPTION>
Trademark
Nature of Applicati on
Interest of relates Int'l Goods or Country
(e.g. owner, to Serial Class Services Date of of
licensee following No. Covered Covered Appl. Appl.
------------ Trademark ------ ------- -------- ------- -------
------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
E-26
<PAGE>
EXHIBIT F
COMPLIANCE CERTIFICATE
NationsBank of Texas, N.A., ________, _____
as Administrative Agent
901 Main Street, 14th Floor
Dallas, Texas 75202
Attention: Marie T. Lancaster
This Compliance Certificate is made as of _____________, _____. The
undersigned certifies that the calculations set forth herein are true, accurate,
and complete, and are made in accordance with the provisions of the Credit
Agreement among Doskocil Manufacturing Company, Inc., NationsBank of Texas,
N.A., as Administrative Agent, and Lenders, dated as of September 19, 1997 (as
amended, modified or supplemented, "Credit Agreement"). All defined terms used
herein but not specifically defined shall have the meanings set forth in the
Credit Agreement.
1. Borrowing Base. [to be completed monthly]
--------------
Borrower hereby represents and warrants that the following Borrowing Base
Report is true and correct in all respects as of ___________, _____ (the
"Reporting Date"). The Borrowing Base is determined as follows:
<TABLE>
<CAPTION>
A. ELIGIBLE ASSETS
<S> <C> <C> <C>
1. All Accounts $
2. Less ineligible Accounts (without duplication)
a. Accounts to which Borrower or a Subsidiary does not $
have lawful and absolute title
b. Accounts which are not the valid, legally enforceable $
obligation of the account debtor for goods or services
delivered or rendered to such Person
c. Accounts owed by a creditor of Borrower or a $
Subsidiary to the extent that such Account equals the
amount owed to such creditor
d. Portion of Accounts subject to any asserted dispute, $
offset, discount, counterclaim, or other claim or
defense of account debtor or to any asserted claim on
the part of the account debtor denying liability under
such Account
e. Accounts which Borrower or any Subsidiary may not $
assign or grant a security interest to Administrative
Agent
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
f. Accounts not evidenced by an invoice rendered to the $
account debtor
g. Accounts evidenced by chattel paper, promissory $
notes, or other instruments or the result of a
conditional sales agreement
h. Accounts subject to a Lien in favor of any Person $
other than Administrative Agent other than Permitted
Collateral Liens
i. Accounts due and payable for more than 90 days $
j. Accounts of account debtors primarily conducting $
business in and organized under a jurisdiction outside
the United States (other than Canada) and which are
not insured or supported by an irrevocable letter of
credit
k. Accounts where the account debtor is a Tribunal $
l. Accounts where the account debtor is the subject of a $
proceeding under a Debtor Relief Law
m. Accounts of account debtors (excluding Kmart $
Receivable) who have more than 15% of accounts due
and payable for more than 90 days and which are not
insured
n. Accounts not subject to a fully perfected first priority $
security interest in favor of Administrative Agent
o. Accounts where the account debtor is an Affiliate or $
employee
Ineligible Accounts $
3. Eligible Accounts [(1) - (2)] $
4. Eligible Accounts includible in Borrowing Base [80% x (3)] $
B. ELIGIBLE INVENTORY
1. All Inventory $
2. Less ineligible Inventory (without duplication)
a. 50% Work-in-Progress $
b. Obsolete Inventory $
c. Consignment Inventory $
d. Demonstration and display Inventory $
e. Inventory to which Borrower or any Subsidiary does $
not have lawful and absolute title
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
f. Inventory subject to a Lien in favor of any Person $
other than Administrative Agent, other than Permitted
Collateral Liens
g. Defective or unmerchantable Inventory $
h. Inventory located outside the United States $
i. Inventory located in leased facilities for which a $
Landlord's Waiver has not been delivered to
Administrative Agent
j. Inventory not subject to a fully perfected first $
priority security interest in favor of Administrative
Agent
k. The sale of such Inventory, upon an Event of Default, $
is subject to a Necessary Authorization restriction or
limitation
Ineligible Inventory $
3. Eligible Inventory [(1) - (2)] $
4. Eligible Inventory potentially includible in Borrowing Base $
[50% x (3)]
C. BORROWING BASE
1. Eligible Accounts includible in Borrowing Base (A.4.) $
2. Eligible Inventory includible in Borrowing Base (B.4.) $
Borrowing Base [(1) + (2)] $
2. Covenant Calculations.. [To be completed quarterly except M.]
---------------------
A. Leverage Ratio.
--------------
1. Total Debt
1. Indebtedness for borrowed money $
2. Capitalized Lease Obligations $
3. Obligations evidenced by bonds, debentures, notes or $
other similar instruments
4. Obligations to pay the deferred purchase price of $
property or services other than trade payables incurred
in the ordinary course of business
5. Total Debt [(a) + (b) + (c) + (d)] $
</TABLE>
F-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
2. EBITDA
1. Pretax Net Income (excluding therefrom, to the extent $
included in determining Pretax Net Income, any item
of extraordinary gain, including net gains on the sale
of assets other than asset sales in the ordinary course
of business, and adding thereto, to the extent included
in determining Pretax Net Income, any items of
extraordinary loss, including net losses on the sale of
assets other than asset sales in the ordinary course of
business)
2. Interest expense (including in respect of Capitalized $
Lease Obligations)
3. EBIT Special Adjustments
(1) Management fees in favor of Westar Capital $
not to exceed $450,000
(2) Allocation costs related to integration of $
Borrower and Dogloo not to exceed $825,000
(3) Transaction fees and expenses related to $
Dogloo and Doskocil Transaction
(4) Schedule 9 Items $
(5) Excess of Westar Capital management fees $
accrued over such fees paid
(6) Excess of Westar Capital management fees $
paid over such fees accrued
(7) [(1) + (2) + (3) + (4) + (5) - (6)] $
4. Depreciation $
5. Amortization $
6. Other non-cash charges $
7. Operating Cash Flow [(a) + (b) + (c) + (d) + (e) + $
(f)]
3. Leverage Ratio [(1) : (2)] _____ to 1
</TABLE>
F-4
<PAGE>
<TABLE>
<S> <C> <C> <C>
B. Section 7.1(c). Capitalized Lease Obligations and Indebtedness
--------------
to purchase property, plant and equipment
1. Maximum ($10,000,000 minus Indebtedness pursuant to $
Section 7.1(h) and 7.1(m))
2. Actual $
3. Difference [(1) - (2)] $
C. Section 7.1(h). Indebtedness incurred or assumed in respect of
--------------
Acquisitions
1. Maximum ($10,000,000 minus Indebtedness pursuant to $
Section 7.1(c) and 7.1(m))
2. Actual $
3. Difference [(1) - (2)] $
D. Section 7.1(m). Other Indebtedness
--------------
1. Maximum ($10,000,000 minus Indebtedness pursuant to $
Section 7.1(c) and 7.1(h))
2. Actual $
3. Difference [(1) - (2)] $
E. Section 7.3(f). Investments and expenditures in respect of
--------------
Acquisitions of non-Domestic Subsidiaries
1. Maximum $10,000,000
2. Actual $
3. Difference [(1) - (2)] $
F. Section 7.3(h). Investments of non-cash consideration in sales
--------------
1. Maximum $ 2,500,000
2. Actual $
3. Difference [(1) - (2)] $
G. Section 7.3(j). Other Investments
--------------
1. Maximum $ 5,000,000
2. Actual $
3. Difference [(1) - (2)] $
H. Section 7.7. Capital Expenditures
-----------
1. Maximum ($5,000,000 + Net revenues multiplied by .05) $
2. Actual $
</TABLE>
F-5
<PAGE>
<TABLE>
<S> <C> <C> <C>
3. Difference [(1) - (2)] $
I. Section 7.8. Restricted Payments
-----------
1. Purchases and redemptions of officers, directors and
employees stock
1. Maximum $ 2,500,000
2. Actual $
2. Redemptions and repurchases required under Second
Securityholders Agreement
1. Maximum $ 250,000
2. Actual $
3. Dogloo Transaction Restricted Payments
1. Maximum (Base Amount, exclusive of accrued $36,882,000
dividends)
2. Actual $ ]
4. Additional redemptions of capital stock
1. Maximum $ 2,400,000
2. Actual $
5. Advisory Fees to Specified Investors
1. Maximum per fiscal year $ 600,000
2. Actual $
J. Section 7.11. Leverage Ratio
------------
1. Maximum
1. From and including December 31, 1997 to and ____ to 1
including September 30, 1998
2. From and including December 31, 1998 to but not ____ to 1
including June 30, 1999
3. From and including June 30, 1999 to but not including ____ to 1
June 30, 2000
4. From and including June 30, 2000 to but not including ____ to 1
June 30, 2001
5. From and including June 30, 2001 and thereafter ____ to 1
2. Actual (1.A.3. above) ____ to 1
K. Section 7.12. Fixed Charge Coverage Ratio
------------
</TABLE>
F-6
<PAGE>
<TABLE>
<S> <C> <C> <C>
1. Minimum ____ to 1
2. Actual
1. Pretax Cash Flow
(1) EBITDA (1.A.2.j. above) $
(2) Cash Capital Expenditures (excluding through $
September 30, 1998 Capital Expenditures in
excess of 5% of cumulative revenues)
(3) Total Pretax Cash Flow [(1) - (2)] $
2. Fixed Charges
(1) Scheduled principal payments in respect of $
Indebtedness
(2) Interest expense (including interest expense $
pursuant to Capitalized Lease Obligations)
(3) Fixed Charges [(1) + (2)] $
3. Fixed Charge Coverage Ratio [J.2.a.(3) to J.2.b.(3)] ____ to 1
L. Section 7.1
-----------
3. Interest Coverage Ratio
------------
1. Minimum
1. From and including December 31, 1997 to but not ____ to 1
including December 31, 1998
2. From and including December 31, 1998 to but not ____ to 1
including June 30, 2000
3. From and including June 30, 2000 and thereafter ____ to 1
2. Actual
1. EBITDA (1.A.2.j. above) $
2. Interest expense (including interest expense pursuant to $
Capitalized Lease Obligations)
3. Interest Coverage Ratio [L.2.a to L.2.b.] ____ to 1
M. Excess Cash Flow. [To be completed annually.]
----------------
1. Net Operating Cash Flow
1. Net Income $
2. Depreciation, amortization and other non-cash charges $
3. Net losses on asset sales and non-cash asset write $
downs
4. Capital Expenditures $
</TABLE>
F-7
<PAGE>
<TABLE>
<S> <C> <C> <C>
5. Scheduled principal payments on Indebtedness $
6. Net gain on asset sales $
7. Net Operating Cash Flow [(a) + (b) + (c) - (d) - (e) - $
(f)]
2. Cash Acquisition Consideration $
3. Voluntary prepayments of Indebtedness which cannot be $
reborrowed
4. Restricted Payments $
5. Excess Cash Flow [1. - 2. - 3. - 4.] $
</TABLE>
The undersigned hereby further certifies to the following as of the date of
this Certificate:
1. The undersigned has reviewed the relevant terms of this Certificate
and has made, or caused to be made, under his/her supervision, a review of the
transactions and condition of the Borrower from the beginning of the accounting
period covered by the financial statements being delivered herewith to the date
of this Certificate and that such review has not disclosed the existence during
such period of any condition or event which constitutes a Default or Event of
Default.
2. The Borrower is in compliance in all material respects with all of the
terms and conditions of the Credit Agreement and other Loan Documents.
3. The financial statements delivered to Administrative Agent have been
prepared according to GAAP applied on a consistent basis in all material
respects with those previously delivered.
DOSKOCIL MANUFACTURING COMPANY, INC.
By:
Name:
Title:
F-8
<PAGE>
EXHIBIT G
ASSIGNMENT AND ACCEPTANCE
Dated _______________, _____
Reference is made to the Credit Agreement dated as of September 19, 1997
(the "Credit Agreement") among Doskocil Manufacturing Company, Inc., a Texas
corporation ("Borrower"), NationsBank of Texas, N.A. as Administrative Agent
("Administrative Agent"), and the lenders parties thereto. Terms defined in the
Credit Agreement are used herein with the same meaning.
___________________ ("Assignor") and --------------------- ("Assignee")
agree as follows:
4. Subject to the terms and conditions of this Assignment and Acceptance,
Assignor hereby sells and assigns to Assignee, and Assignee hereby purchases and
assumes from Assignor, the following:
a. _____% interest in and to all of Assignor's rights and obligations
under the Credit Agreement as of the Effective Date (as defined below),
with respect to such percentage interest in Assignor's Revolving Credit
Commitment in effect on the Effective Date, the principal amount of
Revolving Credit Advances owing to Assignor on the Effective Date, the
Revolving Credit Note held by Assignor, and Assignor's participation in any
Letters of Credit and Reimbursement Obligations outstanding on the
Effective Date;
b. _____% interest in and to all of Assignor's rights and obligations
under the Credit Agreement as of the Effective Date, with respect to such
percentage interest in Assignor's Facility A Term Loan Commitment in effect
on the Effective Date, the principal amount of Facility A Term Loan
Advances owing to Assignor on the Effective Date and the Facility A Term
Loan Note held by Assignor;
c. _____% interest in and to all of Assignor's rights and obligations
under the Credit Agreement as of the Effective Date, with respect to such
percentage interest in Assignor's Facility B Term Loan Commitment in effect
on the Effective Date, the principal amount of Facility B Term Loan
Advances owing to Assignor on the Effective Date and the Facility B Term
Loan Note held by Assignor.
5. Assignor (a) represents and warrants that (i) as of the date hereof
its Revolving Credit Commitment (without giving effect to assignments thereof
which have not yet become effective) is $__________ and, as of the date hereof,
the outstanding principal amount of the Revolving Credit Advances owing to it
(without giving effect to assignments thereof which have not yet become
effective) is $_________, (ii) as of the date hereof its Facility A Term Loan
Commitment (without giving effect to assignments thereof which have not yet
become effective) is $________ and, as of the date hereof, the outstanding
principal amount of the Facility A Term Loan Advances owing to it (without
giving effect to assignments thereof which have not yet become effective) is
$__________, (iii) as of the date hereof its Facility B Term Loan Commitment
(without giving effect to assignments thereof which have not become effective)
is $____________ and, as of the date hereof, the outstanding principal amount of
Facility B
G-1
<PAGE>
Term Loan Advances owing to it (without giving effect to assignments thereof
which have not yet become effective) is $___________, (iv) it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (b) makes no representation or
warranty and assumes no responsibility with respect to (i) any statements,
warranties, or representations made in or in connection with the Credit
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency, or value of the Credit Agreement or any other instrument or
document furnished pursuant thereto or (ii) the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under the Credit Agreement or any other instrument or document
furnished pursuant thereto; and (c) attaches the Promissory Notes referred to in
Paragraph 1 above to exchange such Promissory Notes for new Promissory Notes as
follows: (i) a Revolving Credit Note dated ____________, 199___, in the
principal amount of $_________ payable to the order of Assignee, and a Revolving
Credit Note dated _____________, 199___, in the principal amount of $_________
payable to the order of Assignor, [(ii) a Facility A Term Loan Note dated
___________, 199___, in the principal amount of $__________ payable to the order
of Assignee, and a Facility A Term Loan Note dated ___________, 199___, in the
principal amount of $__________ payable to the order of Assignor] [and (iii) a
Facility B Term Loan Note dated ______________, 199___, in the principal amount
of $_____________ payable to the order of Assignee, and a Facility B Term Loan
Note dated __________, 199___, in the principal amount of $_____________ payable
to the order of Assignor].
6. Assignee (a) confirms that it has received a copy of the Credit
Agreement and the other Loan Documents, together with copies of the financial
statements referred to in Sections 4.1(j), 6.1 and 6.2 of the Credit Agreement
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Assignment and
Acceptance; (b) agrees that it will, independently and without reliance upon the
Administrative Agent, Assignor, 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 the Credit Agreement
and the other Loan Documents; (c) appoints and authorizes the Administrative
Agent to take such action as agent on its behalf and to exercise such powers
under the Credit Agreement, the other Loan Documents, and this Assignment and
Acceptance as are delegated to the Administrative Agent by the terms thereof and
hereof, together with such powers as are reasonably incidental thereto and
hereto; (d) agrees that it will perform in accordance with its terms all of the
obligations which by the terms of the Credit Agreement, the other Loan
Documents, and this Assignment and Acceptance are required to be performed by it
as a Lender; and (e) specifies the addresses set forth in Schedule I attached
hereto as its address for the receipt of notices and as its initial LIBOR Lender
Office, respectively[; and (f) attaches the forms prescribed by the IRS
certifying as to Assignee's status for purposes of determining exemption from
United States withholding taxes with respect to all payments to be made to
Assignee under the Credit Agreement, the other Loan Documents, and this
Assignment and Acceptance].
7. The effective date for this Assignment and Acceptance shall be
___________________, 199___ (the "Effective Date").
8. Upon such acceptance as of the Effective Date and upon the remittance
of a $3,500 processing fee to the Administrative Agent, (a) Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender
G-2
<PAGE>
thereunder and (b) Assignor shall, to the extent provided in this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Credit Agreement.
9. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of Texas. Without excluding any other
jurisdiction, Assignee agrees that the courts of Texas will have jurisdiction
over proceedings in connection herewith.
10. After giving effect to this Assignment and Acceptance:
a. Assignee's Revolving Credit Specified Percentage shall be _____%.
b. Assignee's Facility A Term Loan Specified Percentage shall be
_____%.
c. Assignee's Facility B Term Loan Specified Percentage shall be
_____%.
d. Assignee's Total Specified Percentage shall be _____%.
e. Assignor's Revolving Credit Specified Percentage shall be _____%.
f. Assignor's Facility A Term Loan Specified Percentage shall be
_____%.
g. Assignor's Facility B Term Loan Specified Percentage shall be
_____%.
h. Assignor's Total Specified Percentage shall be _____%.
11. This Assignment and Acceptance may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
[NAME OF ASSIGNOR]
By:
Name:
Title:
G-3
<PAGE>
[NAME OF ASSIGNEE]
By:
Name:
Title:
Accepted this ___ day of ____________, _____
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent
By:
Name:
Title:
DOSKOCIL MANUFACTURING COMPANY, INC.
By:
Name:
Title:
G-4
<PAGE>
Schedule I
ASSIGNEE'S ADDRESS
------------------
1. Address for the Advances and Receipt of Notices
-----------------------------------------------
2. Initial LIBOR Lending Office
----------------------------
G-5
<PAGE>
EXHIBIT H
SUBSIDIARY GUARANTY
GUARANTY, dated _____________________________, made by each of the parties
listed on the signature pages hereof (collectively, the "Guarantors", and each,
a "Guarantor"), in favor of the Guarantied Parties referred to below.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Doskocil Manufacturing Company, Inc., a Texas corporation (the
"Borrower"), has entered into a Credit Agreement, dated as of September 19,
1997, the financial institutions party thereto, and NationsBank of Texas, N.A.,
as administrative agent for said financial institutions (said Agreement, as it
may be amended, supplemented or otherwise modified from time to time, being the
"Credit Agreement", and capitalized terms not defined herein but defined therein
being used herein as therein defined); and
WHEREAS, the Borrower, directly or indirectly, owns beneficially and of
record 100% of the capital stock or other equity interests of the Guarantors,
and the Borrower and each of the Guarantors are members of the same consolidated
group of companies and are engaged in related businesses, and the Guarantors
will derive direct and indirect economic benefit from the Advances; and
WHEREAS, it is a requirement of Section 5.12 of the Credit Agreement that
the Guarantors shall have executed and delivered this Guaranty; and
WHEREAS, the Lenders and the Administrative Agent are herein referred to as
the "Guarantied Parties";
NOW, THEREFORE, in consideration of the premises and to induce the Lenders
to make Advances and issue Letters of Credit, the Guarantors hereby agree as
follows:
SECTION 12. Guaranty. Each Guarantor hereby unconditionally and
--------
irrevocably guarantees the full and prompt payment when due, whether at stated
maturity, by acceleration or otherwise, of, and the performance of, the
Obligations, whether now or hereafter existing and whether for principal,
interest, fees, expenses or otherwise, and any and all expenses (including,
without limitation, reasonable counsel fees and expenses) incurred by any of the
Guarantied Parties in enforcing any rights under this Guaranty. This Guaranty
is an absolute guaranty of payment and performance and not a guaranty of
collection. Anything contained in this Guaranty to the contrary
notwithstanding, the obligations of each Guarantor hereunder shall be limited to
a maximum aggregate amount equal to the largest amount that would not render its
obligations hereunder subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law (collectively the "Fraudulent
Transfer Laws"), in each case after giving effect to all other liabilities of
such Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically
H-1
<PAGE>
excluding, however, any liabilities of such Guarantor in respect of intercompany
indebtedness to the Borrower, other Affiliates of the Borrower or other Obligors
to the extent that such indebtedness would be discharged in an amount equal to
the amount paid by such Guarantor hereunder) and after giving effect as assets
to the value (as determined under the applicable provisions of Fraudulent
Transfer Laws) of any agreement providing for an equitable allocation among such
Guarantor and other Obligors of obligations arising under guaranties by such
parties.
SECTION 13. Guaranty Absolute. Each Guarantor guaranties that the
-----------------
Obligations will be paid strictly in accordance with the terms of the Credit
Agreement, the Notes and the other Loan Documents, without set-off or
counterclaim, and regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Guarantied Parties with respect thereto. To the extent not prohibited by
Applicable Law, the liability of each Guarantor under this Guaranty shall be
absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any provision of any other
Loan Document or any other agreement or instrument relating to any Loan
Document, or avoidance or subordination of any of the Obligations;
(b) any change in the time, manner or place of payment of, or in any other
term of, or any increase in the amount of, all or any of the Obligations, or any
other amendment or waiver of any term of, or any consent to departure from any
requirement of, the Credit Agreement, the Notes or any of the other Loan
Documents;
(c) any exchange, release or non-perfection of any Lien on any collateral
for, or any release or amendment or waiver of any term of any other guaranty of,
or any consent to departure from any requirement of any other guaranty of, all
or any of the Obligations;
(d) the absence of any attempt to collect any of the Obligations from the
Borrower or from any other Guarantor or any other action to enforce the same or
the election of any remedy by any of the Guarantied Parties;
(e) any waiver, consent, extension, forbearance or granting of any
indulgence by any of the Guarantied Parties with respect to any provision of any
other Loan Document;
(f) the election by any of the Guarantied Parties in any proceeding under
chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") of the
application of section 1111(b)(2) of the Bankruptcy Code;
(g) any borrowing or grant of a security interest by the Borrower, as
debtor-in-possession, under section 364 of the Bankruptcy Code;
(h) the disallowance, under section 502 of the Bankruptcy Code, of all or
any portion of the claims of any of the Guarantied Parties for payment of any of
the Obligations; or
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(i) any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a borrower or a guarantor.
SECTION 14. Waiver. (a) Each Guarantor hereby (i) waives, to the extent
------
not prohibited by Applicable Law, (A) promptness, diligence, notice of
acceptance and any and all other notices with respect to any of the Obligations
or this Guaranty, (B) any requirement that any of the Guarantied Parties
protect, secure, perfect or insure any security interest in or other Lien on any
property subject thereto or exhaust any right or take any action against the
Borrower or any other Person or any Collateral, (C) the filing of any claim with
a court in the event of receivership or bankruptcy of the Borrower, (D) protest
or notice with respect to nonpayment of all or any of the Obligations, (E) the
benefit of any statute of limitation, (F) all demands whatsoever (and any
requirement that same be made on the Borrower as a condition precedent to much
Guarantor's obligations hereunder) and (G) all rights by which it might be
entitled to require suit on an accrued right of action in respect of any of the
Obligations or require suit against the Borrower or any other guarantor, whether
arising pursuant to Section 34.02 of the Texas Business and Commerce Code, as
amended, Section 17.001 of the Texas Civil Practice and Remedies Code, as
amended, Rule 31 of the Texas Rules of Civil Procedure, as amended, or
otherwise; and (ii) covenants and agrees that, except as set forth in Section 11
hereof, this Guaranty will not be discharged except by complete performance of
the Obligations and any other obligations of such Guarantor contained herein.
(b) If, in the exercise of any of its rights and remedies, any of the
Guarantied Parties shall forfeit any of its rights or remedies, including,
without limitation, its right to enter a deficiency judgment against the
Borrower or any other Person, whether because of any applicable law pertaining
to "election of remedies" or the like, each Guarantor hereby consents to such
action by such Guarantied Party and waives any claim based upon such action.
Any election of remedies which results in the denial or impairment of the right
of such Guarantied Party to seek a deficiency judgment against the Borrower
shall not impair the obligation of such Guarantor to pay the full amount of the
Obligations or any other obligation of such Guarantor contained herein.
(c) In the event any of the Guarantied Parties shall bid at any foreclosure
or trustee's sale or at any private sale permitted by law or under any of the
Loan Documents, such Guarantied Party may bid all or less than the amount of the
Obligations and the amount of such bid need not be paid by such Guarantied Party
but shall be credited against the Obligations. The amount of the successful bid
at any such sale, whether such Guarantied Party or any other Person is the
successful bidder, shall be conclusively deemed to be the fair market value of
the Collateral and the difference between such bid amount and the remaining
balance of the Obligations shall be conclusively deemed to be the amount of the
Obligations guaranteed under this Guaranty, notwithstanding that any present or
future law or court decision or ruling may have the effect of reducing the
amount of any deficiency claim to which any of the Guarantied Parties might
otherwise be entitled by reason of such bidding at any such sale.
(d) Each Guarantor agrees that notwithstanding the foregoing and without
limiting the generality of the foregoing if, after the occurrence and during the
continuance of an Event of Default, the Guarantied Parties are prevented by
applicable law from exercising their respective rights to accelerate the
maturity of the Obligations, to collect interest on the Obligations, or to
enforce or exercise any other right or remedy with respect to the Obligations,
or the Administrative Agent is prevented from taking any action to realize on
the Collateral, such Guarantor agrees to pay to the Administrative Agent for the
account of
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the Guarantied Parties, upon demand therefor, the amount that would otherwise
have been due and payable had such rights and remedies been permitted to be
exercised by the Guarantied Parties.
(e) Each Guarantor hereby assumes responsibility for keeping itself
informed of the financial condition of the Borrower and of each other guarantor
of all or any part of the Obligations, and of all other circumstances bearing
upon the risk of nonpayment of the Obligations or any part thereof, that
diligent inquiry would reveal. Each Guarantor hereby agrees that the Guarantied
Parties shall have no duty to advise any Guarantor of information known to any
of the Guarantied Parties regarding such condition or any such circumstance. In
the event that any of the Guarantied Parties in its sole discretion undertakes
at any time or from time to time to provide any such information to any
Guarantor, such Guarantied Party shall be under no obligation (i) to undertake
any investigation not a part of its regular business routine, (ii) to disclose
any information which, pursuant to accepted or reasonable banking or commercial
finance practices, such Guarantied Party wishes to maintain confidential, or
(iii) to make any other or future disclosures of such information or any other
information to such Guarantor.
(f) Each Guarantor consents and agrees that the Guarantied Parties shall be
under no obligation to marshall any assets in favor of any Guarantor or
otherwise in connection with obtaining payment of any or all of the Obligations
from any Person or source.
SECTION 15. Representations and Warranties. Each Guarantor hereby
------------------------------
represents and warrants to the Guarantied Parties as follows:
(a) Such Guarantor (i) is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation, (ii) is
duly qualified as a foreign corporation and in good standing under the laws of
each jurisdiction in which the failure to so qualify has a reasonable likelihood
of having a Material Adverse Effect, (iii) has all requisite corporate power and
authority to own its properties, to lease the property it operates under lease
and to conduct its business as now or currently proposed to be conducted, (iv)
is in compliance with its certificate of incorporation and by-laws, (v) is in
compliance with all other applicable requirements of Law except for such
noncompliances as in the aggregate would have no Material Adverse Effect, and
(vi) has all necessary licenses, permits, consents or approvals from or by, has
made all necessary filings with, and has given all necessary notices to, each
Tribunal having jurisdiction, to the extent required for such ownership,
operation and conduct, except for licenses, permits, consents or approvals which
can be obtained by the taking of ministerial action to secure the grant or
transfer thereof or failures which in the aggregate would not have any
reasonable likelihood of having a Material Adverse Effect.
(b) The execution, delivery and performance by such Guarantor of this
Guaranty and the other Loan Documents to which it is a party:
(i) are within its corporate powers;
(ii) have been duly authorized by all necessary corporate action,
including, without limitation, the consent of stockholders where required;
and
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(iii) do not and will not (A) contravene its certificate of
incorporation or by-laws or other comparable governing documents, (B)
violate any other applicable requirement of Law (including, without
limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System), or any order or decree of any Tribunal or
arbitrator except to the extent that any such violation could not
reasonably be expected to have a Material Adverse Effect, (C) conflict with
or result in the breach of, or constitute a default under, or result in or
permit the termination or acceleration of, any of its agreements, (D)
result in the creation or imposition of any Lien upon any of its property
other than those in favor of the Administrative Agent on behalf of and for
the ratable benefit of the Secured Parties and Liens permitted by the
Credit Agreement, or (E) require the consent of, authorization by, approval
of, notice to, or filing or registration with, any Tribunal or any other
Person.
(c) This Guaranty has been duly executed and delivered by such Guarantor
and is the legal, valid and binding obligation of much Guarantor enforceable
against it in accordance with its terms, subject to Debtor Relief Laws (insofar
as any such law relates to the bankruptcy, insolvency or similar event of the
Guarantor) and general principles of equity.
(d) There are no pending or, to the knowledge of such Guarantor, threatened
actions, investigations or proceedings to which such Guarantor or any of its
Subsidiaries is a party or, to such Guarantor's knowledge, affecting such
Guarantor or any of its Subsidiaries before any court, Tribunal or arbitrator
with respect to which there is a reasonable likelihood of an adverse
determination and that, if adversely determined, is reasonably likely to have a
Material Adverse Effect. The performance by such Guarantor under this Guaranty
and under each of the other Loan Documents to which it is a party is not
restrained or enjoined (either temporarily, preliminarily or permanently) and no
material adverse conditions have been imposed by any Tribunal or arbitrator upon
any of the foregoing transactions.
SECTION 16. Amendments. Etc. No amendment or waiver of any provision of
----------------
this Guaranty nor consent to any departure by any Guarantor herefrom shall in
any event be effective unless the same shall be in writing, approved by the
Determining Lenders (or by all the Lenders where the approval of each Lender is
required under the Credit Agreement) and signed by the Administrative Agent, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
SECTION 17. Addresses for Notices. All notices and other communications
---------------------
provided for hereunder shall be in writing and mailed, telecopied or delivered
by reputable overnight delivery service or by hand, if to any Guarantor,
addressed to it at its address specified on the signature pages hereof, if to
any Guarantied Party, addressed to it at the address of such Guarantied Party
specified in the Credit Agreement, or, as to each party, at such other address
as shall be designated by such party in a written notice to each other party
complying as to delivery with the terms of this Section 6. All such notices and
other communications shall, when mailed, telecopied, or delivered, be effective
three days after being deposited in the mail, when telecopied with confirmation
of receipt, or when delivered by reputable overnight delivery service or by hand
to the addressee or its agent, respectively.
SECTION 18. No Waiver; Remedies. (a) No failure on the part of any
-------------------
Guarantied Party to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any
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single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law or any
of the other Loan Documents.
(b) Failure by any of the Guarantied Parties at any time or times hereafter
to require strict performance by the Borrower, any Guarantor or any other Person
of any of the provisions, warranties, terms or conditions contained in any of
the Loan Documents now or at any time or times hereafter executed by the
Borrower, any Guarantor or such other Person and delivered to any of the
Guarantied Parties shall not waive, affect or diminish any right of any of the
Guarantied Parties at any time or times hereafter to demand strict performance
thereof, and such right shall not be deemed to have been modified or waived by
any course of conduct or knowledge of any of the Guarantied Parties or any
agent, officer, employee of any of the Guarantied Parties.
(c) No waiver by the Guarantied Parties of any default shall operate as a
waiver of any other default or the same default on a future occasion, and no
action by any of the Guarantied Parties permitted hereunder shall in way affect
or impair any of the rights of the Guarantied Parties or the obligations of any
Guarantor under this Guaranty or under any of the other Loan Documents. Any
determination by a court of competent jurisdiction of the amount of any
principal and/or interest or other amount constituting any of the Obligations
shall be conclusive and binding on each Guarantor irrespective of whether such
Guarantor was a party to the suit or action in which such determination was
made.
SECTION 19. Right of Set-off. Upon the occurrence and during the
----------------
continuance of any Event of Default, each of the Guarantied Parties is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Guarantied Party to or for the credit or the account of each
Guarantor against any and all of the obligations of each Guarantor now or
hereafter existing under this Guaranty, irrespective of whether or not such
Guarantied Party shall have made any demand under this Guaranty and although
such obligations may be contingent and unmatured. Each of the Guarantied
Parties agrees promptly to notify each Guarantor after any such set-off and
application made by such Guarantied Party; provided, however, that the failure
-------- -------
to give such notice shall not affect the validity of such set-off and
application. The rights of each Guarantied Party under this Section 8 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which such Guarantied Party may have.
SECTION 20. Continuing Guaranty; Transfer of Notes. Subject to Section
--------------------------------------
11, this Guaranty is a continuing guaranty and shall (i) remain in full force
and effect until payment in full of the Obligations payable under this Guaranty
after termination of the Commitments, (ii) be binding upon each Guarantor, its
successors and assigns, and (iii) inure to the benefit of and be enforceable by
the Guarantied Parties and their respective successors, transferees, and
assigns. Without limiting the generality of the foregoing clause (iii), each of
the Guarantied Parties may assign or otherwise transfer any Note held by it or
Obligations owing to it to any other Person, and such other Person shall
thereupon become vested with all the rights in respect thereof granted to such
Guarantied Party herein or otherwise with respect to such of the Notes and
Obligations so transferred or assigned, subject, however, to compliance with the
provisions of Section 11.6 of the Credit Agreement in respect of assignments.
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SECTION 21. Reimbursement. To the extent that any Guarantor shall be
-------------
required to repay a portion of the Advances which shall exceed the greater of
(a) the amount of such Advances actually received by such Guarantor and (b) the
amount which such Guarantor would otherwise have paid if such Guarantor had
repaid the aggregate amount of such Advances (excluding the amount thereof
repaid by the Borrower) in the same proportion as such Guarantor's net worth
immediately after the later of the Agreement Date or the date such Guarantor
becomes a party to this Guaranty bears to the aggregate net worth of the
Guarantors (calculated for each Guarantor based on such Guarantor's net worth
immediately after the later of the Agreement Date or the date such Guarantor
becomes a party to this Guaranty), then such Guarantor shall be reimbursed by
----
the other Guarantors for the amount of such excess, pro rata, based on their
--- ----
respective net worth immediately after the Agreement Date or the date such
Guarantor becomes a party to this Guaranty, as applicable. This Section 10 is
intended only to define the relative rights of the Guarantors, and nothing set
forth in this Section 10 is intended to or shall impair the obligations of the
Guarantors, jointly and severally, to pay to the Guarantied Parties the
Obligations as and when the same shall become due and payable in accordance with
the terms hereof.
SECTION 22. Reinstatement. This Guaranty shall remain in full force and
-------------
effect and continue to be effective should any petition be filed by or against
any Obligor for liquidation or reorganization, should any Obligor become
insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of any
Obligor's assets, and shall, to the fullest extent permitted by law, continue to
be effective or be reinstated, as the case may be, if at any time payment and
performance of the Obligations, or any part thereof, is, pursuant to applicable
law, rescinded or reduced in amount, or must otherwise be restored or returned
by any obligees of the Obligations or such part thereof, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Obligations shall, to
the fullest extent permitted by law, be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
SECTION 23. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND BE
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS
(WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS). WHEREVER POSSIBLE, EACH
PROVISION OF THIS GUARANTY SHALL BE INTERPRETED IN SUCH MANNER AS TO BE
EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS GUARANTY
SHALL BE PROHIBITED BY OR INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE
INEFFECTIVE ONLY TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY AND WITHOUT
INVALIDATING THE REMAINING PROVISIONS OF THIS GUARANTY.
SECTION 24. Submission to Jurisdiction; Jury Trial. (a) Any legal action
--------------------------------------
or proceeding with respect to this Guaranty or any document related thereto may
be brought in the courts of the State of Texas or the United States of America
for Dallas, Texas, and, by execution and delivery of this Guaranty, each
Guarantor hereby accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor
hereby irrevocably waives any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non
----- ---
conveniens, which it may now or hereafter have to the bringing of any such
- ----------
action or proceeding in such respective
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<PAGE>
jurisdictions and consents to the granting of such legal or equitable relief as
is deemed appropriate by the court.
(b) Each Guarantor irrevocably consents to the service of process of any of
the aforesaid courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to such Guarantor at
its address provided herein, such service to become effective 30 days after such
mailing.
(c) Nothing contained in this Section 13 shall affect the right of any
Guarantied Party to serve process in any other manner permitted by law or
commence legal proceedings or otherwise proceed against any Guarantor or any of
such Guarantor's property in any other jurisdiction.
(d) EACH GUARANTOR WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
GUARANTY OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF ANY OBLIGOR OR ANY
GUARANTIED PARTY.
SECTION 25. Section Titles. The Section titles contained in this Guaranty
--------------
are and shall be without substantive meaning or content of any kind whatsoever
and are not a part of this Guaranty.
SECTION 26. Execution in Counterparts. This Guaranty may be executed in
-------------------------
any number of counterparts and by different 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 Guaranty.
SECTION 27. Miscellaneous. All references herein to the Borrower or to
-------------
any Guarantor shall include their respective successors and assigns, including,
without limitation, a receiver, trustee or debtor-in-possession of or for the
Borrower or such Guarantor. All references to the singular shall be deemed to
include the plural where the context so requires.
SECTION 28. Subrogation and Subordination.
-----------------------------
(a) Notwithstanding any reference to subrogation contained herein to
the contrary, each Guarantor hereby irrevocably waives any claim or other rights
which it may have or hereafter acquire against the Borrower that arise from the
existence, payment, performance or enforcement of such Guarantor's obligations
under this Guaranty, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, any right to
participate in any claim or remedy of any Lender against the Borrower or any
collateral which any Lender now has or hereafter acquires, whether or not such
claim, remedy or right arises in equity, or under contract, statutes or common
law, including without limitation, the right to take or receive from the
Borrower, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim or other rights.
If any amount shall be paid to any Guarantor in violation of the preceding
sentence and the Obligations shall not have been paid in full, such amount shall
be deemed to have been paid to such Guarantor for the benefit of, and held in
trust for the benefit of, the Lenders, and shall forthwith be paid to the
Administrative Agent to be credited and applied upon the Obligations, whether
matured or
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unmatured, in accordance with the terms of the Credit Agreement. Each Guarantor
acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated by the Credit Agreement and that the waiver
set forth in this Section 17(a) is knowingly made in contemplation of such
benefits.
(b) All debt and other liabilities of the Borrower to any Guarantor
("Borrower Debt") are expressly subordinate and junior to the Obligations and
any instruments evidencing the Borrower Debt shall contain provisions acceptable
to the Determining Lenders providing for such subordination and shall be binding
on all holders of such Borrower Debt.
SECTION 29. Guarantor Insolvency. Should any Guarantor voluntarily seek,
--------------------
consent to, or acquiesce in the benefits of any Debtor Relief Law or become a
party to or be made the subject of any proceeding provided for by any Debtor
Relief Law (other than as a creditor or claimant) that could suspend or
otherwise adversely affect the rights of any Lender granted hereunder, then, the
obligations of such Guarantor under this Guaranty shall be, as between such
Guarantor and such Lender, a fully-matured, due, and payable obligation of such
Guarantor to such Lender (without regard to whether the Borrower is then in
default under the Credit Agreement or whether any part of the Obligations is
then due and owing by the Borrower to such Lender), payable in full by such
Guarantor to such Lender upon demand, which shall be the estimated amount owing
in respect of the contingent claim created hereunder.
SECTION 30. Rate Provision. It is not the intention of any Lender to make
--------------
an agreement violative of the laws of any applicable jurisdiction relating to
usury. Regardless of any provision in this Guaranty, no Lender shall ever be
entitled to contract, charge, receive, collect or apply, as interest on the
Obligations, any amount in excess of the Highest Lawful Rate. In no event shall
any Guarantor be obligated to pay any amount in excess of the Highest Lawful
Rate. If from any circumstance the Administrative Agent or any Lender shall
ever receive anything of value deemed excess interest under applicable law, an
amount equal to such excess shall be applied to the reduction of the principal
amount of outstanding Advances, and any remainder shall be promptly refunded to
the payor. In determining whether or not interest paid or payable with respect
to the Obligations, under any specified contingency, exceeds the Highest Lawful
Rate, the Guarantors and the Lenders shall, to the maximum extent permitted by
applicable law, (a) characterize any non-principal payment as an expense, fee or
premium rather than as interest, (b) exclude voluntary prepayments and the
effects thereof, (c) amortize, prorate, allocate and spread the total amount of
interest throughout the full term of such Obligations so that the interest paid
on account of such Obligations does not exceed the Highest Lawful Rate and/or
(d) allocate interest between portions of such Obligations; provided that if the
Obligations are paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period of
existence thereof exceeds the Highest Lawful Rate, the Lenders shall refund to
the payor the amount of such excess or credit the amount of such excess against
the total principal amount owing, and, in such event, no Lender shall be subject
to any penalties provided by any laws for contracting for, charging or receiving
interest in excess of the Highest Lawful Rate.
Section 31. Severability. If any provision of this Guaranty is held to be
------------
illegal, invalid, or unenforceable under present or future laws during the term
thereof, such provision shall be fully severable, this Guaranty shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part hereof, and the remaining provisions hereof shall
remain in full force and effect
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<PAGE>
and shall not be affected by the illegal, invalid, or unenforceable provision or
by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of this
Guaranty a legal, valid, and enforceable provision as similar in terms to the
illegal, invalid, or unenforceable provision as may be possible.
SECTION 32. ENTIRE AGREEMENT. THIS GUARANTY REPRESENTS THE FINAL
----------------
AGREEMENT BETWEEN THE PARTIES REGARDING THE SUBJECT MATTER HEREIN AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
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<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly
executed and delivered by its duly authorized officer on the date first above
written.
Notice Address for all Guarantors
for this Guaranty:
By:
Name:
Title:
Telephone:
Telecopier:
Accepted and Acknowledged:
NATIONSBANK OF TEXAS, N.A., as
Administrative Agent
By:
Name:
Title:
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<PAGE>
EXHIBIT I
NOTICE OF BORROWING
NationsBank of Texas, N.A., as
Administrative Agent
901 Main Street, 13th Floor
Dallas, Texas 75202
Attention: Marie T. Lancaster
Re: Doskocil Manufacturing Company, Inc.
------------------------------------
Gentlemen:
The undersigned, an Authorized Signatory of Doskocil Manufacturing Company,
Inc., to the Credit Agreement, dated as of September 19, 1997, among the
undersigned, the financial institutions party thereto and NationsBank of Texas,
N.A., as Administrative Agent (said Agreement, as it may be amended,
supplemented or otherwise modified from time to time, being the "Credit
Agreement" and capitalized terms not defined herein but defined therein being
used herein as therein defined), and hereby gives you notice, irrevocably,
pursuant to Section 2.1 of the Credit Agreement, that the undersigned hereby
requests a [Revolving Credit Advance] [Facility A Term Loan Advance] [Facility B
Term Loan Advance] under the Credit Agreement, and in that connection sets forth
below the information relating to such Borrowing (the "Proposed Borrowing") as
required by Section 2.1 of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is _____________, ____.
(ii) The aggregate amount of the [Revolving Credit] [Facility A Term
Loan] [Facility B Term Loan] Advances constituting the Proposed Borrowing
is $___________, of which amount $_______ consists of Base Rate Advances,
$_________ consists of LIBOR Rate Advances having an initial Interest
Period of _____ months.
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the Proposed Borrowing, before
and after giving effect thereto and to the application of the proceeds
therefrom:
(A) the representations and warranties of the Borrower contained in Article
4 of the Credit Agreement and in each of the other Loan Documents to which
it is a party (other than those representations and warranties that
specifically relate to an earlier date) are true and correct as though made
on and as of such date; and
(B) no Default or Event of Default is continuing, or will result from the
Proposed Borrowing.
I-1
<PAGE>
Very truly yours,
DOSKOCIL MANUFACTURING COMPANY, INC.
By:
Name:
Title:
I-2
<PAGE>
EXHIBIT J-1
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
James R. Littlejohn
DONOHOE, JAMESON & CARROLL, P.C.
3400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
LEASEHOLD DEED OF TRUST, ASSIGNMENT OF LEASES
AND RENTS, SECURITY AGREEMENT
AND FIXTURE FILING
THE STATE OF ________ (S)
(S) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF ___________ (S)
THAT, DOSKOCIL MANUFACTURING COMPANY, INC., a Texas corporation
("Grantor"), for and in consideration of the sum of Ten Dollars to Grantor in
-------
hand paid by MICHAEL F. HORD, Trustee, of 901 Main Street, 67th Floor, Dallas,
Dallas County, Texas 75202 ("Trustee"), in order to secure the payment of the
-------
indebtedness hereinafter referred to and the performance of the obligations,
covenants, agreements and undertakings of Grantor hereinafter described, does
hereby GRANT, BARGAIN, SELL, CONVEY, TRANSFER, ASSIGN and SET OVER to Trustee,
WITH POWER OF SALE, for the benefit of NationsBank of Texas, N.A., a national
banking association ("NationsBank"), having its principal office at 901 Main
-----------
Street, 67th Floor, Dallas, Texas 75202, as the administrative agent (in such
capacity NationsBank is called "Administrative Agent") on behalf of NationsBank
--------------------
and each other lender which is now or hereafter a party to the Credit Agreement
(as defined below) (collectively, "Banks" and singly, a "Bank") all of Grantor's
----- ----
leasehold interest in the real estate situated in Tarrant County, Texas
described in Exhibit A attached hereto and made a part hereof (the "Land"),
--------- ----
together with (i) all rights, power and privileges of Grantor as lessee under
those certain Lease Agreements with the lessors (the "Lessors") as described on
-------
Exhibit B attached hereto and made a part hereof, and memoranda of which are, or
- ---------
will be simultaneously herewith, recorded in the office of County Clerk of
_____________ County, (such Lease Agreements, together with any amendments,
modifications, renewals, extensions, amendments and restatements thereof,
collectively, the "Leases" and individually, a "Lease"); (ii) all of Grantor's
------ -----
interest in the buildings and other improvements ("Improvements") now on or that
------------
may be hereafter placed on said Land; (iii) Grantor's interest in all materials,
equipment, fixtures or other property whatsoever, now or hereafter attached to,
installed in, or used in connection with the buildings and other improvements
now erected or hereafter to be erected on said Land, including, but not limited
to, all heating, plumbing, lighting, water heating, cooking, laundry,
refrigerating, incinerating, ventilating and air conditioning equipment,
disposals, dishwashers, refrigerators and ranges, utility lines and equipment
(whether owned individually or jointly with others), sprinkler systems, fire
extinguishing apparatus and equipment, tanks, engines, pipers, fittings,
dynamos, generators, machines, elevators, motors, cabinets, shades, blinds,
partitions, window screens, screen doors, storm windows, awnings, drapes, and
rugs and other floor coverings, and all fixtures, accessions and appurentances
thereto, and all renewals or replacements of or
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substitutions for any of the foregoing, all of which property and things are
hereby declared to be permanent fixtures and accessions to the leasehold and
part of the realty conveyed herein as security for the indebtedness herein
mentioned; (iv) all interests now or hereafter of Grantor in and to all
easements and rights of way now or hereafter used in connection with any of the
foregoing real estate or as a means of ingress to or egress from said real
estate; (v) all interests now or hereafter of Grantor in and to any streets,
ways, alleys and/or strips of land adjoining said Land or any part thereof; (vi)
all licenses of Grantor necessary for the operation and maintenance of the
foregoing; and (vii) all rights, estates, hereditaments, powers and privileges
of Grantor appurtenant or incident to the foregoing. This conveyance shall
include and the lien, security interest and assignment created hereby shall
encumber and extend to all other, further or additional title, estates, interest
or rights which may exist now or at any time be acquired by Grantor in or to the
property demised under any lease creating a leasehold estate related to or
covering all or any of the foregoing property and including Grantor's rights, if
any, to purchase the property demised under any such lease and, if fee simple
title to any of such property shall ever become vested in Grantor, such fee
simple interest shall be encumbered by this Deed of Trust in the same manner as
if Grantor had fee simple title to such property as of the date of execution
hereof.
TO HAVE AND TO HOLD the foregoing property (the "Mortgaged Property") unto
------------------
Trustee and his successors or substitutes in this trust and to his or their
successors and assigns, IN TRUST, WITH POWER OF SALE, for the benefit of
Administrative Agent, however, upon the terms, provisions and conditions herein
set forth.
In order to secure the payment of the indebtedness described in this
Leasehold Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Financing Statement ("Deed of Trust") and the performance of the obligations,
-------------
covenants, agreements and undertakings of Grantor described in this Deed of
Trust, Grantor hereby grants to Administrative Agent a security interest and
lien in all of Grantor's right, title and interest in and to all present and
future (i) goods, inventory, equipment (excluding, however, any equipment or
other property which is financed with Indebtedness permitted to be incurred
pursuant to Sections 7.1(c) and 7.1(h) of the Credit Agreement), furnishings,
fixtures, furniture, chattels and personal property of whatever nature owned by
Grantor now or hereafter attached or affixed to or used in or about the building
or buildings now erected or hereafter to be erected on the Mortgaged Property,
or otherwise located on the Mortgaged Property, (ii) fixtures, accessions and
appurtenances to any of the foregoing or following, (iii) renewals or
replacements of or substitutions for any of the foregoing or following, (iv)
building materials and equipment now or hereafter delivered to said premises and
intended to be installed therein, (v) occupancy agreements, leases, rents
(including security deposits and advance rentals under lease agreements now or
at any time hereafter covering or affecting any of the Mortgaged Property and
all property described in this Paragraph and held by or for the benefit of
---------
Grantor), fees, royalties, bonuses, issues, room rents, profits, revenues or
other income or benefits of whatever nature received or due in connection with
the Mortgaged Property and all property described in this Paragraph, (vi)
---------
monetary deposits which Grantor has been required to give to any public or
private utility with respect to utility services furnished to the Mortgaged
Property or to the Lessor or other lessor of the Real Property, (vii) permits,
licenses, franchises, certificates and agreements related to the foregoing, and
other rights and privileges obtained in connection with, or necessary for the
operation and maintenance of, the foregoing, and all other rights and privileges
obtained in connection with the Mortgaged Property and all property described in
this Paragraph, (viii) plans, specifications, maps, surveys, reports, operating,
---------
management and maintenance contracts, architectural, engineering and
construction contracts, books of
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account, insurance policies, guarantees, warranties and other documents, of
whatever kind or character, relating to the use, construction upon, occupancy,
leasing, sale or operation of the Mortgaged Property and all property described
in this Paragraph, (ix) all proceeds from the taking of any of the Mortgaged
---------
Property and any property described in this Paragraph or any rights appurtenant
---------
thereto by right of eminent domain or by private or other purchase in lieu
thereof, (x) all proceeds (including premium refunds) of each policy of
insurance relating to the Mortgaged Property and any property described in this
Paragraph, (xi) all guarantees, sureties and other agreements assuring
- ---------
performance of any obligation of any tenant of the Mortgaged Property and all
property described in this Paragraph, and (xii) all proceeds arising from or by
---------
virtue of the sale, lease or other disposition of the Mortgaged Property and any
property described in this Paragraph (all of the property described in this
---------
Paragraph hereinafter collectively called the "Personal Property") and all
- --------- -----------------
proceeds and products of the Personal Property. (The Mortgaged Property and the
Personal Property are hereinafter sometimes collectively called the "Property").
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ARTICLE I
Secured Indebtedness
--------------------
33.a. Secured Indebtedness. This Deed of Trust is made to secure and
enforce the payment of the following, agreements, documents, obligations,
indebtedness and liabilities: (a) all present and future obligations,
indebtedness and liabilities, and all renewals and extensions of all or any part
thereof of Grantor to Banks or any Bank arising from, by virtue of, or pursuant
to the Credit Agreement dated as of September 19, 1997, among the Grantor,
Administrative Agent and Banks (said Credit Agreement, as amended, modified,
renewed, extended, restated or refinanced from time to time, the "Credit
Agreement"), the Notes (as defined in the Credit Agreement), the other Loan
Documents (as defined in the Credit Agreement), including, without limitation,
interest, fees and other charges that would accrue or become owing both prior to
and subsequent to and but for the commencement of any proceeding against or with
respect to Grantor under any chapter of the Bankruptcy Code of 1978, 11 U.S.C.
(S) 101 et. seq. whether or not a claim is allowed for the same in any such
-- ---
proceeding, and (b) all indebtedness and obligations incurred or arising
pursuant to the provisions of this Deed of Trust. The indebtedness referred to
in this Paragraph 1.1 is hereinafter sometimes called the "Secured
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Indebtedness". Initially-capitalized terms used herein and not otherwise herein
defined shall have the meaning given to such terms in the Credit Agreement.
ARTICLE II.
Representations and Warranties
------------------------------
34.a. Representations and Warranties. Grantor represents and warrants to
the Trustee and the Banks as follows:
(a) Title and Authority. Grantor is the lawful owner of good title
to the Leases, and has good right and authority to grant, bargain, sell,
transfer, assign and mortgage the Mortgaged Property, subject to Lessor's
consent, and to grant a security interest in the Personal Property.
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(b) Warranty. For so long as any of the Secured Indebtedness shall be
outstanding, Grantor will warrant and defend the title to the Mortgaged
Property against the claims of all persons whomsoever claiming or to claim
the same or any part thereof, subject to Permitted Liens.
(c) Leases. The Leases on the Land are in full force and effect; no
default (nor any event, which with notice or lapse of time or both, could
cause such a default) has occurred and is continuing thereunder and there
have been no renewals and/or extensions of, or supplements, modifications,
or amendments to any Lease. Grantor is in the possession of the premises
covered by, and leased under the Leases. No other lease or rental
agreement, oral or written, relates to Grantor's use or occupancy of the
Mortgaged Property other than the Leases.
2.b. Covenants and Agreements. So long as the Secured Indebtedness or any
part thereof remains unpaid, Grantor covenants and agrees with the Trustee and
the Banks as follows:
(a) Taxes on Lien.
In the event of the enactment after the date hereof of any law of the
State of Texas or of any other governmental entity deducting from the value
of property for the purpose of taxation any lien or security interest
thereon, or imposing upon the Trustee, the Administrative Agent or any Bank
the payment of the whole or any part of the taxes (excluding income,
franchise, gross receipts or similar taxes imposed on the Banks, the
Trustee or the Administrative Agent) or assessments or charges or liens
herein required to be paid by Grantor, or changing in any way the laws
relating to the taxation of deeds of trust or mortgages or security
agreements or debts secured by deeds of trust or mortgages or security
agreements or the interest of the trustee or beneficiary or mortgagee or
secured party in the property covered thereby, or the manner of collection
of such taxes, so as to affect this Deed of Trust or any of the Secured
Indebtedness or the Trustee, the Administrative Agent or any Bank, then,
and in any such event, Grantor, upon demand by the Trustee, the
Administrative Agent or any Bank, shall to the extent not prohibited by
Applicable Law, pay such taxes, assessments, charges or liens, or reimburse
the Trustee, the Administrative Agent or such Bank therefor.
(b) Grantor will maintain insurance with respect to the Mortgaged
Property in accordance with the Credit Agreement. Administrative Agent
understands and acknowledges that the Lease requires that all property
insurance maintained with respect to the leased premises provide that the
proceeds of such insurance be payable to the Lessors or the Lessors'
mortgagees, subject to all applicable provisions of the Leases with respect
to the use of such proceeds to restore the Improvements.
(c) Protection and Defense of Lien. If the validity of this Deed of
Trust or of any rights, titles, liens or security interests created or
evidenced hereby with respect to the Property or any part thereof shall be
attacked directly or indirectly or if any legal proceedings are instituted
against Grantor with respect thereto, Grantor will give prompt written
notice thereof to the Administrative Agent and at Grantor's own cost and
expense diligently will endeavor to cure any defect that may be developed
or claimed, and will take all necessary and proper steps for the defense of
such legal
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proceedings, including but not limited to the employment of counsel, the
prosecution or defense of litigation and the release or discharge of all
adverse claims, other than Permitted Liens, and the Trustee and
Administrative Agent, or either of them (whether or not named as parties to
legal proceedings with respect thereto) are hereby authorized and empowered
to take such additional steps as in their judgment and discretion
reasonably may be necessary or proper for the defense of any such legal
proceedings or the protection of the validity of this Deed of Trust and the
rights, titles, liens and security interests created or evidenced hereby,
including but not limited to the employment of counsel, the prosecution or
defense of litigation, the compromise or discharge of any adverse claims
made with respect to the Property, other than Permitted Liens, the purchase
of any tax title and the removal of prior liens or security interests which
do not constitute Permitted Liens, and all reasonable expenses so incurred
of every kind and character shall be a demand obligation owing by Grantor,
and the party incurring such expenses shall be subrogated to all rights of
the person receiving such payment. Should the Trustee or the
Administrative Agent intend to take any such action described in the
immediately preceding sentence, the Trustee or the Administrative Agent, as
appropriate, shall, subject to the immediately succeeding proviso, prior to
-------
taking any such action notify Grantor of such intention and give Grantor a
reasonable opportunity to provide such defense or protection; provided,
--------
however, if in the reasonable opinion of the Trustee or the Administrative
-------
Agent the giving of such notice and opportunity to provide such defense or
protection would materially impair or materially hinder such defense or
protection or would otherwise be materially disadvantageous to rights or
interests of the Trustee or the Administrative Agent hereunder or the
rights, title, liens or security interests created or evidenced hereby, the
Trustee and the Administrative Agent shall have no obligation to give such
notice and opportunity to provide such defense or protection prior to the
taking of any such action, but after taking any such action Trustee or
Administrative Agent shall give notice thereof to Grantor.
(d) Permitted Liens. Grantor will comply with and will perform all of
the covenants, agreements and obligations imposed upon it or the Property
in the Permitted Liens in accordance with their respective terms and
provisions if the failure to do so would have a Material Adverse Effect.
Grantor will not modify or permit any modification of any Permitted Lien
against the Mortgaged Property the result of which would have a Material
Adverse Effect without the prior written consent of Administrative Agent.
(e) Books and Records. Grantor will permit all contracts, statements,
invoices, bills and claims for labor, materials and services supplied for
the construction and operation of the improvements forming a part of the
Property to be inspected and copied by Administrative Agent and its
representatives at all times during reasonable business hours upon
reasonable notice; provided, however, if a Default shall have occurred and
be continuing there shall be no requirement to give reasonable notice. If
applicable, such information shall be kept confidential in accordance with
Section 11.14 of the Credit Agreement.
(f) Leases. Grantor may not lease or enter into any other occupancy
agreement authorizing the occupancy of any portion of any of the Mortgaged
Property by third parties without the prior written consent of
Administrative Agent, which consent shall not be unreasonably withheld.
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<PAGE>
(g) Estoppel Certificate. Grantor shall at any time and from time to
time furnish promptly upon request a written statement in such form as may
be reasonably required by Administrative Agent stating (if it is the fact)
that the Leases are in full force and effect; that the Leases have not been
released, subordinated or modified; that there are no offsets or defenses
against the enforcement of any Lease; that this Deed of Trust is a valid
and binding obligation of Grantor, enforceable against Grantor in
accordance with its terms, subject to Debtor Relief Laws (as such term is
defined in the Credit Agreement); that this Deed of Trust has not been
released, subordinated or modified; and that to the best of Grantor's
knowledge there are no offsets or defenses against the enforcement of this
Deed of Trust, or if any of the foregoing statements are untrue, specifying
the reasons therefor.
(h) Compliance with Laws. Grantor shall, and shall use reasonable
efforts to cause any tenant of the Property to, comply with all applicable
restrictive covenants and all Applicable Laws except where failure to do so
could not be reasonably expected to have a Material Adverse Effect.
(i) Tax and Insurance Escrow. Upon the occurrence and during the
continuance of a Default, Grantor will upon written request of
Administrative Agent, deposit with Administrative Agent a sum equal to
accrued and unpaid ad valorem taxes, assessments and charges (which charges
for the purpose of this subparagraph shall include without limitation
ground rents and water and sewer rents and any other recurring charge which
could create or result in a lien against the Property) against the Property
for the then current year and the accrued and unpaid premiums for such
policies of insurance for the then current year, all as reasonably
estimated by Administrative Agent and prorated to the end of the calendar
month following the month during which such Default occurred, and
thereafter will deposit with Administrative Agent, on each date when an
installment of interest is due on the Notes, sufficient funds (as
reasonably estimated from time to time by Administrative Agent) to permit
the Administrative Agent to pay, at least 5 days prior to the delinquency
date thereof, the next maturing ad valorem taxes, assessments and charges
and premiums for such policies of insurance. Administrative Agent shall
have the right to rely upon tax information furnished by applicable taxing
authorities in the payment of such taxes or assessments and shall have no
obligation to make any protest of any such taxes or assessments. Any
excess over the amounts required for such purposes shall be held by
Administrative Agent for payment of future taxes, assessments, charges and
premiums, applied to any Secured Indebtedness, or refunded to Grantor, at
Administrative Agent's option; and any deficiency in such funds so
deposited shall be made up by Grantor upon demand of Administrative Agent.
All such funds so deposited shall bear interest at the normal interest rate
for money market deposits at NationsBank, may be mingled with the general
funds of Administrative Agent and shall be applied by Administrative Agent
toward the payment of such taxes, assessments, charges and premiums when
statements therefor are presented to Administrative Agent by Grantor (which
statements shall be presented by Grantor to Administrative Agent a
reasonable time before the applicable amount is due); provided, however,
that if Administrative Agent has made demand for payment of all of the
Secured Indebtedness, such funds may at Administrative Agent's option be
applied to the payment of the Secured Indebtedness in the order determined
by Administrative Agent and that Administrative Agent may at any time, in
its discretion, apply all or any part of such funds toward the payment of
any such taxes, assessments, charges or premiums which are past due,
together with any penalties or late charges with respect thereto. The
conveyance or transfer of Grantor's interest
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in the Property for any reason (including without limitation the
foreclosure of a subordinate lien or security interest or a transfer by
operation of law) shall constitute an assignment of transfer of Grantor's
interest in and rights to such funds held by Administrative Agent under
this subparagraph (i) but subject to the rights of Administrative Agent
hereunder.
(j) Further Assurances. Grantor will, on request of Administrative
Agent, (i) promptly correct any defect or error which may be discovered in
the contents of this Deed of Trust or in any other instrument executed in
connection herewith or in the execution or acknowledgment thereof; (ii)
execute, acknowledge, deliver and record or file such further instruments
(including without limitation further deeds of trust, security agreements,
financing statements, continuation statements and assignments of rents or
leases) and do such further acts as may be reasonably necessary or proper
to carry out more effectively the purposes of this Deed of Trust and such
other instruments and to subject to the liens and security interests hereof
and thereof any property intended by the terms hereof and thereof to be
covered hereby and thereby including specifically, but without limitation,
any renewals, additions, substitutions, replacements, or appurtenances to
the Property; (iii) execute, acknowledge, deliver, procure and record or
file any document or instrument (including specifically any financing
statement) deemed reasonable by Administrative Agent to protect the lien or
the security interest hereunder against the rights or interests of third
persons, and Grantor will pay all reasonable costs connected with any of
the foregoing; and (iv) use reasonable efforts to cause any tenant under
any lease agreement of any of the Property to furnish, in the manner and to
the extent required under the Lease, any instrument or perform, in the
manner and to the extent required under the Lease, any act reasonably
deemed advisable by Administrative Agent to protect the lien or the
security interest hereunder.
(k) Leases. To the extent that a contrary action or omission would be
reasonably likely to cause a Material Adverse Effect: (1) Grantor shall
punctually and properly perform, observe, and otherwise comply with each
and every covenant, agreement, requirement and condition set forth in the
Leases, and do or cause to be done all things necessary or appropriate to
keep the Leases in full force and effect and to preserve and keep
unimpaired the rights of Grantor, Trustee and Administrative Agent
thereunder, and Grantor shall neither do nor suffer to be done any act of
commission or omission which would justify the Lessor under any Lease to
cancel same, evict Grantor, or declare due and payable all or any part of
the rental and other sums payable thereunder in advance of the time
specified therein for the payment thereof; (2) Grantor will not, without
the express written consent of Administrative Agent, surrender, forfeit,
cancel or terminate, or permit the surrender, forfeiture, cancellation, or
termination of any Lease in whole or in part, whether or not a default
shall have occurred and shall be continuing thereunder; and (3) Grantor
will not, without the express prior written consent of Administrative
Agent, amend, modify or impair, or permit the amendment, modification or
impairment of any Lease in any manner which would materially adversely
affect rights of Grantor, Trustee or Administrative Agent thereunder.
Grantor shall promptly notify Administrative Agent in writing upon receipt
or delivery by Grantor of any written notice of default under any Lease.
If for any reason Grantor cannot timely make any payment under any Lease or
perform or comply with any of its obligations under any Lease, Grantor
shall notify Administrative Agent in sufficient time to enable
Administrative Agent (but Administrative Agent shall not be obligated) to
timely make such payments and/or to perform or comply with such other
obligations.
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2.c. Right of Administrative Agent to Perform. Grantor agrees that, if
after any applicable notice or grace period, Grantor fails to perform any act or
to take any action which hereunder Grantor is required to perform or take, or to
pay any money which hereunder Grantor is required to pay, Administrative Agent,
in Grantor's name or in its own name and after the giving of any required notice
and expiration of any applicable cure period, may but shall not be obligated to
perform or cause to be performed such act or take such action or pay such money,
and any reasonable expenses so incurred by Administrative Agent, and any money
so paid by Administrative Agent, shall be a demand obligation owing by Grantor
to Administrative Agent and Administrative Agent, upon making such payment,
shall be subrogated to all of the rights of the person or entity receiving such
payment. Any amounts due and owing by Grantor to Administrative Agent pursuant
to this Deed of Trust shall bear interest from the date such amount becomes due
until paid at a rate of interest per annum equal to the lesser of (i) Base Rate
Basis, plus 2%, or (ii) the Highest Lawful Rate, and shall be a part of the
Secured Indebtedness and shall be secured by this Deed of Trust and by any other
Loan Document. Should Administrative Agent intend to perform or cause to be
performed such act or take such action or pay such money, Administrative Agent
shall, subject to the immediately succeeding proviso, prior to taking any such
-------
action notify Grantor of such intention and give Grantor a reasonable
opportunity to take such action; provided, however, if in the reasonable opinion
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of Administrative Agent the giving of such notice and opportunity to take action
would materially impair the validity or priority of this Deed of Trust, the
rights or interests of the Trustee or Administrative Agent hereunder or any
rights, titles, liens or security interests created or evidenced hereby,
Administrative Agent shall have no obligation to give such notice and
opportunity to take action prior to taking of such action, but, nevertheless,
shall give prompt written notice of the taking of such action to Grantor.
ARTICLE III.
Remedies in Event of Default
----------------------------
35.a. Defaults. The term "Default" as used in this Deed of Trust shall
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mean the occurrence and continuance of an "Event of Default" as defined in the
Credit Agreement.
3.b. Acceleration. Upon the occurrence and during the continuance of a
Default, Administrative Agent shall have the option of declaring all Secured
Indebtedness in its entirety to be immediately due and payable, and the liens
and security interests evidenced hereby shall be subject to foreclosure in any
manner provided for herein or provided for by law as Administrative Agent may
elect.
3.c. Possession. Upon the occurrence and during the continuance of a
Default, Administrative Agent is authorized prior or subsequent to the
institution of any foreclosure proceedings to enter upon the Property, or any
part thereof, and to take possession of the Property and of all books, records
and accounts relating thereto and to exercise without interference from Grantor
any and all rights which Grantor has with respect to the management, possession,
operation, protection or preservation of the Property, including the right to
rent the same for the account of Grantor and to deduct from such rents all
reasonable costs, expenses and liabilities of every reasonable character
incurred by Administrative Agent in collecting such rents and in managing,
operating, maintaining, protecting or preserving the Property and to apply the
remainder of such rents on the Secured Indebtedness in such manner as
Administrative Agent may elect. All such costs, expenses and liabilities
incurred by Administrative Agent in collecting such rents and in
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managing, operating, maintaining, protecting or preserving the Property, if not
paid out of rents as hereinabove provided, shall constitute a demand obligation
owing by Grantor and shall bear interest from the date of expenditure until paid
at a rate of interest per annum equal to the Default Rate, all of which shall
constitute a portion of the Secured Indebtedness. If necessary to obtain the
possession provided for above, Administrative Agent may invoke any and all legal
remedies to dispossess Grantor, including specifically one or more actions for
forcible entry and detainer, trespass to try title and restitution. In
connection with any action taken by Administrative Agent pursuant to this
Paragraph 3.3, Administrative Agent shall not be liable for any loss sustained
by Grantor resulting from any failure to let the Property, or any part thereof,
or from any other act or omission of Administrative Agent in managing the
Property, including without limitation, the negligence of Administrative Agent,
unless such loss is caused by the gross negligence or willful misconduct of
Administrative Agent, and Administrative Agent shall not be obligated to perform
or discharge any obligation, duty or liability under any lease agreement
covering the Property or any part thereof or under or by reason of this
instrument or the exercise of rights or remedies hereunder. Should
Administrative Agent incur any such liability, the amount thereof, including
reasonable costs, expenses and reasonable attorneys' fees, shall be secured
hereby, and Grantor shall reimburse Administrative Agent therefor immediately
upon demand. Nothing in this Paragraph 3.3 shall impose any duty, obligation or
responsibility upon Administrative Agent for the control, care, management or
repair of the Property, or shall operate to make Administrative Agent
responsible or liable for any waste committed on the Property or by any other
parties or for any dangerous or defective condition of the Property, or for any
negligence in the management, upkeep, operation, repair or control of the
Property resulting in loss or injury or death to any tenant, licensee, employee
or stranger, unless such waste, dangerous or defective condition or injury or
death is directly a result of gross negligence or willful misconduct by
Administrative Agent, and not just Administrative Agent's own ordinary
negligence.
3.d. Foreclosure. During a Default, Trustee, his successor or substitute,
is authorized and empowered and it shall be his special duty at the request of
Administrative Agent to take all actions necessary to sell the Mortgaged
Property or any part thereof situated in the State of Texas in accordance with
the statutes of the State of Texas then in force governing sales of real estate
under powers conferred by deed of trust. Any sale made by Trustee hereunder may
be of the entire Mortgaged Property or in such parcels as Administrative Agent
may request, and any sale may be adjourned by announcement at the time and place
appointed for such sale without further notice except as may be required by law.
The sale by Trustee of less than the whole of the Mortgaged Property shall not
exhaust the power of sale herein granted, and Trustee is specifically empowered
to make successive sale or sales under such power until the whole of the
Mortgaged Property shall be sold; and, if the proceeds of such sale of less than
the whole of the Mortgaged Property shall be less than the aggregate of the
Secured Indebtedness and the expense of executing this trust as provided herein,
this Deed of Trust and the lien hereof shall remain in full force and effect as
to the unsold portion of the Mortgaged Property just as though no sale had been
made; provided, however, that Grantor shall never have any right to require the
-------- -------
sale of less than the whole of the Mortgaged Property but Administrative Agent
shall have the right, at its sole election, to request Trustee to sell less than
the whole of the Mortgaged Property. After each sale, Trustee shall make to the
purchaser or purchasers at such sale good and sufficient conveyances in the name
of Grantor, conveying the Mortgaged Property so sold to the purchaser or
purchasers with general warranty of leasehold title, and shall receive the
proceeds of said sale or sales and apply the same as herein provided. Payment
of the purchase price to Trustee shall satisfy the obligation of purchaser at
such sale therefor, and such purchaser shall not be responsible for the
application thereof. The power of sale granted herein shall not
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be exhausted by any sale held hereunder by Trustee or his substitute or
successor, and such power of sale may be exercised from time to time and as many
times as Administrative Agent may deem necessary until all of the Mortgaged
Property has been duly sold and all of the Secured Indebtedness has been fully
paid. In the event any sale hereunder is not completed or is defective in the
opinion of Administrative Agent, such sale shall not exhaust the power of sale
hereunder and Administrative Agent shall have the right to cause a subsequent
sale or sales to be made hereunder. Any and all statements of fact or other
recitals made in any deed or deeds given by Trustee or any successor or
substitute appointed hereunder as to nonpayment of the Secured Indebtedness, or
as to the occurrence of any Default, or as to Administrative Agent having
declared all of such indebtedness to be due and payable, or as to the request to
sell, or as to notice of time, place and terms of sale and of the properties to
be sold having been duly given, or as to the refusal, failure or inability to
act of Trustee or any substitute or successor, or as to the appointment of any
substitute or successor trustee, or as to any other act or thing having been
duly done by Administrative Agent or by such Trustee, substitute or successor,
shall be taken as prima facie evidence of the truth of the facts so stated and
recited. Trustee, his successor or substitute, may appoint or delegate any one
or more persons as agent to perform any act or acts necessary or incident to any
sale held by Trustee, including the posting of notices and the conduct of sale,
but in the name and on behalf of Trustee, his successor or substitute.
3.e. Judicial Foreclosure. This instrument shall be effective as a
mortgage as well as a deed of trust and during a Default may be foreclosed as to
any of the Property in any manner permitted by the laws of the State of Texas or
of any other state in which any part of the Property is situated, and any
foreclosure suit may be brought by the Trustee or by Administrative Agent. In
the event a foreclosure hereunder shall be commenced by the Trustee or his or
her substitute or successor, Administrative Agent may at any time before the
sale of the Property direct the said Trustee to abandon the sale, and may then
institute suit for the collection of the Notes and the other Secured
Indebtedness, and for the foreclosure of this Deed of Trust. It is agreed that
if Administrative Agent should institute a suit for the collection of the Notes
or any other Secured Indebtedness and for the foreclosure of this Deed of Trust,
Administrative Agent may at any time before the entry of a final judgment in
said suit dismiss the same, and require the Trustee or his or her substitute or
successor to sell the Property in accordance with the provisions of this Deed of
Trust.
3.f. Receiver. In addition to all other remedies herein provided for,
Grantor agrees that during a Default, Administrative Agent shall as a matter of
right be entitled to the appointment of a receiver or receivers for all or any
part of the Property, whether such receivership be incident to a proposed sale
of such Property or otherwise, and without regard to the value of the Property
or the solvency of any person or persons liable for the payment of the Secured
Indebtedness, and Grantor does hereby consent to the appointment of such
receiver or receivers, waives any and all defenses to such appointment and
agrees not to oppose any application therefor by Administrative Agent, but
nothing herein is to be construed to deprive Administrative Agent of any other
right, remedy or privilege it may now or hereafter have under the law to have a
receiver appointed; provided, however, that the appointment of such receiver,
trustee or other appointee by virtue of any court order, statute or regulation
shall not impair or in any manner prejudice the rights of Administrative Agent
to receive payment of the rents and income from the Property. Any money
advanced by Administrative Agent in connection with any such receivership shall
be a demand obligation owing by Grantor to Administrative Agent and shall bear
interest from the date of making such advancement by Administrative Agent until
paid at a rate of interest per annum equal to the lesser of (i) the
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Base Rate Basis plus 2%, or (ii) the Highest Lawful Rate, and shall be secured
by this Deed of Trust and by any other instrument securing the Secured
Indebtedness.
3.g. Proceeds of Sale. The proceeds of any sale held by the Trustee or any
receiver or public officer in foreclosure of the liens evidenced hereby shall be
applied:
first, to the payment of all necessary reasonable costs and expenses
-----
incident to such foreclosure sale, including but not limited to all court
costs and charges of every character in the event foreclosed by suit, and a
reasonable fee to the Trustee acting under the provisions of Paragraph 3.4
if foreclosed by power of sale as provided in Paragraph 3.4;
second, to the payment in full of the Secured Indebtedness (including
------
specifically without limitation the principal, interest and reasonable
attorneys' fees due and unpaid on the Notes and the amounts due and unpaid
and owed to Administrative Agent under this Deed of Trust), to be
distributed pro rata to each Bank based on the percentage that the amount
of the Secured Indebtedness owing to each Secured Party bears to the total
unpaid amount of the Obligations; and
third, the remainder, if any, shall be paid to Grantor or other party
-----
legally entitled thereto.
3.h. The Administrative Agent as Purchaser. Administrative Agent shall
have the right to become the purchaser at any sale held by any Trustee or
substitute or successor or by any receiver or public officer, and Administrative
Agent purchasing at such sale shall have the right to credit upon the amount of
the bid made therefor, to the extent necessary to satisfy such bid, the Secured
Indebtedness owing to the Administrative Agent and/or Banks for the equal and
ratable benefit of Banks.
3.i. Uniform Commercial Code.
(a) During a Default, the Administrative Agent may exercise its rights
of enforcement with respect to the Personal Property under the Uniform
Commercial Code as adopted in the State of Texas, as amended, and in
conjunction with, in addition to or in substitution for those rights and
remedies, and all rights and remedies granted to Banks under any Loan
Document executed by Grantor governing security interests in personal
property of Grantor.
(b) any sale made pursuant to the provisions of this Paragraph 3.9
shall be deemed to have been a public sale conducted in a commercially
reasonable manner if held contemporaneously with the sale of the Mortgaged
Property under power of sale as provided herein upon giving the same notice
with respect to the sale of the Personal Property hereunder as is required
for such sale of the Mortgaged Property under power of sale; and
(c) any and all statements of fact or other recitals made in any bill
of sale or assignment or other instrument evidencing any foreclosure sale
hereunder as to nonpayment of the Secured Indebtedness, or as to the
occurrence of any Default, or as to Administrative Agent and/or Banks
having declared all of such indebtedness to be due and payable, or as to
notice of time, place and terms of sale and of the properties to be sold
having been duly given, or as to any other act or thing
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<PAGE>
having been duly done by Administrative Agent and/or Banks, shall be taken
as prima facie evidence of the truth of the facts so stated and recited;
and
(d) Administrative Agent may appoint or delegate any one or more
persons as agent to perform any act or acts necessary or incident to any
sale held by Administrative Agent, including the sending of notices and the
conduct of the sale, but in the name and on behalf of Administrative Agent.
3.j. Partial Foreclosure. During a Default, Administrative Agent shall
have the right to proceed with foreclosure of the liens and security interests
evidenced hereby without declaring the entire Secured Indebtedness due, and in
such event any such foreclosure sale may be made subject to the unmatured part
of the Secured Indebtedness; and any such sale shall not in any manner affect
the unmatured part of the Secured Indebtedness, but as to such unmatured part
this Deed of Trust shall remain in full force and effect just as though no sale
had been made. The proceeds of any such sale shall be applied as provided in
Paragraph 3.7 except that the amount paid under subparagraph second thereof
shall be only the matured portion of the Secured Indebtedness and any proceeds
of such sale in excess of those provided for in subparagraphs first and second
(modified as provided above) shall be applied to installments of principal of
and interest on the Notes in the inverse order of maturity. Several sales may
be made hereunder without exhausting the right of sale for any unmatured part of
the Secured Indebtedness.
3.k. Remedies Cumulative. All remedies herein expressly provided for are
cumulative of any and all other remedies existing at law or in equity and are
cumulative of any and all other remedies provided for in any other instrument
securing the payment of the Secured Indebtedness, or any part thereof, or
otherwise benefiting the Trustee, the Administrative Agent and the Banks, and
the Trustee, the Administrative Agent and the Banks shall, in addition to the
remedies herein provided, be entitled to avail themselves of all such other
remedies as may now or hereafter exist at law or in equity for the collection of
the Secured Indebtedness and the enforcement of the covenants herein and the
foreclosure of the liens and security interests evidenced hereby, and the resort
to any remedy provided for hereunder or under any such other instrument or
provided for by law shall not prevent the concurrent or subsequent employment of
any other appropriate remedy or remedies, except as may be provided under
applicable law.
3.l. Resort to Any Security. Administrative Agent may resort to any
security given by this Deed of Trust or to any other security now existing or
hereafter given to secure the payment of the Secured Indebtedness, in whole or
in part, and in such portions and in such order as may seem best to
Administrative Agent in its sole and uncontrolled discretion, and any such
action shall not be considered as a waiver of any of the rights, benefits, liens
or security interests evidenced by this Deed of Trust, except as may be provided
under applicable law.
3.m. Waiver. To the full extent Grantor may do so, Grantor agrees that
Grantor will not at any time insist upon, plead, claim or take the benefit or
advantage of any law now or hereafter in force pertaining to the rights and
remedies of sureties or providing for any appraisement, valuation, stay,
extension or redemption, and Grantor, for Grantor and Grantor's heirs, devisees,
representatives, successors and assigns, and for any and all persons ever
claiming any interest in the Property, to the extent permitted by law and except
with respect to rights set forth herein or in the other Loan Documents, hereby
waives and releases all rights of redemption, valuation, appraisement, stay of
execution, notice of intention
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<PAGE>
to mature or declare due the whole of the Secured Indebtedness and all rights to
a marshaling of the assets of Grantor, including the Property, or to a sale in
inverse order of alienation in the event of foreclosure of the liens and
security interests hereby created. Grantor shall not have or assert any right
under any statute or rule of law pertaining to the marshaling of assets, sale in
inverse order of alienation, the exemption of homestead, the administration of
estates of decedents or other matters whatever to defeat, reduce or affect the
rights of the Trustee or Administrative Agent under the terms of this Deed of
Trust to a sale of the Property for the collection of the Secured Indebtedness
without any prior or different resort for collection, or the rights of the
Trustee or Administrative Agent under the terms of this Deed of Trust to the
payment of such indebtedness out of the proceeds of sale of the Property in
preference to every other claimant whatever. If any law referred to in this
Paragraph 3.13 and now in force, of which Grantor or Grantor's successors and
assigns and such other persons claiming any interest in the Property might take
advantage despite this Paragraph 3.13 shall hereafter be repealed or cease to be
in force, such law shall not thereafter be deemed to preclude the application of
this Paragraph 3.13. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, IF THE
PROPERTY IS SOLD IN ACCORDANCE WITH THE TERMS OF THIS DEED OF TRUST FOR AN
AMOUNT LESS THAN THE OBLIGATIONS OF GRANTOR TO TRUSTEE, BANKS OR ADMINISTRATIVE
AGENT, THE DEFICIENCY SHALL BE DETERMINED BY THE PURCHASE PRICE AT THE SALE.
3.n. Delivery of Possession After Foreclosure. In the event there is a
foreclosure sale hereunder and at the time of such sale Grantor or Grantor's
successors or assigns or any other persons claiming any interest in the Property
by, through or under Grantor are occupying or using the Property, or any part
thereof, each and all shall immediately become the tenant of the purchaser at
such sale, which tenancy shall be a tenancy from day-to-day, terminable at the
will of either landlord or tenant, at a reasonable rental per day based upon the
value of the property occupied, such rental to be due daily to the purchaser.
In the event the tenant fails to surrender possession of said property upon
demand, the purchaser shall be entitled to institute and maintain an action for
forcible entry and detainer of said property in the Justice of the Peace Court
in the Justice Precinct in which such property, or any part thereof, is
situated.
3.o. Insurance Premiums. Subject to the terms of the Leases, upon any
foreclosure of the Mortgaged Property pursuant to this Deed of Trust,
Administrative Agent shall have the right to cancel any policy of insurance
covering all or any part of the Mortgaged Property and shall be entitled to
receive any unearned premiums from such policy. The unearned premiums received
by Administrative Agent shall be applied in the same manner as provided in
Paragraph 3.7 above regarding the application of proceeds of sale of the
Mortgaged Property.
ARTICLE IV.
Assignment of Rents, Profits, Income,
-------------------------------------
Contracts and Bonds
-------------------
36.a. Assignment. Grantor does hereby absolutely and unconditionally
assign, transfer and set over to Administrative Agent all rents, income, profits
and proceeds to be derived from the Property, including without limitation the
immediate and continuing right, subject to the license granted below, to collect
and receive all of the rents, income, receipts, revenues, issues, profits and
other sums of money
J-1-13
<PAGE>
that may now or at any time hereafter become due and payable to Grantor under
the terms of any present or future leases now or hereafter covering the
Property, or any part thereof, including but not limited to minimum rents,
additional rents, percentage rents, deficiency rents and liquidated damages
following default, all proceeds payable under any policy of insurance covering
the loss of rents resulting from untenantability caused by destruction or damage
to the Property, and liens and rights, whether constitutional, statutory,
contractual or otherwise, in favor of Grantor as the lessor of any of the
Property, and all of Grantor's rights to recover monetary amounts from any
lessee in bankruptcy including, without limitation, rights of recovery for use
and occupancy and damage claims arising out of lease defaults, including
rejections, under the Bankruptcy Reform Act of 1978, as amended, or any other
present or future federal or state insolvency, bankruptcy or similar law (all of
the foregoing hereinafter collectively called "Applicable Bankruptcy Law"),
-------------------------
together with any sums of money that may now or at any time hereafter become due
and payable to Grantor by virtue of any and all royalties, overriding royalties,
bonuses, delay rentals and any other amount of any kind or character arising
under any and all present and future oil, gas and mining leases covering the
Property or any part thereof; and all proceeds and other amounts paid or owing
to Grantor under or pursuant to any and all contracts and bonds relating to the
construction, erection or renovation of the Property; subject however to a
license hereby granted by Administrative Agent to Grantor to collect and receive
and expend all of the foregoing, subject to the terms and conditions hereof.
Upon the occurrence and continuance of any Default, Administrative Agent shall
have the right, power and privilege (but shall be under no duty) to terminate
such license whereupon Administrative Agent shall have the right and authority,
whether or not it takes possession of the Property, to seek enforcement of any
such lease, contract or bond and to demand, collect, receive, sue for and
recover in its own name any and all of the above described amounts assigned
hereby and to apply the sum(s) collected, first to the payment of reasonable
expenses incident to the collection of the same, second to the payment of the
Secured Indebtedness, and the balance, if any, to Grantor or other party legally
entitled thereto; provided, however, that Administrative Agent shall not be
deemed to have taken possession of the Property except on the exercise of its
option to do so, evidenced by its demand and overt act for such purpose.
Grantor shall make no assignment or other disposition of the above described
amounts assigned hereby, nor, unless permitted under the Credit Agreement, shall
Grantor cancel or amend any such lease, contract, bond or any other instrument
under which such amounts are to be paid or waive, excuse, condone, discount, set
off, compromise or in any manner release any obligation thereunder if to do so
could reasonably be expected to have a Material Adverse Effect, nor shall
Grantor during the existence of a Default receive or collect any such amount
thus assigned for a period of more than one month in advance of the date on
which payment thereof is due and Grantor shall duly and punctually observe and
perform every obligation to be performed by it under each such lease, contract,
bond or other instrument if the failure to do so could reasonably be expected to
have a Material Adverse Effect, and shall not do or permit to be done anything
to impair the security thereof and shall enforce if the failure to do so could
reasonably be expected to have a Material Adverse Effect, every obligation of
each other party thereto. The assignment contained in this Paragraph 4.1. shall
become null and void upon the release of this Deed of Trust. It shall never be
necessary for Administrative Agent to institute legal proceedings of any kind
whatsoever to enforce the provisions of this Paragraph 4.1.
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<PAGE>
ARTICLE V.
Hazardous Materials
-------------------
37.a. Definitions. For the purpose of this Deed of Trust, Grantor,
Administrative Agent and Trustee agree that, unless the context otherwise
specifies or requires, the following terms shall have the meaning specified
below:
(a) "Hazardous Materials" shall mean (a) any "hazardous waste" as
-------------------
defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C.
Section 6901 et seq.), as amended from time to time, and regulations
promulgated thereunder; (b) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. Section 9601 et seq.) ("CERCLA"), as amended from time to
------
time, and regulations promulgated thereunder; (c) asbestos; (d)
polychlorinated biphenyls; (e) underground storage tanks, whether empty,
filled or partially filled with any substance, (f) any substance the
presence of which on the Land and Improvements is prohibited by any
Governmental Requirements (as defined below); and (g) any other substance
which by any Governmental Requirements requires special handling or
notification of any federal, state or local governmental entity in its
collection, storage, treatment, or disposal.
(b) "Hazardous Materials Contamination" shall mean the contamination
(whether presently existing or with respect to Sections 5.3, 5.4 and 5.5
only, hereafter occurring) of the buildings, facilities, soil, groundwater,
air or other elements on or of the Land and Improvements by Hazardous
Materials, or the contamination of the buildings, facilities, soil,
groundwater, air or other elements on or of any other property as a result
of Hazardous Materials at any time (whether before or after the date of
this Deed of Trust) emanating from the Land and Improvements, in either
case, in a manner violating applicable Governmental Requirements.
(c) "Governmental Requirements" shall mean all laws, ordinances,
rules, and regulations of any Governmental Authority (as defined below)
applicable to Grantor or the Land and Improvements.
(d) "Governmental Authority" shall mean the United States, the state,
county, city, or any other political subdivision in which the Land and
Improvements is located, and any other political subdivision, agency, or
instrumentality exercising jurisdiction over Grantor or the Land and
Improvements.
5.b. Grantor's Warranties. Grantor hereby represents and warrants that:
(a) To Grantor's actual knowledge, no Hazardous Materials have been
collected, stored, treated or disposed of pursuant to Grantor's operations
in a manner which materially violates Applicable Law and no Hazardous
Materials which would have a Material Adverse Effect are now located on the
Land and Improvements other than Hazardous Materials used in the ordinary
course of Grantor's operations, all of which have been use in accordance,
in all material respects, with
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<PAGE>
proper specifications and procedures in accordance with Applicable Law, and
neither Grantor nor, to Grantor's actual knowledge and belief, any other
person has ever caused or permitted any Hazardous Materials to be placed,
held, located or disposed on, under or at the Land and Improvements or any
part thereof in a manner which would have a Material Adverse Effect other
than Hazardous Materials used in the ordinary course of Grantor's
operations, all of which have been used in accordance, in all material
respects, with proper specifications and procedures in accordance with
Applicable Law;
(b) To Grantor's actual knowledge, no part of the Land and
Improvements is being used nor, to the Grantor's actual knowledge and
belief, has been used at any previous time for the disposal, storage,
treatment, processing or other handling of Hazardous Materials in a manner
which would have a Material Adverse Effect, nor is any part of the Land and
Improvements affected by any Hazardous Materials Contamination which would
have a Material Adverse Effect;
(c) To Grantor's actual knowledge and belief, no property adjoining
the Land and Improvements is being used, or has ever been used at any
previous time for the disposal, storage, treatment, processing or other
handling of Hazardous Materials which would have a Material Adverse Effect
nor is any other property adjoining the Land and Improvements affected by
Hazardous Materials Contamination which would have a Material Adverse
Effect.
5.c. Grantor's Covenants. Grantor agrees to (a) give notice to
Administrative Agent promptly upon Grantor's acquiring knowledge of the presence
of any Hazardous Materials which would have a Material Adverse Effect on the
Land and Improvements or of any Hazardous Materials Contamination which would
have a Material Adverse Effect with a full description thereof; and (b) promptly
comply with any Governmental Requirements requiring the removal, treatment or
disposal of such Hazardous Materials or Hazardous Materials Contamination and
provide Administrative Agent with reasonably satisfactory evidence of such
compliance, except to the extent that Grantor's liability for such removal,
treatment and disposal of such Hazardous Materials or Hazardous Materials
Contamination is being contested in good faith by Grantor.
5.d. Site Assessments. Grantor will permit Administrative Agent (by its
officers, employees and agents) from time to time, but not more frequently than
once in any twelve-month period (unless otherwise required by any Tribunal
having supervisory authority over Administrative Agent) to contract for the
services of persons (the "Site Reviewers") to perform environmental site
assessments (the "Site Assessments") on the Land and Improvements for the
purpose of determining whether there exists on the Land and Improvements any
environmental condition which could reasonably be expected to result in any
liability, cost or expense to the owner, occupier or operator of the Land and
Improvements arising under any Governmental Requirements relating to Hazardous
Materials. Subject to the consent of the Lessor and subject to the provisions
of the Lease, the Site Assessments may be performed at any time or times, upon
reasonable notice, and under reasonable conditions established by Grantor which
do not impede the performance of the Site Assessments. Site Assessments shall
be conducted in accordance with Governmental Requirements. Subject to the
consent of the Lessor and subject to the provisions of the Lease, the Site
Reviewers are hereby authorized to enter upon the Land and Improvements for such
purposes. Subject to the consent of the Lessor and subject to the provisions of
the Lease, the Site Reviewers are further authorized to perform both above and
below the ground testing for environmental
J-1-16
<PAGE>
damage or the presence of Hazardous Materials on the Land and Improvements and
such other tests on the Land and Improvements as may be necessary to conduct the
Site Assessments in the reasonable opinion of the Site Reviewers. Grantor will
supply to the Site Reviewers such historical and operational information
regarding the Land and Improvements as Grantor has in its possession or control
and as may be reasonably requested by the Site Reviewers to facilitate the Site
Assessments and will make available for meeting with the Site Reviewers
appropriate personnel employed by Grantor having knowledge of such matters. The
costs of performing such Site Assessments, except during a Default, shall be
paid by Administrative Agent. During a Default, the reasonable cost of
performing such Site Assessments shall be paid by Grantor upon demand of
Administrative Agent and any such expenses borne by Administrative Agent and not
promptly reimbursed by Grantor shall be secured by this Deed of Trust.
5.e. Indemnification. Regardless of whether any Site Assessments are
conducted hereunder, if any Default shall have occurred and be continuing or any
remedies in respect of the Land and Improvements are exercised by Administrative
Agent or any Bank, Grantor shall defend, indemnify and hold harmless
Administrative Agent and Banks from any and all liabilities (including strict
liability), actions, demands, penalties, losses, costs or expenses (including,
without limitation, reasonable attorneys' fees and expenses, and remedial
costs), suits, costs of any settlement or judgment and claims of any and every
kind whatsoever which may now or in the future (whether before or after the
release of this Deed of Trust) be paid, incurred or suffered by or asserted
against Administrative Agent or Banks by any person or entity or governmental
agency for, with respect to, or as a direct or indirect result of, the presence
on or under, or the escape, seepage, leakage, spillage, discharge, emission or
release from the Land and Improvements of any Hazardous Materials or any
Hazardous Materials Contamination or arise out of or result from the
environmental condition of the Land and Improvements or the applicability of any
Governmental Requirements relating to Hazardous Materials (including, without
limitation, CERCLA or any federal, state or local so-called "superfund" or
"superlien" laws, or any code, rule, regulation, order or decree promulgated
thereunder); provided, however, the indemnity provided above shall not apply to
any liabilities, actions, demands, penalties, losses, costs or expenses, suits,
costs of any settlement or judgment and claims of any and every kind whatsoever
which are determined in a final, non-appealable judgment by a court of competent
jurisdiction to have been (i) caused by or within the control of Administrative
Agent and/or Banks as a result of actions or omissions in their capacities as
beneficiaries of this Deed of Trust and not as a result of any determination in
such judgment or otherwise that any covenants, conditions or provisions in any
of the Loan Documents give or purport to give control over Grantor or the Land
and Improvements or (ii) which are the result of an event that occurs after
foreclosure of the Land and Improvements (or any portion thereof), the actual
taking of possessions of the Land or Improvements (or any portion thereof) by
Administrative Agent and/or any Bank or the taking of an assignment in lieu of
foreclosure covering the Land and Improvements (or any portion thereof), unless
such event occurs as a result of or arises out of a Hazardous Materials
Contamination or an environmental condition of the Land and Improvements that
occurred or existed prior to such foreclosure, possession, or such taking of an
assignment in lieu of foreclosure, provided that Grantor shall be liable only to
the extent of the Hazardous Materials Contamination or the environmental
condition of the Land and the Improvements prior to such foreclosure,
possession, or such taking of an assignment in lieu of foreclosure. The
covenants, warranties and indemnifications contained in this Section 5.5 shall
survive the release of this Deed of Trust and termination of the Credit
Agreement. For the purposes of this Section 5.5, the term "Administrative
Agent" and "Banks" shall include all subsequent owners or holders of any
obligations secured by this Deed of Trust, all directors, officers, employees
and agents of such entity and any persons
J-1-17
<PAGE>
or entities owned or controlled by or affiliated with Administrative Agent or
any Bank, and their respective directors, officers, employees and agents.
ARTICLE VI.
Miscellaneous
-------------
38.a. Release. If all of the Secured Indebtedness be finally and fully
paid and the Commitments (as defined in the Credit Agreement) have terminated,
the Property shall become wholly clear of the liens, security interests,
conveyances and assignments evidenced hereby, which shall be released of record
by Administrative Agent at Grantor's cost.
6.b. Successor Trustee. The Trustee may resign by an instrument in writing
addressed to Administrative Agent, or the Trustee may be removed at any time
with or without cause by an instrument in writing executed by Administrative
Agent. In case of the death, resignation, removal or disqualification of the
Trustee or if for any reason Administrative Agent shall deem it desirable to
appoint a substitute or successor trustee to act instead of the herein named
trustee or any substitute or successor trustee, then Administrative Agent shall
have the right and hereby is authorized and empowered to appoint a successor
trustee, or a substitute trustee, without other formality than appointment and
designation in writing executed by Administrative Agent and the authority hereby
conferred shall extend to the appointment of other successor and substitute
trustees successively until the Secured Indebtedness finally has been paid in
full or until the Property is sold hereunder. In the event the Secured
Indebtedness is owned by more than one person or entity, the holder or holders
of not less than a majority in the amount of such indebtedness shall have the
right and authority to make the appointment of a successor or substitute trustee
provided for in the preceding sentence. Such appointment and designation by
Administrative Agent or by the holder or holders of not less than a majority of
the Secured Obligations shall be full evidence of the right and authority to
make the same and of all facts therein recited. If Administrative Agent is a
corporation and such appointment is executed in its behalf by an officer of such
corporation, such appointment shall be conclusively presumed to be executed with
authority and shall be valid and sufficient without proof of any action by the
board of directors or any superior officer of the corporation. Upon the making
of any such appointment and designation, all of the estate and title of the
Trustee in the Property shall vest in the named successor or substitute trustee
and thereupon he shall succeed to and shall hold, possess and execute all the
rights, powers, privileges, immunities and duties herein conferred upon the
Trustee; but, nevertheless, upon the written request of Administrative Agent or
of the successor or substitute Trustee, the Trustee ceasing to act shall execute
and deliver an instrument transferring to such successor or substitute Trustee
all of the estate and title in the Property of the Trustee so ceasing to act,
together with all the rights, powers, privileges, immunities and duties herein
conferred upon the Trustee, and shall assign, transfer and deliver any of the
properties and moneys held by said Trustee hereunder to said successor or
substitute Trustee. All references herein to the Trustee shall be deemed to
refer to the Trustee (including any successor or substitute appointed and
designated as herein provided) from time to time acting hereunder. Grantor
hereby ratifies and confirms any and all acts which the herein named Trustee or
her successor or successors, substitute or substitutes, in this trust, lawfully
shall do by virtue hereof.
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<PAGE>
6.c. Liability and Indemnification of Trustee. The Trustee shall not be
liable for any error of judgment or act done by the Trustee in good faith, or be
otherwise responsible or accountable under any circumstances whatsoever, except
for the Trustee's gross negligence or willful misconduct. The Trustee shall
have the right to rely on any instrument, document or signature authorizing or
supporting any action taken or proposed to be taken by him or her hereunder,
believed by him or her in good faith to be genuine. All moneys received by the
Trustee, until used or applied as herein provided, shall be held in trust for
the purposes for which they were received, but need not be segregated in any
manner from any other moneys (except to the extent required by law), and the
Trustee shall be under no liability for interest on any monies received by him
or her hereunder, except to the extent required hereunder or under Applicable
Law. Grantor will reimburse the Trustee for, and indemnify and save harmless
him or her against, any and all liability and expenses which reasonably may be
incurred by him or her in the performance of his or her duties hereunder, except
for such liability and expenses attributable to the Trustee's gross negligence
or willful misconduct. The foregoing indemnity shall not terminate upon
release, foreclosure or other termination of this Deed of Trust.
6.d. Waiver by Administrative Agent. Administrative Agent may, subject to
the Credit Agreement, at any time and from time to time in writing (a) waive
compliance by Grantor with any covenant herein made by Grantor to the extent and
in the manner specified in such writing; (b) consent to Grantor doing any act
which Grantor hereunder is prohibited from doing, or consent to Grantor failing
to do any act which Grantor hereunder is required to do, to the extent and in
the manner specified in such writing; (c) release any part of the Property, or
any interest therein, from the lien and security interest of this Deed of Trust
without the joinder of the Trustee, or (d) release any party liable, either
directly or indirectly, for the Secured Indebtedness or for any covenant herein
or in any other instrument now or hereafter securing the payment of the Secured
Indebtedness, without impairing or releasing the liability of any other party.
No such act shall in any way impair the rights of Trustee or Administrative
Agent hereunder except to the extent specifically agreed to by Administrative
Agent in such writing.
6.e. Actions by Trustee or Administrative Agent. The lien, security
interest and other security rights of Trustee, Administrative Agent and Banks
hereunder shall not be impaired by any indulgence, moratorium or release granted
by Administrative Agent (except as provided in Section 6.1), including but not
limited to (a) any renewal, extension, increase or modification which
Administrative Agent or any Bank may grant with respect to any Secured
Indebtedness, (b) any surrender, compromise, release, renewal, extension,
exchange or substitution which Administrative Agent or any Bank may grant in
respect of the Property, or any part thereof or any interest therein (except to
the extent specifically surrendered, compromised, released, renewed, extended,
exchanged or substituted), or (c) any release or indulgence granted to any
endorser, guarantor or surety of any Secured Indebtedness. The taking of
additional security by Trustee or Administrative Agent shall not release or
impair the lien, security interest or other security rights of Trustee or
Administrative Agent hereunder or affect the liability of Grantor or of any
endorser or guarantor or other surety or improve the right of any permitted
junior lienholder in the Property.
6.f. Rights of Administrative Agent. Administrative Agent may, subject to
the Credit Agreement, waive any Default or other default without waiving any
other prior or subsequent Default or other default. Administrative Agent may
remedy any Default or other default without waiving the Default or other default
remedied. Neither the failure by Administrative Agent to exercise, nor the
delay by Administrative Agent
J-1-19
<PAGE>
in exercising, any right, power or remedy upon any Default or other default
shall be construed as a waiver of such Default or other default or as a waiver
of the right to exercise any such right, power or remedy at a later date. No
single or partial exercise by Administrative Agent of any right, power or remedy
hereunder shall exhaust the same or shall preclude any other or further exercise
thereof, and every such right, power or remedy hereunder may be exercised at any
time and from time to time. No modification or waiver of any provision hereof
or consent to any departure by Grantor therefrom shall in any event be effective
unless the same shall be in writing and signed by Administrative Agent, and then
such waiver or consent shall be effective only in the specific instances, for
the purpose for which given and to the extent therein specified. No notice to
or demand on Grantor in any case shall of itself entitle Grantor to any other or
further notice or demand in similar or other circumstances. Acceptance by
Administrative Agent of any payment in an amount less than the amount then due
on any Secured Indebtedness shall be deemed an acceptance on account only and
shall not in any way affect the existence of a Default or other default
hereunder.
6.g. Reproduction as Financing Statement. A carbon, photographic or other
reproduction of this Deed of Trust or of any financing statement relating to
this Deed of Trust shall be sufficient as a financing statement.
6.h. Fixture Filing. Some of the above goods are or are to become fixtures
on the Land. This Deed of Trust shall be effective as a financing statement
filed as a fixture filing with respect to all fixtures included within the
Property and is to be filed for record in the real property records of the
county where the Land is situated. The mailing address of Grantor is set forth
below the signature of Grantor to this Deed of Trust and the address of
Administrative Agent from which information concerning the security interest may
be obtained is 901 Main Street, Suite 6700, Dallas, Texas 75202.
6.i. Filing and Recordation. Grantor will cause this Deed of Trust and all
amendments and supplements thereto and substitutions therefor and all financing
statements and continuation statements relating hereto to be recorded, filed,
re-recorded and refiled in such manner and in such places as the Trustee or
Administrative Agent shall reasonably request, and will pay all such recording,
filing, re-recording and refiling taxes, fees and other charges.
6.j. Dealing with Successor. In the event the ownership of the Property or
any part thereof becomes vested in a person other than Grantor, Administrative
Agent may, without notice to Grantor, deal with such successor or successors in
interest with reference to this Deed of Trust and to the Secured Indebtedness in
the same manner as with Grantor, without in any way vitiating or discharging
Grantor's liability hereunder or for the payment of the Secured Indebtedness.
Except as agreed to in writing by all Banks and Administrative Agent, no sale of
the Property, no forbearance on the part of Administrative Agent or any Bank and
no extension of the time for the payment of any of the Secured Indebtedness
given by Administrative Agent or any Bank shall operate to release, discharge,
modify, change or affect, in whole or in part, the liability of Grantor
hereunder or for the payment of the Secured Indebtedness or the liability of any
other person hereunder or for the payment of the Secured Indebtedness, except to
the extent proceeds of any such sale are applied as provided in Paragraph 3.7.
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<PAGE>
6.k. Place of Payment. Secured Indebtedness which may be owing hereunder
at any time by Grantor shall be payable at the place designated in the Loan
Documents, or if no such designation is made, at the office of Administrative
Agent at the address indicated in this Deed of Trust, or at such other place in
the continental United States as Administrative Agent may designate in writing.
6.l. Subrogation. To the extent that proceeds of the Secured Indebtedness
are used to pay indebtedness secured by any outstanding lien, security interest,
charge or prior encumbrance against the Property, such proceeds have been
advanced by Banks at Grantor's request and Banks shall be subrogated to any and
all rights, security interests and liens owned or held by any owner or holder of
such outstanding liens, security interests, charges or encumbrances,
irrespective of whether said liens, security interests, charges or encumbrances
are released; provided, however, that the terms and provisions of this Deed of
Trust shall govern the rights and remedies of Banks and shall supersede the
terms, provisions, rights and remedies under and pursuant to the instruments
creating the lien or liens to which Banks are subrogated hereunder.
6.m. Application of Indebtedness. If any part of the Secured Indebtedness
cannot be lawfully secured by this Deed of Trust or if any part of the Property
cannot be lawfully subject to the lien and security interest hereof to the full
extent of such indebtedness, then all payments made shall be applied on said
indebtedness first in discharge of that portion thereof which is unsecured by
this Deed of Trust.
6.n. Usury. It is the intent of the Banks and Grantor in the execution of
the Credit Agreement, this Deed of Trust, the other Loan Documents and all other
instruments now or hereafter securing the Secured Indebtedness or executed in
connection therewith or under any other written or oral agreement by the
undersigned in favor of Administrative Agent and/or Banks to contract in strict
compliance with applicable usury law. In furtherance thereof, Administrative
Agent, Banks and Grantor stipulate and agree that none of the terms and
provisions contained in the Credit Agreement, this Deed of Trust, the other Loan
Documents or any other instrument securing the Notes or executed in connection
herewith, or in any other written or oral agreement by Grantor in favor of Banks
and/or Administrative Agent, shall ever be construed to create a contract to pay
for the use, forbearance or detention of money, or interest at a rate in excess
of the maximum interest rate permitted to be charged by applicable law. Neither
Grantor nor any guarantors, endorsers, sureties or other parties now or
hereafter becoming liable for the Secured Indebtedness or any part thereof shall
ever be required to pay interest on Secured Indebtedness or arising under any
instrument securing the Secured Indebtedness or under any of the other Loan
Documents, or in any other written or oral agreement by Grantor in favor of
Banks and/or Administrative Agent, at a rate in excess of the maximum interest
that may be lawfully charged under applicable law, and the provisions of this
Paragraph 6.14 shall control over all other provisions of the Credit Agreement,
this Deed of Trust, the other Loan Documents and any other instruments now or
hereafter securing the Secured Indebtedness or executed in connection herewith
or any other oral or written agreements which may be in apparent conflict
herewith. All interest paid or agreed to be paid to Banks and/or Administrative
Agent shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period until payment in full of the
principal of the Secured Indebtedness so that the interest thereon for such full
period shall not exceed the maximum amount permitted by applicable law. Banks
and/or Administrative Agent expressly disavow any intention to charge or collect
excessive unearned interest or finance charges in the event the maturity of the
Secured Indebtedness is accelerated. If the maturity of the Secured
Indebtedness shall be accelerated for any reason or if the principal of the
Secured Indebtedness
J-1-21
<PAGE>
is paid prior to the end of the term of the Secured Indebtedness, and as a
result thereof the interest received for the actual period of existence of the
loan evidenced by the Secured Indebtedness exceeds the applicable maximum lawful
rate, Banks and/or Administrative Agent shall refund to Grantor the amount of
such excess or shall credit the amount of such excess against the principal
balance of the Secured Indebtedness then outstanding. In the event that Banks
and/or Administrative Agent shall collect monies and/or any other thing of value
which are deemed to constitute interest which would increase the effective
interest rate on the Secured Indebtedness to a rate in excess of that permitted
to be charged by applicable law, an amount equal to interest in excess of the
lawful rate shall, upon such determination, at the option of Banks and/or
Administrative Agent, be either immediately returned to Grantor or credited
against the principal balance of the other Secured Indebtedness, without further
penalty to such holder. By execution of this Deed of Trust, Grantor
acknowledges that it believes the loan to be non-usurious and agrees that if, at
any time, Grantor should have reason to believe that such loan is in fact
usurious, it will give Banks and/or Administrative Agent notice of such
condition, and Grantor agrees that Banks and/or Administrative Agent shall have
90 days after receipt of such notice in which to make appropriate refund or
other adjustment in order to correct such condition if in fact such condition
exists. As used in this Paragraph 6.14, "interest" means any sum that must be
treated as interest under applicable law in determining whether a loan is
usurious. THE TERM "APPLICABLE LAW" AS USED IN THIS PARAGRAPH 6.14 SHALL MEAN
THE LAWS OF THE STATE OF TEXAS OR THE LAWS OF THE UNITED STATES, WHICHEVER LAWS
ALLOW THE GREATER RATE OF INTEREST, AS SUCH LAWS NOW EXIST OR MAY BE CHANGED OR
AMENDED OR COME INTO EFFECT IN THE FUTURE.
6.o. Notice. Any notice, request, demand or other communication required
or permitted hereunder, or under the Loan Documents, or under any other
instrument securing the payment of the Loan Documents (unless otherwise
expressly provided therein) shall be given in the same manner as in Section 11.1
of the Credit Agreement.
6.p. Successors and Assigns. The terms, provisions, covenants and
conditions hereof shall be binding upon Grantor, and the representatives,
successors and assigns of Grantor including all successors in interest of
Grantor in and to all or any part of the Property, and shall inure to the
benefit of the Trustee and Administrative Agent and their respective heirs,
successors, substitutes and assigns and shall constitute covenants running with
the land. All references in this Deed of Trust to Grantor, Trustee or
Administrative Agent shall be deemed to include all such heirs, devisees,
representatives, successors, substitutes and assigns.
6.q. Severability. A determination that any provision of this Deed of
Trust is unenforceable or invalid shall not affect the enforceability or
validity of any other provision and any determination that the application of
any provision of this Deed of Trust to any person or circumstance is illegal or
unenforceable shall not affect the enforceability or validity of such provision
as it may apply to any other persons or circumstances.
6.r. Gender and Number. Within this Deed of Trust, words of any gender
shall be held and construed to include any other gender, and words in the
singular and plural number shall be held and construed to include the other
number, unless the context otherwise requires.
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<PAGE>
6.s. Counterparts. This Deed of Trust may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall
constitute one instrument.
6.t. Reporting Requirements. Grantor agrees to comply with any and all
reporting requirements applicable to the transaction secured by this Deed of
Trust which are set forth in any law, statute, ordinance, rule, regulation,
order or determination of any governmental authority, and further agrees upon
request of Administrative Agent to furnish Administrative Agent with evidence of
such compliance.
6.u. Headings. The paragraph headings contained in this Deed of Trust are
for convenience only and shall in no way enlarge or limit the scope or meaning
of the various and several paragraphs hereof.
6.v. Modification or Termination. The Loan Documents may only be modified
or terminated by a written instrument or instruments executed by the party
against whom enforcement of the modification or termination is asserted. Any
alleged modification or termination which is not so documented shall not be
effective as to any party.
6.w. ENTIRE AGREEMENT. THIS DEED OF TRUST, TOGETHER WITH THE CREDIT
AGREEMENT, AND ALL OTHER LOAN DOCUMENTS (ALL AS IN EFFECT ON THE DATE HEREOF AND
AS THE SAME MAY BE AMENDED, SUPPLEMENTED, OR OTHERWISE MODIFIED HEREAFTER FROM
TIME TO TIME) REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
6.x. GOVERNING LAW. THIS DEED OF TRUST SHALL BE CONSTRUED, INTERPRETED,
ENFORCED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS WITHIN TEXAS.
6.y. Multiple Advance Loan. This Deed of Trust is given to secure, among
other things, a multiple advance loan and shall secure not only presently
existing indebtedness but also future advances, whether such advances are
obligatory or to be made at the option of the Administrative Agent or any Bank
or otherwise, to the same extent as if such future advances were made on the
date of execution of this Deed of Trust. The lien of this Deed of Trust shall
be valid as to all indebtedness hereby secured, including future advances, from
the time of its filing for record in the recorder's or registrar's office of the
county in which the Mortgaged Property is located.
6.z. Credit Agreement Controls. In the event of any conflict or
inconsistency between any of the terms and provisions of the Credit Agreement
and any of the terms and provisions of this Deed of Trust, the terms and
provisions of the Credit Agreement shall control.
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<PAGE>
IN WITNESS WHEREOF, Grantor has executed this Leasehold Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Fixture Filing as of the
_____ day of ____________, _______.
DOSKOCIL MANUFACTURING COMPANY, INC.
By:________________________________
Name:_________________________
Title:________________________
Address: 4209 Barnett
Arlington, Texas 76017
STATE OF TEXAS )
) ss:
COUNTY OF ________ )
This instrument was acknowledged before me on the _____ day of ________,
_________, by ________________________________, ____________________ of Doskocil
Manufacturing Company, Inc., a Texas corporation, on behalf of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the _______ day of _________,
__________.
-------------------------------------------
Notary Public in and for the State of Texas
My Commission Expires:
- ------------------------
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<PAGE>
EXHIBIT "A"
-----------
J-1-26
<PAGE>
EXHIBIT "B"
-----------
J-1-27
<PAGE>
EXHIBIT J-2
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
Robert B. Jackson
DONOHOE, JAMESON & CARROLL, P.C.
3400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FINANCING STATEMENT
STATE OF _________________ (S)
(S) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF_________________ (S)
THAT, DOSKOCIL MANUFACTURING COMPANY, INC., a Texas corporation
(hereinafter called "Grantor"), in order to secure the payment of the
-------
indebtedness hereinafter referred to and the performance of the obligations,
covenants, agreements and undertakings of Grantor hereinafter described, does
hereby GRANT, BARGAIN, SELL, CONVEY, TRANSFER, ASSIGN and SET OVER to MICHAEL F.
HORD, Trustee, of Dallas County, Texas (hereinafter called the "Trustee") for
-------
the benefit of NATIONSBANK OF TEXAS, N.A., a national banking association
(hereinafter called "NationsBank"), having its principal office at 901 Main
-----------
Street, 67th Floor, Dallas, Texas 75202, as the administrative agent
(hereinafter in such capacity NationsBank is called the "Administrative Agent")
--------------------
on behalf of NationsBank and each other lender a party to the Credit Agreement
described below (hereinafter collectively called "Banks"), all of the real
-----
estate situated in the State(s) of in the Counties set forth in Exhibit
-------
"A" attached hereto and described in Exhibit "A" attached hereto and made a part
- --- -----------
hereof (the "Land"), together with (i) all the buildings and other improvements
----
now on or that may be hereafter placed on said Land; (ii) Grantor's interest in
all materials, equipment, fixtures or other property whatsoever, now or
hereafter attached to, installed in, or used in connection with the buildings
and other improvements now erected or hereafter to be erected on said Land,
including, but not limited to, all heating, plumbing, lighting, water heating,
cooking, laundry, refrigerating, incinerating, ventilating and air conditioning
equipment, disposals, dishwashers, refrigerators and ranges, utility lines and
equipment (whether owned individually or jointly with others), sprinkler
systems, fire extinguishing apparatus and equipment, tanks, engines, pipes,
fittings, dynamos, generators, machines, elevators, motors, cabinets, shades,
blinds, partitions, window screens, screen doors, storm windows, awnings,
drapes, and rugs and other floor coverings, and all fixtures, accessions and
appurtenances thereto, and all renewals or replacements of or substitutions for
any of the foregoing, all of which property and things are hereby declared to be
permanent
J-2-1
<PAGE>
fixtures and accessions to the freehold and part of the realty conveyed herein
as security for the indebtedness herein mentioned; (iii) Grantor's interest in
all easements and rights of way now or hereafter used in connection with any of
the foregoing real estate or as a means of ingress to or egress from said real
estate; (iv) Grantor's interest, now or hereafter acquired, in and to any
streets, ways, alleys and/or strips and gores of land adjoining said Land or any
part thereof; and (v) Grantor's interest in and to all rights, estates,
hereditaments, powers and privileges appurtenant or incident to the foregoing.
TO HAVE AND TO HOLD the foregoing property (herein called the "Mortgaged
---------
Property") unto the Trustee and his successors or substitutes in this trust and
- --------
to his or their successors and assigns, IN TRUST, WITH POWER OF SALE, for the
benefit of the Administrative Agent, however, upon the terms, provisions and
conditions herein set forth.
In order to secure the payment of the indebtedness hereinafter referred to
and the performance of the obligations, covenants, agreements and undertakings
of Grantor hereinafter described, Grantor further grants (to the extent not
prohibited by Applicable Law) to the Administrative Agent a security interest
and lien in Grantor's right, title and interest in and to all present and future
(i) goods, inventory, equipment (excluding, however, any equipment or other
property which is financed with Indebtedness permitted to be incurred pursuant
to Sections 7.1(c) and 7.1(h) of the Credit Agreement), furnishings, fixtures,
furniture, chattels and other personal property of whatever nature owned by
Grantor now or hereafter attached or affixed to or used in or about the building
or buildings now erected or hereafter to be erected on the Mortgaged Property or
otherwise located on the Mortgaged Property, (ii) fixtures, accessions and
appurtenances to any of the foregoing or following, (iii) renewals or
replacements of or substitutions for any of the foregoing or following, (iv)
building materials and equipment now or hereafter delivered to said premises and
intended to be installed therein, (v) occupancy agreements, leases, rents
(including security and other deposits and advance rentals under occupancy
agreements and lease agreements now or at any time hereafter covering or
affecting any of the Mortgaged Property and all property described in this
paragraph and held by or for the benefit of Grantor), fees, royalties, bonuses,
issues, room rents, profits, revenues or other income or benefits of whatever
nature received or due in connection with the Mortgaged Property and all
property described in this paragraph, (vi) monetary deposits which Grantor has
been required to give to any public or private utility with respect to utility
services furnished to the Mortgaged Property, (vii) permits, licenses,
franchises, certificates, and agreements related to any of the foregoing or
following, and all other rights and privileges obtained in connection with, or
necessary for the operation and maintenance of, the foregoing, and all other
rights and privileges obtained in connection with the Mortgaged Property and all
property described in this paragraph, (viii) plans, specifications, maps,
surveys, reports, operating and management and maintenance contracts,
architectural, engineering, construction and development contracts, books of
account, insurance policies, guarantees, warranties and other documents, of
whatever kind or character, relating to the ownership, use, construction upon,
occupancy, leasing, sale or operation of the Mortgaged Property and all property
described in this paragraph, (ix) oil, gas and other hydrocarbons and other
minerals produced from or allocated to the Mortgaged Property and all products
processed or obtained therefrom, the proceeds thereof, and all accounts and
general intangibles under which such proceeds may arise, (x) all proceeds from
the taking of any of the Mortgaged Property and any property described in this
paragraph or any rights appurtenant thereto by right of eminent domain or by
private or other purchase in lieu thereof, (xi) all proceeds (including premium
refunds) of each policy of insurance relating to the Mortgaged Property and any
property described in this paragraph, (xii) all guarantees, sureties and other
agreements assuring
J-2-2
<PAGE>
performance of any obligation of any tenant of the Mortgaged Property and all
property described in this paragraph, and (xiii) all proceeds arising from or by
virtue of the sale, lease or other disposition of the Mortgaged Property and any
property described in this paragraph (all of the property described in this
paragraph hereinafter collectively called the "Personal Property") and all
-----------------
proceeds and products of the Personal Property. (The Mortgaged Property and the
Personal Property are hereinafter sometimes collectively called the "Property").
--------
ARTICLE I.
Secured Indebtedness
--------------------
1.1. Secured Indebtedness. This Deed of Trust, Assignment of Leases and
--------------------
Rents, Security Agreement and Financing Statement (hereinafter called this "Deed
----
of Trust") is made to secure and enforce the payment of the following,
- --------
agreements, documents, obligations, indebtedness and liabilities: (a) all
present and future obligations, indebtedness and liabilities, and all renewals
and extensions of all or any part thereof of Grantor to Banks or any Bank
arising from, by virtue of, or pursuant to the Credit Agreement dated as of
September __, 1997 among Grantor, Administrative Agent and Banks (said Credit
Agreement, as amended, modified, renewed, extended or restated from time to
time, the "Credit Agreement"), the Notes (as defined in the Credit Agreement),
----------------
the other Loan Documents (as defined in the Credit Agreement), including,
without limitation, interest, fees and other charges that would accrue or become
owing both prior to and subsequent to and but for the commencement of any
proceeding against or with respect to Grantor under any chapter of the
Bankruptcy Code of 1978, 11 U.S.C. (S) 101 et. seq. whether or not a claim is
-- ---
allowed for the same in any such proceeding, and (b) all indebtedness and
obligations incurred or arising pursuant to the provisions of this Deed of
Trust. The indebtedness referred to in this Paragraph 1.1 is hereinafter
sometimes called the "Secured Indebtedness". Initially capitalized terms used
--------------------
herein and not otherwise herein defined shall have the respective meanings given
to such terms in the Credit Agreement. This Deed of Trust, the Credit
Agreement, the Notes, the other Loan Documents as defined in the Credit
Agreement, and all other instruments, certificates, affidavits or documents
evidencing, governing, securing, guaranteeing, or relating to the Secured
Indebtedness all as amended, modified, renewed, extended or restated from time
to time, are hereinafter called the "Loan Documents".
--------------
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<PAGE>
ARTICLE II.
Representations and Warranties
------------------------------
2.1. Representations and Warranties. Grantor represents and warrants to
------------------------------
the Trustee, the Administrative Agent and the Banks as follows:
(a) Title and Authority. Grantor is the lawful owner of good and
-------------------
indefeasible fee simple title to the Property, subject only to the matters
described in Exhibit "B" attached hereto and made a part hereof (the
-----------
"Permitted Encumbrances") and has good right and authority to grant,
-----------------------
bargain, sell, transfer, assign and mortgage the Mortgaged Property and to
grant a security interest in the Personal Property.
(b) Compliance with Covenants and Laws. To the best of Grantor's
----------------------------------
knowledge after reasonable investigation, the construction, occupancy,
operation and use of the Property and the intended use thereof by Grantor
subject to the provisions of Article V below complies with all laws,
statutes, ordinances, rules, regulations, orders and determinations of any
governmental authority and any board of fire underwriters (or any body
exercising similar functions) and any restrictive covenants or deed
restrictions (whether recorded or otherwise), including, without
limitation, all applicable zoning, subdivision, platting, licensing,
building, flood disaster, statutes, ordinances, rules, regulations, orders
and determinations of any governmental authority (hereinafter sometimes
collectively called "Applicable Laws"), except where the failure to so
---------------
comply could not have a material adverse effect on (i) the financial
condition or prospects of Grantor, (ii) the value of the Property taken as
a whole, (iii) Grantor's use of, and business operations of, the Property
taken as a whole, or (iv) the validity or enforceability of this Deed of
Trust or the liens and security interests granted hereunder (hereinafter
collectively called "Material Adverse Effect"). To the best of Grantor's
-----------------------
knowledge after reasonable investigation, Grantor has obtained all
requisite zoning, utility, building, health, operating and occupancy
permits from the governmental authorities having jurisdiction over the
Property, except where the failure to obtain such zoning and permits would
not have a Material Adverse Effect.
(c) No Suits. There are no judicial or administrative actions, suits
--------
or proceedings pending or, to the best of Grantor's knowledge threatened,
affecting the Property which, if adversely determined, would be reasonably
likely to have a Material Adverse Effect, or involving the validity,
enforceability or priority of this Deed of Trust.
(d) Condition of Property. To the best of Grantor's knowledge after
---------------------
reasonable investigation, the Mortgaged Property is served by electric,
gas, storm and sanitary sewers, sanitary water supply, telephone and other
utilities required for the Grantor's current and anticipated uses thereof
on the date hereof at or within the boundary lines of the Mortgaged
Property. To the best of Grantor's knowledge after reasonable
investigation, all streets, alleys and easements (including without
limitation easements for ingress and egress, easements for vehicular
traffic and parking and for pedestrian traffic, easements for utilities,
and easements for reciprocal uses) necessary to serve Grantor's current and
anticipated uses of the Mortgaged Property have been completed and are
serviceable, such streets, alleys and easements have been dedicated and
accepted by applicable
J-2-4
<PAGE>
governmental entities, and/or all agreements creating such easements have
been filed of record in the real property records of the County set forth
on Exhibit "A" attached hereto. The Mortgaged Property is in reasonably
---------------------------
good condition and repair and proper working order, and is free from damage
caused by fire or other casualty. Grantor has no actual knowledge of any
latent or patent structural or other significant defect or deficiency in
the Mortgaged Property that (i) would materially and adversely affect
Grantor's intended use of the Mortgaged Property or (ii) have a Material
Adverse Effect. None of the Mortgaged Property not covered by flood
insurance is within a flood plain. To the best of Grantor's knowledge
after reasonable investigation, none of the improvements on the Mortgaged
Property create an encroachment over, across or upon any of the Mortgaged
Property boundary lines, rights of way or easements, and no buildings or
other improvements on adjoining land create such an encroachment, except as
disclosed on the survey of the Land delivered to the Administrative Agent.
There is, to the actual knowledge of Grantor, no condemnation proceeding
pending or threatened that would affect the Mortgaged Property.
(e) Warranty. Grantor will warrant and forever defend the title to
--------
the Mortgaged Property against the claims of all persons whomsoever
claiming or to claim the same or any part thereof, subject to the Permitted
Encumbrances.
2.2. Covenants and Agreements. So long as the Secured Indebtedness or any
------------------------
part thereof remains unpaid, Grantor covenants and agrees with the
Administrative Agent and the Banks as follows:
(a) Taxes on Lien.
-------------
In the event of the enactment after the date hereof of any law of the
State of Texas or of any other governmental entity deducting from the value
of property for the purpose of taxation any lien or security interest
thereon, or imposing upon the Trustee, the Administrative Agent or any Bank
the payment of the whole or any part of the taxes (other than taxes imposed
on the overall income of Banks, the Trustee or the Administrative Agent) or
assessments or charges or liens herein required to be paid by Grantor, or
changing in any way the laws relating to the taxation of deeds of trust or
mortgages or security agreements or debts secured by deeds of trust or
mortgages or security agreements or the interest of the trustee or
beneficiary or mortgagee or secured party in the property covered thereby,
or the manner of collection of such taxes, so as to affect this Deed of
Trust or any of the Secured Indebtedness or the Trustee, the Administrative
Agent or any Bank, then, and in any such event, Grantor, upon demand by the
Trustee, the Administrative Agent or any Bank, shall to the extent not
prohibited by Applicable Law, pay such taxes, assessments, charges or
liens, or reimburse the Trustee, the Administrative Agent or such Bank
therefor.
(b) Ad Valorem Taxes. Grantor will cause to be paid prior to
----------------
delinquency all taxes and assessments heretofore or hereafter levied or
assessed against the Property, or any part thereof, and upon request of the
Administrative Agent will furnish the Administrative Agent with receipts
showing payment of such taxes and assessments prior to the applicable
delinquency date therefor; except that Grantor in good faith may contest,
by appropriate proceedings, the validity, applicability or amount of any
asserted tax or assessment, and, pending such contest, Grantor shall not be
deemed in Default hereunder if, prior to delinquency of the asserted tax or
assessment, Grantor establishes an escrow, or provides security reasonably
acceptable to the Administrative Agent, or
J-2-5
<PAGE>
reserves have been established adequate to cover the payment of such tax or
assessment with costs, interest and penalties and a reasonable additional
sum to cover possible costs, interest and penalties (which escrow and/or
security shall be returned to Grantor upon payment of all such taxes,
assessments, costs, interest and penalties), and if Grantor promptly causes
to be paid any amount adjudged by a court of competent jurisdiction to be
due, with all costs, interest and penalties thereon, promptly after such
judgment becomes final; provided, however, that in any event each such
contest shall be concluded and the tax assessment, costs, interest and
penalties shall be paid prior to the date any writ or order is issued under
which the Property, or any part thereof, may be sold. No reserve (or
security required in (d) below) is required until such time that the
aggregate of alleged unpaid ad valorem taxes on all properties of Grantor
and all unpaid debts described in (d) below shall exceed $50,000.
(c) Operation of Property. Grantor will operate, and will cause the
---------------------
operation of, the Property in a reasonably good and workmanlike manner and
in accordance with all Applicable Laws and will pay all fees or charges of
any kind in connection therewith, except where the failure to so operate
and pay such fees or charges would not have a Material Adverse Effect.
Grantor will keep, and will cause the keeping of, the Property occupied to
the extent necessary not to impair the insurance carried thereon. Grantor
will not use or occupy, or allow the use or occupancy of, the Property in
any manner which violates any Applicable Law, or except where the failure
to so occupy would not have a Material Adverse Effect, which constitutes a
public or private nuisance or which makes void, voidable or cancelable, any
insurance then in force with respect thereto. Grantor will not, without
the prior written consent of the Administrative Agent (which consent shall
not be unreasonably withheld), initiate or consent to any zoning
reclassification of the Property or seek or consent to any variance under
existing zoning ordinances applicable to the Property or use or permit the
use of the Property in such a manner as would result in such use becoming a
nonconforming use under applicable zoning ordinances or other Applicable
Laws. Grantor will not, without the prior written consent of the
Administrative Agent (which consent shall not be unreasonably withheld),
impose any restrictive covenant or any encumbrance upon the Property which
does not constitute a Permitted Encumbrance, execute or file any
subdivision plat affecting the Property or consent to the annexation of the
Property to any municipality. Grantor shall not cause or permit any
drilling or exploration for, or extraction, removal or production of,
minerals from the surface or subsurface of the Property. Grantor will not
do anything to cause the value of the Property to be materially lessened.
If Grantor receives a written notice or claim from any federal, state or
other governmental entity pertaining to the Property, including,
specifically but without limitation, a notice that the Property is not in
compliance with any Applicable Law, Grantor promptly will furnish a copy of
such notice or claim to the Administrative Agent.
(d) Debts for Construction. Grantor will cause all debts and
----------------------
liabilities of any character, including without limitation all debts and
liabilities for labor, material and equipment and all debts and charges for
utilities servicing the Property, incurred in the construction,
maintenance, operation or development of the Property to be paid before the
same become delinquent. Notwithstanding the foregoing, Grantor in good
faith may contest, by appropriate proceedings, the validity, applicability
or amount of any asserted mechanics' or materialmen's liens, and, pending
such contest, Grantor shall not be deemed in Default hereunder if Grantor
provides the Administrative Agent with security reasonably satisfactory to
the Administrative Agent and if Grantor promptly
J-2-6
<PAGE>
causes to be paid any amount adjudged by a court of competent jurisdiction
to be due, with all costs and interest thereon, promptly after such
judgment becomes final; provided, however, that in any event each such
contest shall be concluded and the lien, interest and costs shall be paid,
bonded around or otherwise removed prior to the date any writ or order is
issued under which the Property, or any part thereof, may be sold. No
security (or reserve required in (b) above) is required until such time
that the aggregate of alleged unpaid ad valorem taxes on all properties and
all unpaid debts described in this clause (d) shall exceed $50,000.
(e) Repair and Maintenance. Grantor will keep the Property reasonably
----------------------
in good order, repair, operating condition and appearance, causing all
reasonably necessary repairs and replacements, promptly to be made, and
will not allow any of the Property to be misused, abused or wasted or to
deteriorate, normal wear and tear and casualty excepted. Grantor promptly
will replace all worn-out or obsolete fixtures or personal property covered
by this Deed of Trust that are reasonably necessary in the operation of the
Property with fixtures or personal property comparable to the replaced
fixtures or personal property, and will repaint the Property when
reasonably needed. Notwithstanding the foregoing, Grantor will not,
without the prior written consent of the Administrative Agent do or permit
to be done anything to the Property that materially may impair its value,
including but not limited to (i) removing from the Property any fixtures or
personal property covered by this Deed of Trust (but not including any
personal property in which Grantor is the lessee thereof) which are
necessary or desirable in the operation of the Property, except such as is
replaced by Grantor by an article of equal suitability and value, owned by
Grantor, free and clear of any lien or security interest (except that (i)
created by this Deed of Trust or any other Loan Document, (ii) otherwise
permitted in the Loan Documents or (iii) in respect of capitalized leases)
or such as is permitted to be removed by a tenant pursuant to such tenant's
lease or (ii) making any structural or other alteration to the Property
that materially impairs the value thereof. Nothing contained herein will
prevent tenants of the Property from making alterations and improvements
expressly permitted under their leases of any part of the Mortgaged
Property. Upon request of the Administrative Agent, Grantor will deliver
to the Administrative Agent an inventory describing and showing the make,
model, serial number and location of all fixtures and personal property
used in the management, maintenance and operation of the Property, with a
certification by Grantor that said inventory is a true and complete
schedule of all such fixtures and personal property used in the management,
maintenance and operation of the Property, that such items specified in the
inventory constitute all of the fixtures and personal property required in
the management, maintenance and operation of the Property, and that all
such items are owned by Grantor free and clear of any lien or security
interest (except the Permitted Encumbrances).
(f) Insurance and Casualty. Grantor will keep the Property insured
----------------------
against loss or damage by fire, explosion, windstorm, hail, flood (as to
any portion of the Property which shall at any time be located in an
identified "flood prone" area in which flood insurance has been made
available pursuant to the Flood Disaster Protection Act of 1973, and then
in the amount of the outstanding balance of the Notes or the maximum amount
of coverage available, whichever is less), tornado and such other hazards
as required by the Administrative Agent and consistent with industry
standards. Notwithstanding the foregoing, Grantor further covenants and
agrees to keep the property insured by policies of fire, extended coverage
and other insurance in such company
J-2-7
<PAGE>
or companies reasonably acceptable to the Administrative Agent and upon
such terms and provisions, and with such endorsements, all as reasonably
may be acceptable to the Administrative Agent and consistent with industry
standards. Grantor further agrees that Grantor will deliver to the
Administrative Agent receipts evidencing the payment of all premiums, and
certificates of insurance addressed to the Administrative Agent evidencing
compliance with the insurance requirements set forth herein and, when
appropriate, evidencing renewals of all such policies of insurance before
any such insurance shall expire. All insurance policies required pursuant
to this subparagraph (f) shall contain a prohibition against cancellation,
material endorsement, material alteration or reissuance of such policy
effecting a change in coverage thereunder unless such insurer first shall
have given the Administrative Agent 30 days prior written notice thereof.
All fire, extended and other insurance coverage insurance policies
required hereunder shall be on a replacement cost basis in an amount not
less than that necessary to comply with any co-insurance percentage
stipulated in the policy, but not less than one hundred percent (100%) of
the Property's insurable value, and shall be subject to deductibles, if
any, not to exceed $250,000. Grantor further agrees that all insurance
policies shall provide that proceeds thereunder will be jointly payable to
the Administrative Agent and Grantor, for the benefit of the Grantor and
Banks as their interests may appear pursuant and subject to a mortgagee
clause (without contribution) of standard form attached to or otherwise
made a part of the applicable policy. In the event any of the Property
covered by such insurance is destroyed or damaged by fire, explosion,
windstorm, hail or by any other casualty against which insurance shall have
been required hereunder, (i) the Administrative Agent may, but shall not be
obligated to, make proof of loss if not made promptly by Grantor, (ii) each
insurance company concerned is hereby authorized and directed to make
payment for such loss jointly to the Administrative Agent and Grantor, and
(iii) the Administrative Agent shall apply the insurance proceeds as
follows:
(A) first, to reimburse the Administrative Agent or the Trustee
-----
for all costs and expenses, including reasonable attorneys' fees,
incurred in connection with the collection of such proceeds; and
(B) second, if a Default has not occurred or, if a Default has
------
occurred, such Default is not then continuing, proceeds of insurance
from losses shall be used at Grantor's option by Grantor (i) for
repair or replacement of Property and Grantor shall provide the
Administrative Agent with evidence satisfactory to the Administrative
Agent of such use or (ii) to be applied to Secured Indebtedness.
(C) third, if a Default has occurred and is continuing, proceeds
-----
of insurance from losses shall at Banks' option be applied to Secured
Indebtedness or to repair or replacement of Property.
In any event, the unpaid portion of the Secured Indebtedness shall remain
in full force and effect and Grantor shall not be excused in the payment
thereof. If any act or occurrence of any kind or nature (including any
casualty on which insurance was not obtained or obtainable) shall result in
material damage to or material loss or destruction of the Property, Grantor
shall give prompt notice thereof to the Administrative Agent and, if
Grantor elects to restore the Property to its prior condition (pursuant to
subparagraph B of this Paragraph 2.2(f)(iii)), Grantor, at Grantor's sole
cost
J-2-8
<PAGE>
and expense and regardless of whether the insurance proceeds, if any, shall
be sufficient for the purpose, promptly shall restore, repair, replace and
rebuild the Property as nearly as possible to its value, condition and
character immediately prior to such damage, loss or destruction in
accordance with plans and specifications submitted to and reasonably and
promptly approved by the Administrative Agent. Grantor hereby irrevocably
appoints the Administrative Agent as Grantor's attorney-in-fact, with full
authority in place and stead of Grantor and in the name of Grantor or
otherwise, after the occurrence of any Default and during the continuance
of same to obtain any insurance required to be obtained pursuant to this
Paragraph 2.2(f) and which is not so obtained and to receive, indorse, and
collect any drafts or other instruments, documents and chattel paper, in
connection therewith. The appointment of the Administrative Agent as
attorney-in-fact is coupled with an interest and is irrevocable prior to
final payment in full of the Secured Indebtedness.
(g) Liability and Other Insurance. Grantor shall maintain
-----------------------------
comprehensive general liability insurance against claims for bodily injury
or death and property damage occurring in or upon or resulting from the
Property, in standard form and with such insurance company or companies and
policy coverage limits and terms as reasonably may be acceptable to the
Administrative Agent, and such other insurance as the Administrative Agent
from time to time reasonably may require, with companies reasonably
acceptable to the Administrative Agent, upon such terms and provisions, in
such amounts, and with such endorsements, all as reasonably are approved by
the Administrative Agent. Grantor shall maintain with respect to each
policy or agreement evidencing such comprehensive general liability
insurance such endorsements as reasonably may be required by the
Administrative Agent consistent with accepted industry practice and shall
at all times following request therefor by the Administrative Agent deliver
and maintain with the Administrative Agent receipts evidencing the payment
of all premiums, and certificates of insurance addressed to the
Administrative Agent, evidencing compliance with the insurance requirements
set forth herein and, when appropriate, evidencing renewals of all such
policies of insurance 30 days before any such insurance shall expire. All
insurance policies required pursuant to this subparagraph (g) shall contain
a prohibition against cancellation, material endorsement, material
alteration or reissuance of such policy effecting a change in coverage
thereunder unless such insurer first shall have given the Administrative
Agent 30 days prior written notice thereof. Grantor further agrees that
all insurance policies described in this Paragraph 2.2(g) shall name the
Administrative Agent, for the benefit of the Banks, as an additional
insured party.
(h) Condemnation. Promptly upon obtaining actual knowledge of the
------------
institution of any proceedings for the condemnation of the Property, or any
portion thereof, or any other proceedings arising out of injury or damage
to the Property, or any portion thereof, Grantor will notify the
Administrative Agent of the pendency of such proceedings. The
Administrative Agent may participate in any such proceedings if in the
reasonable opinion of the Administrative Agent such participation is
necessary to protect the rights or interests of the Administrative Agent,
and Grantor shall from time to time deliver to the Administrative Agent all
instruments reasonably requested by it to permit such participation.
Grantor shall, at its expense, diligently prosecute any such proceedings,
and shall consult with the Administrative Agent, its attorneys and experts,
and cooperate with them in the carrying on or defense of any such
proceedings. All proceeds of condemnation awards or proceeds of sale in
lieu of condemnation with respect to the Property, or
J-2-9
<PAGE>
any portion thereof, and all judgments, decrees and awards for injury or
damage to the Property, or any portion thereof, shall be paid to the
Administrative Agent and shall be applied as follows:
(i) first, to reimburse Grantor, the Administrative Agent or
-----
the Trustee for all reasonable costs and expenses, including
reasonable attorneys' fees, incurred in connection with collection of
such proceeds;
(ii) second, to the payment of Secured Indebtedness; and
------
(iii) third, to the extent of the balance (if any) of such
-----
proceeds, to Grantor or other party legally entitled thereto.
Grantor hereby assigns and transfers all such proceeds, judgments, decrees
and awards to Banks and agrees to execute such further assignments of all
such proceeds, judgments, decrees and awards as Banks may reasonably
request; provided, however, the disbursement of such proceeds, judgments,
decrees and awards shall be applied as provided above in this Paragraph
2.2(h). The Banks are hereby authorized, in the name of Grantor, to execute
and deliver valid acquittances for, and to appeal from, any such judgment,
decree or award. The Banks shall not be, in any event or circumstances,
liable or responsible for failure to collect, or for failure to exercise
diligence in the collection of, any such proceeds, judgments, decrees
and/or awards.
(i) Protection and Defense of Lien. If the validity or priority of
------------------------------
this Deed of Trust or of any rights, titles, liens or security interests
created or evidenced hereby with respect to the Property, or any part
thereof, shall be attacked directly or indirectly or if any legal
proceedings are instituted against Grantor with respect thereto, Grantor
will give prompt written notice thereof to the Administrative Agent and at
Grantor's own cost and expense diligently will endeavor to cure any defect
that may be developed or claimed, and will take all necessary and proper
steps for the defense of such legal proceedings, including but not limited
to the employment of counsel, the prosecution or defense of litigation and
the release or discharge of all adverse claims (other than Permitted
Encumbrances), and the Trustee and the Administrative Agent, or either of
them, (whether or not named as parties to legal proceedings with respect
thereto) are hereby authorized and empowered to take such additional steps
as in their judgment and discretion reasonably may be necessary or proper
for the defense of any such legal proceedings or the protection of the
validity or priority of this Deed of Trust and the rights, titles, liens
and security interests created or evidenced hereby, including but not
limited to the employment of counsel, the prosecution or defense of
litigation, the compromise or discharge of any adverse claims (other than
Permitted Encumbrances) made with respect to the Property or any part
thereof, the purchase of any tax title and the removal of prior liens or
security interests which do not constitute Permitted Encumbrances, and all
reasonable expenses so incurred of every kind and character shall be a
demand obligation owing by Grantor, and the party incurring such expenses
shall be subrogated to all rights of the person receiving such payment.
Should the Trustee or the Administrative Agent intend to take any such
action described in the immediately preceding sentence, the Trustee or the
Administrative Agent, as appropriate, shall, subject to the immediately
succeeding proviso, prior to taking any such action notify Grantor of such
-------
intention and give Grantor a reasonable opportunity to provide such defense
or protection; provided, however, if in the reasonable opinion of the
-------- -------
Trustee or the
J-2-10
<PAGE>
Administrative Agent the giving of such notice and opportunity to provide
such defense or protection would impair or hinder such defense or
protection or would otherwise be disadvantageous to rights or interests of
the Trustee or the Administrative Agent hereunder or the rights, title,
liens or security interests created or evidenced hereby, the Trustee and
the Administrative Agent shall have no obligation to give such notice and
opportunity to provide such defense or protection prior to the taking of
any such action, but after taking any such action the Trustee or the
Administrative Agent shall give notice thereof to Grantor.
(j) Permitted Encumbrances. Grantor will comply with and will perform
----------------------
all of the covenants, agreements and obligations imposed upon it or the
Property in the Permitted Encumbrances in accordance with their respective
terms and provisions if the failure to do so would have a Material Adverse
Effect. Grantor will not modify or permit any modification of any
Permitted Encumbrances against the Mortgaged Property, the result of which
would have a Material Adverse Effect without the prior written consent of
the Administrative Agent.
(k) Books and Records. Grantor will permit all contracts, statements,
-----------------
invoices, bills and claims for labor, materials and services supplied for
the construction and operation of the improvements forming a part of the
Property to be inspected and copied by the Administrative Agent and its
representatives at all times during reasonable business hours upon
reasonable notice; provided, however, if a Default shall have occurred and
be continuing there shall be no requirement to give reasonable notice. If
applicable, such information shall be kept confidential in accordance with
Section 11.14 of the Credit Agreement.
(l) Leases. Grantor may not lease or enter into any other occupancy
------
agreement covering any material portion of any of the Mortgaged Property by
third parties without the prior written consent of Grantor, which consent
shall not be unreasonably withheld.
(m) Fees and Expenses; Indemnification. Grantor will pay all
----------------------------------
appraisal fees, filing and recording fees, inspection fees, survey fees,
taxes, brokerage fees and commissions, abstract fees, title policy fees,
uniform commercial code search fees, escrow fees, reasonable attorney's
fees, and all other costs and expenses of every character reasonably and
properly incurred by Grantor, the Trustee, the Administrative Agent or
Banks in connection with this Deed of Trust, either at the closing thereof
or at any time during the term thereof, or otherwise attributable or
chargeable to Grantor as owner of the Property, and will reimburse the
Trustee, the Administrative Agent and Banks for all such costs and expenses
incurred by each of them. Grantor shall pay all reasonable and proper
expenses and reimburse the Trustee, the Administrative Agent and Banks for
any reasonable expenditures, including reasonable attorney's fees and legal
expenses, incurred or expended in connection with (i) the breach, by
Grantor of any covenant herein or (ii) the Trustee's or the Administrative
Agent's or Bank's reasonable exercise of any of the rights and remedies
hereunder or the Trustee's or the Administrative Agent's or Banks'
reasonable protection of the Property and the lien and security interest
therein. Grantor will indemnify and hold harmless the Trustee, the
Administrative Agent and Banks (for purposes of this subparagraph (m), the
terms "Administrative Agent" and "Banks" shall include the directors,
-------------------- -----
officers, employees and agents of the Administrative Agent and Banks and
any persons or entities owned or controlled by or affiliated with the
Administrative Agent and Banks) from and against, and reimburse them for,
all claims,
J-2-11
<PAGE>
demands, liabilities, losses, damages, judgments, penalties, costs and
expenses (including, without limitation, reasonable attorney's fees) which
may be imposed upon, asserted against or incurred or paid by any of them
by reason of, on account of or in connection with any bodily injury or
death or property damage occurring in or upon or in the vicinity of the
Property through any cause whatsoever, or asserted against any of them on
account of any act performed or omitted to be performed hereunder or on
account of any transaction arising out of or in any way connected with the
Property or with this Deed of Trust. The foregoing indemnities shall not
apply with respect to matters caused by or arising out of the gross
negligence or willful misconduct of the Administrative Agent, Banks and/or
the Trustee. Grantor agrees, however, that it expressly intends to
indemnify the Administrative Agent, Banks and the Trustee from and hold
each of them harmless against any and all losses, liabilities, claims,
damages or expenses arising out of their ordinary negligence. The
foregoing indemnities, however, shall not apply with respect to any losses,
liabilities, claims, damages or expenses incurred by the Administrative
Agent, Banks or the Trustee in any action or proceeding by Grantor against
the Administrative Agent, Banks or the Trustee unless the Administrative
Agent, Banks or the Trustee prevail in such action or proceeding. The
foregoing indemnities shall not terminate upon release, foreclosure or
other termination of this Deed of Trust but will survive foreclosure of
this Deed of Trust or conveyance in lieu of foreclosure and the repayment
of the Secured Indebtedness and the discharge and release of this Deed of
Trust and the other Loan Documents, but Grantor shall not be liable for any
damages as a result of an event that occurs after foreclosure of the
Mortgaged Property (or any portion thereof) or the taking of a deed in lieu
of foreclosure covering the Mortgaged Property (or any portion thereof),
unless such damage occurs as a result of or arises out of a condition that
existed prior to such foreclosure or such taking of a deed in lieu of
foreclosure. Any amount to be paid hereunder by Grantor to the
Administrative Agent, Banks and/or the Trustee shall be a demand obligation
owing by Grantor to the Administrative Agent, Banks and/or the Trustee and
shall be subject to and governed by the provisions of Paragraph 2.3 hereof.
(n) Estoppel Certificate. Grantor shall at any time and from time to
--------------------
time furnish promptly upon request a written statement in such form as may
be reasonably required by the Administrative Agent stating that this Deed
of Trust is a valid and binding obligation of Grantor, enforceable against
Grantor in accordance with its terms, subject to Debtor Relief Laws (as
such term is defined in the Credit Agreement); that this Deed of Trust has
not been released, subordinated or modified; and that to the best of
Grantor's knowledge there are no offsets or defenses against the
enforcement of this Deed of Trust, or if any of the foregoing statements
are untrue, specifying the reasons therefor.
(o) Compliance with Laws. Grantor shall, and shall use reasonable
--------------------
efforts to cause any tenant of the Property to, comply with all applicable
restrictive covenants and all Applicable Laws with respect to which the
failure to so comply would have a Material Adverse Effect.
(p) Tax and Insurance Escrow. In order to secure the performance and
------------------------
discharge of Grantor's obligations under subparagraphs (b), (f) and (g) of
this Paragraph 2.2, but not in lieu of such obligations, Grantor will upon
written request of the Administrative Agent, deposit with the
Administrative Agent upon the occurrence and continuance of a Default, a
sum equal to accrued and unpaid ad valorem taxes, assessments and charges
(which charges for the purpose of this
J-2-12
<PAGE>
subparagraph shall include without limitation ground rents and water and
sewer rents and any other recurring charge which could create or result in
a lien against the Property) against the Property for the then current year
and the accrued and unpaid premiums for such policies of insurance for the
then current year, all as reasonably estimated by the Administrative Agent
and prorated to the end of the calendar month following the month during
which such Default occurred, and thereafter will deposit with the
Administrative Agent, on each date when an installment of interest is due
on the Notes, sufficient funds (as reasonably estimated from time to time
by the Administrative Agent) to permit the Administrative Agent to pay, at
least 5 days prior to the delinquency date thereof, the next maturing ad
valorem taxes, assessments and charges and premiums for such policies of
insurance. The Administrative Agent shall have the right to rely upon tax
information furnished by applicable taxing authorities in the payment of
such taxes or assessments and shall have no obligation to make any protest
of any such taxes or assessments. Any excess over the amounts required for
such purposes shall be held by the Administrative Agent for payment of
future taxes, assessments, charges and premiums, applied to any Secured
Indebtedness, or refunded to Grantor, at the Administrative Agent's option;
and any deficiency in such funds so deposited shall be made up by Grantor
upon demand of the Administrative Agent. All such funds so deposited shall
bear interest at the normal interest rate for money market deposits at
NationsBank, may be mingled with the general funds of the Administrative
Agent and shall be applied by the Administrative Agent toward the payment
of such taxes, assessments, charges and premiums when statements therefor
are presented to the Administrative Agent by Grantor (which statements
shall be presented by Grantor to the Administrative Agent a reasonable time
before the applicable amount is due); provided, however, that if the
Administrative Agent has made demand for payment of all of the Secured
Indebtedness, such funds may at the Administrative Agent's option be,
applied to the payment of the Secured Indebtedness in the order determined
by the Administrative Agent and that the Administrative Agent may at any
time, in its discretion, apply all or any part of such funds toward the
payment of any such taxes, assessments, charges or premiums which are past
due, together with any penalties or late charges with respect thereto. The
conveyance or transfer of Grantor's interest in the Property for any reason
(including without limitation the foreclosure of a subordinate lien or
security interest or a transfer by operation of law) shall constitute an
assignment or transfer of Grantor's interest in and rights to such funds
held by the Administrative Agent under this subparagraph (p) but subject to
the rights of the Administrative Agent hereunder.
(q) Further Assurances. Grantor will, on request of the
------------------
Administrative Agent, (i) promptly correct any defect or error which may
be discovered in the contents of this Deed of Trust or in any other
instrument executed in connection herewith or in the execution or
acknowledgment thereof; (ii) execute, acknowledge, deliver and record or
file such further instruments (including without limitation further deeds
of trust, security agreements, financing statements, continuation
statements and assignments of rents or leases) and do such further acts as
may be reasonably necessary or proper to carry out more effectively the
purposes of this Deed of Trust and such other instruments and to subject to
the liens and security interests hereof and thereof any property intended
by the terms hereof or thereof to be covered hereby or thereby, including
specifically, but without limitation, any renewals, additions,
substitutions, replacements, or appurtenances to the Property; (iii)
execute, acknowledge, deliver, procure and record or file any document or
instrument (including specifically any financing statement) deemed
advisable by the Administrative Agent to protect the lien or the security
interest hereunder against the rights or
J-2-13
<PAGE>
interests of third persons, and Grantor will pay all reasonable costs
associated with any of the foregoing; (iv) use reasonable efforts to cause
any tenant under any lease agreement of any of the Property to furnish any
instrument or perform any act deemed advisable by the Administrative Agent
to protect the lien or the security interest hereunder; and (v) provide
such certificates, documents, reports, information, affidavits and other
instruments (including but not limited to appraisals, surveys and current
title reports) and do such further acts as may be reasonably necessary or
proper in the reasonable determination of the Administrative Agent to
enable the Administrative Agent to comply with the requirements or requests
of any agency having jurisdiction over the Administrative Agent or any of
the Banks or any examiners of such agencies with respect to the Secured
Indebtedness, Grantor or the Property.
2.3. Right of the Administrative Agent to Perform. Grantor agrees that,
--------------------------------------------
if, after any applicable notice or grace period, Grantor fails to perform any
act or to take any action which hereunder Grantor is required to perform or
take, or to pay any money which hereunder Grantor is required to pay, the
Administrative Agent, in Grantor's name or in its own name and after the giving
of any required notice and expiration of any applicable cure period, may but
shall not be obligated to perform or cause to be performed such act or take such
action or pay such money, and any reasonable expenses so incurred by the
Administrative Agent, and any money so paid by the Administrative Agent, shall
be a demand obligation owing by Grantor to the Administrative Agent and the
Administrative Agent, upon making such payment, shall be subrogated to all of
the rights of the person or entity receiving such payment. Any amounts due and
owing by Grantor to the Administrative Agent pursuant to this Deed of Trust
shall bear interest from the date such amount becomes due until paid at a rate
of interest per annum equal to the lesser of (i) the Base Rate Basis, plus 2%,
or (ii) the highest lawful rate, and shall be a part of the Secured Indebtedness
and shall be secured by this Deed of Trust and by any other Loan Document.
Should the Administrative Agent intend to perform or cause to be performed such
act or take such action or pay such money, the Administrative Agent shall,
subject to the immediately succeeding proviso, prior to taking any such action
-------
notify Grantor of such intention and give Grantor a reasonable opportunity to
take such action; provided, however, if in the reasonable opinion of the
-------- -------
Administrative Agent the giving of such notice and opportunity to take action
would materially impair the validity or priority of this Deed of Trust, the
rights or interests of the Trustee or the Administrative Agent hereunder or any
rights, titles, liens or security interests created or evidenced hereby, the
Administrative Agent shall have no obligation to give such notice and
opportunity to take action prior to taking such action, but, nevertheless, shall
give prompt written notice of the taking of such action to Grantor.
ARTICLE III.
Remedies in Event of Default
----------------------------
3.1. Defaults. The term "Default" as used in this Deed of Trust shall mean
-------- -------
the occurrence and continuance of an "Event of Default" as defined in the Credit
----------------
Agreement.
3.2. Acceleration. Upon the occurrence and during the continuance of a
------------
Default, the Administrative Agent shall have the option of declaring all Secured
Indebtedness in its entirety to be immediately due and payable, and the liens
and security interests evidenced hereby shall be subject to
J-2-14
<PAGE>
foreclosure in any manner provided for herein or provided for by law as the
Administrative Agent may elect.
3.3. Possession. Upon the occurrence and during the continuance of a
----------
Default, the Administrative Agent is authorized prior or subsequent to the
institution of any foreclosure proceedings to enter upon the Property, or any
part thereof, and to take possession of the Property and of all books, records
and accounts relating thereto and to exercise without interference from Grantor
any and all rights which Grantor has with respect to the management, possession,
operation, protection or preservation of the Property, including the right to
rent the same for the account of Grantor and to deduct from such rents all
reasonable costs, expenses and liabilities of every reasonable character
incurred by the Administrative Agent in collecting such rents and in managing,
operating, maintaining, protecting or preserving the Property and to apply the
remainder of such rents on the Secured Indebtedness in such manner as the
Administrative Agent may elect. All such costs, expenses and liabilities
incurred by the Administrative Agent in collecting such rents and in managing,
operating, maintaining, protecting or preserving the Property, if not paid out
of rents as hereinabove provided, shall constitute a demand obligation owing by
Grantor and shall bear interest from the date of expenditure until paid at a
rate of interest per annum equal to the Default Rate, all of which shall
constitute a portion of the Secured Indebtedness. If necessary to obtain the
possession provided for above, the Administrative Agent may invoke any and all
legal remedies to dispossess Grantor, including specifically one or more actions
for forcible entry and detainer, trespass to try title and restitution. In
connection with any action taken by the Administrative Agent pursuant to this
Paragraph 3.3, the Administrative Agent shall not be liable for any loss
sustained by Grantor resulting from any failure to let the Property, or any part
thereof, or from any other act or omission of the Administrative Agent in
managing the Property, including without limitation, the negligence of the
Administrative Agent, unless such loss is caused by the gross negligence or
willful misconduct of the Administrative Agent, and the Administrative Agent
shall not be obligated to perform or discharge any obligation, duty or liability
under any lease agreement covering the Property or any part thereof or under or
by reason of this instrument or the exercise of rights or remedies hereunder.
Should the Administrative Agent incur any such liability, the amount thereof,
including reasonable costs, expenses and reasonable attorneys' fees, shall be
secured hereby, and Grantor shall reimburse the Administrative Agent therefor
immediately upon demand. Nothing in this Paragraph 3.3 shall impose any duty,
obligation or responsibility upon the Administrative Agent for the control,
care, management or repair of the Property, or shall operate to make the
Administrative Agent responsible or liable for any waste committed on the
Property or by any other parties or for any dangerous or defective condition of
the Property, or for any negligence in the management, upkeep, operation, repair
or control of the Property resulting in loss or injury or death to any tenant,
licensee, employee or stranger, unless such waste, dangerous or defective
condition or injury or death is directly a result of gross negligence or willful
misconduct by the Administrative Agent, and not just the Administrative Agent's
own ordinary negligence. Grantor hereby assents to, ratifies and confirms any
and all actions of the Administrative Agent with respect to the Property taken
under this Paragraph 3.3.
3.4. Foreclosure. Upon the occurrence and during the continuance of a
-----------
Default, the Trustee or his or her successor or substitute is authorized and
empowered and it shall be his or her special duty at the request of the
Administrative Agent to take all actions necessary to sell the Mortgaged
Property, or any part thereof, situated in the State of Texas in accordance with
the statutes of the State of Texas then in force governing sales of real estate
under powers conferred by deed of trust. Any sale made by the
J-2-15
<PAGE>
Trustee hereunder may be of the entire Mortgaged Property, as an entirety, or in
such parcels as the Administrative Agent may request, and any sale may be
adjourned by announcement at the time and place appointed for such sale without
further notice except as may be required by law. The sale by the Trustee of
less than the whole of the Mortgaged Property shall not exhaust the power of
sale herein granted, and the Trustee is specifically empowered to make
successive sale or sales under such power until the whole of the Mortgaged
Property shall be sold; and, if the proceeds of such sale of less than the whole
of the Mortgaged Property shall be less than the aggregate of the Secured
Indebtedness and the expense of executing this trust as provided herein, this
Deed of Trust and the lien hereof shall remain in full force and effect as to
the unsold portion of the Mortgaged Property just as though no sale had been
made; provided, however, that Grantor shall never have any right to require the
sale of less than the whole of the Mortgaged Property but the Administrative
Agent shall have the right, at its sole election, to request the Trustee to sell
less than the whole of the Mortgaged Property. After each sale, the Trustee
shall make to the purchaser or purchasers at such sale good and sufficient
conveyances in the name of Grantor, conveying the Property so sold to the
purchaser or purchasers in fee simple with general warranty of title, and shall
receive the proceeds of said sale or sales and apply the same as herein
provided. Payment of the purchase price to the Trustee shall satisfy the
obligation of purchaser at such sale therefor, and such purchaser shall not be
responsible for the application thereof. The power of sale granted herein shall
not be exhausted by any sale held hereunder by the Trustee or his or her
substitute or successor, and such power of sale may be exercised from time to
time and as many times as the Administrative Agent may deem necessary until all
of the Mortgaged Property has been duly sold and all Secured Indebtedness has
been fully paid. In the event any sale hereunder is not completed or is
defective in the opinion of the Administrative Agent, such sale shall not
exhaust the power of sale hereunder and the Administrative Agent shall have the
right to cause a subsequent sale or sales to be made hereunder. Any and all
statements of fact or other recitals made in any deed or deeds given by the
Trustee or any successor or substitute appointed hereunder as to nonpayment of
the Secured Indebtedness, or as to the occurrence of any Default, or as to the
Administrative Agent having declared all of such indebtedness to be due and
payable, or as to the request to sell, or as to notice of time, place and terms
of sale and of the properties to be sold having been duly given, or as to the
refusal, failure or inability to act of the Trustee or any substitute or
successor, or as to the appointment of any substitute or successor trustee, or
as to any other act or thing having been duly done by the Administrative Agent
or by such Trustee, substitute or successor, shall be taken as prima facie
evidence of the truth of the facts so stated and recited. The Trustee or his or
her successor or substitute may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any sale held by the
Trustee, including the posting of notices and the conduct of sale, but in the
name and on behalf of the Trustee or his or her successor or substitute.
3.5. Judicial Foreclosure. This instrument shall be effective as a
--------------------
mortgage as well as a deed of trust and upon the occurrence and during the
continuance of a Default may be foreclosed as to any of the Property in any
manner permitted by the laws of the State of Texas or of any other state in
which any part of the Property is situated, and any foreclosure suit may be
brought by the Trustee or by the Administrative Agent. In the event a
foreclosure hereunder shall be commenced by the Trustee or his or her substitute
or successor, the Administrative Agent may at any time before the sale of the
Property direct the said Trustee to abandon the sale, and may then institute
suit for the collection of the Notes and the other Secured Indebtedness, and for
the foreclosure of this Deed of Trust. It is agreed that if the Administrative
Agent should institute a suit for the collection of the Notes or any other
Secured Indebtedness and for the foreclosure of this Deed of Trust, the
Administrative Agent may at any time
J-2-16
<PAGE>
before the entry of a final judgment in said suit dismiss the same, and require
the Trustee or his or her substitute or successor to sell the Property in
accordance with the provisions of this Deed of Trust.
3.6. Receiver. In addition to all other remedies herein provided for,
--------
Grantor agrees that upon the occurrence and during the continuance of a Default,
the Administrative Agent shall as a matter of right be entitled to the
appointment of a receiver or receivers for all or any part of the Property,
whether such receivership be incident to a proposed sale of such Property or
otherwise, and without regard to the value of the Property or the solvency of
any person or persons liable for the payment of the Secured Indebtedness, and
Grantor does hereby consent to the appointment of such receiver or receivers,
waives any and all defenses to such appointment and agrees not to oppose any
application therefor by the Administrative Agent, but nothing herein is to be
construed to deprive the Administrative Agent of any other right, remedy or
privilege it may now or hereafter have under the law to have a receiver
appointed; provided, however, that the appointment of such receiver, trustee or
other appointee by virtue of any court order, statute or regulation shall not
impair or in any manner prejudice the rights of the Administrative Agent to
receive payment of the rents, room rents, deposits for lodging and income from
the Property. Any money advanced by the Administrative Agent in connection with
any such receivership shall be a demand obligation owing by Grantor to the
Administrative Agent and shall bear interest from the date of making such
advancement by the Administrative Agent until paid at a rate of interest per
annum equal to the Highest Lawful Rate, and shall be secured by this Deed of
Trust and by any other instrument securing the Secured Indebtedness.
3.7. Proceeds of Sale. The proceeds of any sale held by the Trustee or any
----------------
receiver or public officer in foreclosure of the liens evidenced hereby shall be
applied:
first, to the payment of all necessary and reasonable costs and
-----
expenses incident to such foreclosure sale, including but not limited to
all court costs and charges of every character in the event foreclosed by
suit, and a reasonable fee to the Trustee acting under the provisions of
Paragraph 3.4 if foreclosed by power of sale as provided in Paragraph 3.4;
second, to the payment in full of the Secured Indebtedness (including
------
specifically without limitation the principal, interest and reasonable
attorneys' fees due and unpaid on the Notes and the amounts due and unpaid
and owed to the Administrative Agent under this Deed of Trust), to be
distributed pro rata to each Bank based on the percentage that the amount
of the Secured Indebtedness owing to each Secured Party bears to the total
unpaid amount of the Obligations; and
third, the remainder, if any, shall be paid to Grantor or other party
-----
legally entitled thereto.
3.8. The Administrative Agent as Purchaser. The Administrative Agent shall
-------------------------------------
have the right to become the purchaser at any sale held by any Trustee or
substitute or successor or by any receiver or public officer, and the
Administrative Agent purchasing at such sale shall have the right to credit upon
the amount of the bid made therefor, to the extent necessary to satisfy such
bid, the Secured Indebtedness owing to the Administrative Agent and/or Banks for
the equal and ratable benefit of Banks.
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<PAGE>
3.9. Uniform Commercial Code.
-----------------------
(a) Upon the occurrence and during the continuance of a Default, the
Administrative Agent may exercise its rights of enforcement with respect to
the Personal Property under the Uniform Commercial Code as adopted in the
State of Texas, as amended from time to time, and in conjunction with, in
addition to or in substitution for those rights and remedies, and all
rights and remedies granted to the Administrative Agent and/or Banks under
any Loan Document executed by Grantor governing security interests in
personal property of Grantor;
(b) any sale made pursuant to the provisions of this Paragraph 3.9
shall be deemed to have been a public sale conducted in a commercially
reasonable manner if held contemporaneously with the sale of the Mortgaged
Property under power of sale as provided herein upon giving the same notice
with respect to the sale of the Personal Property hereunder as is required
for such sale of the Mortgaged Property under power of sale;
(c) any and all statements of fact or other recitals made in any bill
of sale or assignment or other instrument evidencing any foreclosure sale
hereunder as to nonpayment of the Secured Indebtedness, or as to the
occurrence of any Default, or as to the Administrative Agent and/or Banks
having declared all of such indebtedness to be due and payable, or as to
notice of time, place and terms of sale and of the properties to be sold
having been duly given, or as to any other act or thing having been duly
done by the Administrative Agent and/or Banks, shall be taken as prima
facie evidence of the truth of the facts so stated and recited; and
(d) The Administrative Agent may appoint or delegate any one or more
persons as agent to perform any act or acts necessary or incident to any
sale held by the Administrative Agent, including the sending of notices and
the conduct of the sale, but in the name and on behalf of the
Administrative Agent.
3.10. Partial Foreclosure. During a Default, the Administrative Agent
-------------------
shall have the right to proceed with foreclosure of the liens and security
interests evidenced hereby without declaring the entire Secured Indebtedness
due, and in such event any such foreclosure sale may be made subject to the
unmatured part of the Secured Indebtedness; and any such sale shall not in any
manner affect the unmatured part of the Secured Indebtedness, but as to such
unmatured part this Deed of Trust shall remain in full force and effect just as
though no sale had been made. The proceeds of any such sale shall be applied as
provided in Paragraph 3.7 except that the amount paid under subparagraph second
thereof shall be only the matured portion of the Secured Indebtedness and any
proceeds of such sale in excess of those provided for in subparagraphs first and
second (modified as provided above) shall be applied to installments of
principal of and interest on the Notes in the inverse order of maturity.
Several sales may be made hereunder without exhausting the right of sale for any
unmatured part of the Secured Indebtedness.
3.11. Remedies Cumulative. All remedies herein expressly provided for are
-------------------
cumulative of any and all other remedies existing at law or in equity and are
cumulative of any and all other remedies provided for in any other instrument
securing the payment of the Secured Indebtedness, or any part thereof, or
otherwise benefiting the Trustee, the Administrative Agent and the Banks, and
the Trustee, the Administrative Agent and the Banks shall, in addition to the
remedies herein provided, be entitled to avail
J-2-18
<PAGE>
themselves of all such other remedies as may now or hereafter exist at law or in
equity for the collection of the Secured Indebtedness and the enforcement of the
covenants herein and the foreclosure of the liens and security interests
evidenced hereby, and the resort to any remedy provided for hereunder or under
any such other instrument or provided for by law shall not prevent the
concurrent or subsequent employment of any other appropriate remedy or remedies.
3.12. Resort to Any Security. The Administrative Agent may resort to any
----------------------
security given by this Deed of Trust or to any other security now existing or
hereafter given to secure the payment of the Secured Indebtedness, in whole or
in part, and in such portions and in such order as may seem best to the
Administrative Agent in its sole and uncontrolled discretion, and any such
action shall not in anywise be considered as a waiver of any of the rights,
benefits, liens or security interests evidenced by this Deed of Trust, except as
may be provided to the contrary under applicable law.
3.13. Waiver. To the full extent Grantor may do so, Grantor agrees that
------
Grantor will not at any time insist upon, plead, claim or take the benefit or
advantage of any law now or hereafter in force pertaining to the rights and
remedies of sureties or providing for any appraisement, valuation, stay,
extension or redemption, and Grantor, for Grantor and Grantor's heirs, devisees,
representatives, successors and assigns, and for any and all persons ever
claiming any interest in the Property, to the extent permitted by law and except
with respect to rights expressly set forth herein or in the other Loan
Documents, hereby waives and releases all rights of redemption, valuation,
appraisement, stay of execution, notice of intention to mature or declare due
the whole of the Secured Indebtedness and all rights to a marshaling of the
assets of Grantor, including the Property, or to a sale in inverse order of
alienation in the event of foreclosure of the liens and security interests
hereby created. Grantor shall not have or assert any right under any statute or
rule of law pertaining to the marshaling of assets, sale in inverse order of
alienation, the exemption of homestead, the administration of estates of
decedents or other matters whatever to defeat, reduce or affect the rights of
the Trustee or the Administrative Agent under the terms of this Deed of Trust to
a sale of the Property for the collection of the Secured Indebtedness without
any prior or different resort for collection, or the rights of the Trustee or
the Administrative Agent under the terms of this Deed of Trust to the payment of
such indebtedness out of the proceeds of sale of the Property in preference to
every other claimant whatsoever. If the Property is sold for an amount less
than the Secured Indebtedness, the deficiency shall be determined by the
purchase price at the sale or sales. To the extent permitted by law, Grantor
waives all rights and claims with respect to Lender's ability to obtain a
Deficiency Judgment under Section 51.003 of the Texas Property Code. If any law
referred to in this Paragraph 3.13 and now in force, of which Grantor or
Grantor's successors and assigns and such other persons claiming any interest in
the Property might take advantage despite this Paragraph 3.13 shall hereafter be
repealed or cease to be in force, such law shall not thereafter be deemed to
preclude the application of this Paragraph 3.13. TO THE EXTENT NOT PROHIBITED
BY APPLICABLE LAW, IF THE PROPERTY IS SOLD IN ACCORDANCE WITH THE TERMS OF THIS
DEED OF TRUST FOR AN AMOUNT LESS THAN THE OBLIGATIONS OF GRANTOR TO TRUSTEE,
BANKS OR ADMINISTRATIVE AGENT, THE DEFICIENCY SHALL BE DETERMINED BY THE
PURCHASE PRICE AT THE SALE.
3.14. Delivery of Possession After Foreclosure. In the event there is a
----------------------------------------
foreclosure sale hereunder and at the time of such sale Grantor or Grantor's
successors or assigns or any other persons claiming any interest in the Property
by, through or under Grantor are occupying or using the Property, or any part
J-2-19
<PAGE>
thereof, each and all shall immediately become the tenant of the purchaser at
such sale, which tenancy shall be a tenancy from day-to-day, terminable at the
will of either landlord or tenant, at a reasonable rental per day based upon the
value of the property occupied, such rental to be due daily to the purchaser.
In the event the tenant fails to surrender possession of said property upon
demand, the purchaser shall be entitled to institute and maintain an action for
forcible entry and detainer of said property in the Justice of the Peace Court
in the Justice Precinct in which such property, or any part thereof, is
situated.
3.15. Tender After Acceleration. If, following the occurrence of a
-------------------------
Default and the acceleration of the Secured Indebtedness but prior to the
foreclosure of this Deed of Trust against the Property, Grantor shall tender to
the Administrative Agent and/or Banks payment of an amount sufficient to pay the
entire Secured Indebtedness, such tender shall be deemed to be a voluntary
prepayment and, consequently, Grantor shall also pay to Banks any charge or
premium required to be paid in order to prepay principal and, if such principal
payment is made during any period when prepayment is prohibited by this Deed of
Trust, or the Loan Documents, the applicable charge or premium shall be the
maximum prepayment penalty provided for in the Loan Documents; provided,
however, that in no event shall any amount payable under this Paragraph 3.15,
when added to the interest otherwise payable on the Secured Indebtedness, exceed
the maximum interest permitted under Applicable Law.
3.16. Insurance Premiums. Upon any foreclosure of the Mortgaged Property
------------------
pursuant to this Deed of Trust, the Administrative Agent shall have the right to
cancel any policy of insurance covering all or any part of the Mortgaged
Property and shall be entitled to receive any unearned premiums from such
policy. The unearned premiums received by the Administrative Agent shall be
applied in the same manner as provided in Paragraph 3.7 above regarding the
application of proceeds of sale of the Mortgaged Property.
ARTICLE IV.
Assignment of Rents, Profits, Income,
-------------------------------------
Contracts and Bonds
-------------------
4.1. Assignment. Grantor does hereby absolutely and unconditionally
----------
assign, transfer and set over to the Administrative Agent all rents, income,
profits and proceeds to be derived from the Property, including without
limitation the immediate and continuing right, subject to the license granted
below, to collect and receive all of the rents, income, receipts, revenues,
issues, profits and other sums of money that may now or at any time hereafter
become due and payable to Grantor under the terms of any present or future
leases now or hereafter covering the Property, or any part thereof, including
but not limited to minimum rents, additional rents, percentage rents, deficiency
rents and liquidated damages following default, all proceeds payable under any
policy of insurance covering the loss of rents resulting from untenantability
caused by destruction or damage to the Property, and liens and rights, whether
constitutional, statutory, contractual or otherwise, in favor of Grantor as the
lessor of any of the Property, and all of Grantor's rights to recover monetary
amounts from any lessee in bankruptcy including, without limitation, rights of
recovery for use and occupancy and damage claims arising out of lease defaults,
including rejections, under the Bankruptcy Reform Act of 1978, as amended, or
any other present or future federal or state insolvency, bankruptcy or similar
law (all of the foregoing hereinafter collectively called "Applicable Bankruptcy
---------------------
Law"), together with any sums of money that may now or at any time hereafter
- ---
J-2-20
<PAGE>
become due and payable to Grantor by virtue of any and all royalties, overriding
royalties, bonuses, delay rentals and any other amount of any kind or character
arising under any and all present and future oil, gas and mining leases covering
the Property, or any part thereof; and all proceeds and other amounts paid or
owing to Grantor under or pursuant to any and all contracts and bonds relating
to the construction, erection or renovation of the Property, or any part
thereof; subject however to a license hereby granted by the Administrative Agent
to Grantor to collect and receive and expend all of the foregoing, subject to
the terms and conditions hereof. Upon the occurrence and continuance of any
Default, the Administrative Agent shall have the right, power and privilege (but
shall be under no duty) to terminate such license whereupon the Administrative
Agent shall have the right and authority, whether or not it takes possession of
the Property, to seek enforcement of any such lease, contract or bond and to
demand, collect, receive, sue for and recover in its own name any and all of the
above described amounts assigned hereby and to apply the sum(s) collected, first
to the payment of reasonable expenses incident to the collection of the same,
second to the payment of the Secured Indebtedness, and the balance, if any, to
Grantor or other party legally entitled thereto; provided, however, that the
Administrative Agent shall not be deemed to have taken possession of the
Property except on the exercise of its option to do so, evidenced by its demand
and overt act for such purpose. Grantor shall make no assignment or other
disposition of the above described amounts assigned hereby, nor, unless
permitted under the Credit Agreement, shall Grantor cancel or amend any such
lease, contract, bond or any other instrument under which such amounts are to be
paid or waive, excuse, condone, discount, set off, compromise or in any manner
release any obligation thereunder if to do so could reasonably be expected to
have a Material Adverse Effect, nor shall Grantor during the existence of a
Default receive or collect any such amount thus assigned for a period of more
than one month in advance of the date on which payment thereof is due and
Grantor shall duly and punctually observe and perform every obligation to be
performed by it under each such lease, contract, bond or other instrument if the
failure to do so could reasonably be expected to have a Material Adverse Effect
and shall not do or permit to be done anything to impair the security thereof
and shall enforce, if the failure to do so could reasonably be expected to have
a Material Adverse Effect, every obligation of each other party thereto. The
assignment contained in this Paragraph 4.1. shall become null and void upon the
release of this Deed of Trust. It shall never be necessary for the
Administrative Agent to institute legal proceedings of any kind whatsoever to
enforce the provisions of this Paragraph 4.1.
ARTICLE V.
Hazardous Materials
-------------------
5.1. Definitions. For the purpose of this Deed of Trust, Grantor, the
-----------
Administrative Agent and Trustee agree that, unless the context otherwise
specifies or requires, the following terms shall have the meaning specified
below:
(a) "Hazardous Materials" shall mean (a) any "hazardous waste" as
-------------------
defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C.
Section 6901 et seq.), as amended from time to time, and regulations
promulgated thereunder; (b) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. Section 9601 et seq.) ("CERCLA"), as amended from time to
------
time, and regulations promulgated thereunder; (c) asbestos; (d)
polychlorinated biphenyls; (e) underground storage tanks, whether empty,
filled or partially filled with any substance, (f) any substance the
presence of which
J-2-21
<PAGE>
on the Mortgaged Property is prohibited by any Governmental Requirements
(as defined below); and (g) any other substance which by any Governmental
Requirements requires special handling or notification of any federal,
state or local governmental entity in its collection, storage, treatment,
or disposal.
(b) "Hazardous Materials Contamination" shall mean the contamination
---------------------------------
(whether presently existing or hereafter occurring) of the buildings,
facilities, soil, groundwater, air or other elements on or of the Mortgaged
Property by Hazardous Materials, or the contamination of the buildings,
facilities, soil, groundwater, air or other elements on or of any other
property as a result of Hazardous Materials at any time (whether before or
after the date of this Deed of Trust) emanating from the Mortgaged
Property, in either case, in a manner violating applicable Governmental
Requirements.
(c) "Governmental Requirements" shall mean all laws, ordinances,
-------------------------
rules, and regulations of any Governmental Authority (as defined below)
applicable to Grantor or the Mortgaged Property.
(d) "Governmental Authority" shall mean the United States, the state,
----------------------
county, city, or any other political subdivision in which the Mortgaged
Property is located, and any other political subdivision, agency, or
instrumentality exercising jurisdiction over Grantor or the Mortgaged
Property.
J-2-22
<PAGE>
5.2. Grantor's Warranties. Grantor hereby represents and warrants that:
--------------------
(a) To Grantor's actual knowledge, no Hazardous Materials have been
collected, stored, treated or disposed of in a manner which materially
violates Applicable Law and no Hazardous Materials which would have a
Material Adverse Effect are now located on the Mortgaged Property other
than Hazardous Materials used in the ordinary course of Grantor's
operations, all of which have been used in accordance, in all material
respects, with proper specifications and procedures in accordance with
Applicable Law, and neither Grantor nor, to Grantor's actual knowledge and
belief, any other person has ever caused or permitted any Hazardous
Materials which would have a Material Adverse Effect to be placed, held,
located or disposed of on, under or at the Mortgaged Property, or any part
thereof other than Hazardous Materials used in the ordinary course of
Grantor's operations, all of which have been used in accordance, in all
material respects, with proper specifications and procedures in accordance
with Applicable Law;
(b) To Grantor's actual knowledge, no part of the Mortgaged Property
is being used nor, to Grantor's actual knowledge and belief, has been used
at any previous time for the disposal, storage, treatment, processing or
other handling of Hazardous Materials the effect of which would have a
Material Adverse Effect, nor is any part of the Mortgaged Property affected
by any Hazardous Materials Contamination which would have a Material
Adverse Effect;
(c) To Grantor's actual knowledge and belief, no property adjoining
the Mortgaged Property is being used, or has ever been used at any previous
time for the disposal, storage, treatment, processing or other handling of
Hazardous Materials which would have a Material Adverse Effect nor is any
other property adjoining the Mortgaged Property affected by Hazardous
Materials Contamination which would have a Material Adverse Effect.
5.3. Grantor's Covenants. Grantor agrees to (a) give notice to the
-------------------
Administrative Agent promptly upon Grantor's acquiring knowledge of the presence
of any Hazardous Materials which would have a Material Adverse Effect on the
Mortgaged Property or of any Hazardous Materials Contamination which would have
a Material Adverse Effect with a full description thereof; (b) promptly comply
with any Governmental Requirements requiring the removal, treatment or disposal
of such Hazardous Materials or Hazardous Materials Contamination and provide the
Administrative Agent with reasonably satisfactory evidence of such compliance;
and (c) provide the Administrative Agent within thirty (30) days after demand by
the Administrative Agent, with a bond, letter of credit or similar financial
assurance evidencing to the Administrative Agent's reasonable satisfaction that
the necessary funds are available to pay the cost of removing, treating and
disposing of such Hazardous Materials or Hazardous Materials Contamination and
discharging any assessments which may be established on the Mortgaged Property
as a result thereof.
5.4. Site Assessments. Grantor will permit the Administrative Agent (by
----------------
its officers, employees and agents) at any time and from time to time, but not
more frequently than once in any twelve month period (unless otherwise required
by any Tribunal having supervisory authority over the Administrative Agent) to
contract for the services of persons (the "Site Reviewers") to perform
--------------
environmental site assessments (the "Site Assessments") on any Mortgaged
----------------
Property for the purpose of determining whether there exists on such Mortgaged
Property any environmental condition which could reasonably be expected to
result in any liability, cost or expense to the owner, occupier or operator of
such Mortgaged Property
J-2-23
<PAGE>
arising under any Governmental Requirements relating to Hazardous Materials.
The Site Assessments may be performed at any time or times, upon reasonable
notice, and under reasonable conditions established by Grantor which do not
impede the performance of the Site Assessments. Site Assessments shall be
conducted in accordance with Governmental Requirements. The Site Reviewers are
hereby authorized to enter upon any Mortgaged Property for such purposes. The
Site Reviewers are further authorized to perform both above and below the ground
testing for environmental damage or the presence of Hazardous Materials on any
Mortgaged Property and such other tests on any Mortgaged Property as may be
necessary to conduct the Site Assessments in the reasonable opinion of the Site
Reviewers. Grantor will supply to the Site Reviewers such historical and
operational information regarding any Mortgaged Property as may be reasonably
requested by the Site Reviewers to facilitate the Site Assessments and will make
available for meeting with the Site Reviewers appropriate personnel employed by
Grantor having knowledge of such matters. The costs of performing such Site
Assessments, except during a Default, shall be paid by the Administrative Agent.
During a Default, the reasonable cost of performing such Site Assessments after
the occurrence and during the continuance of a Default or Event of Default shall
be paid by Grantor upon demand of the Administrative Agent and any such expenses
borne by the Administrative Agent and not immediately reimbursed by Grantor
shall be secured by this Deed of Trust.
5.5. Indemnification. Regardless of whether any Site Assessments are
---------------
conducted hereunder, if any Default or Event of Default shall have occurred and
be continuing or any remedies in respect of any Mortgaged Property are exercised
by the Administrative Agent or any Bank, Grantor shall defend, indemnify and
hold harmless the Administrative Agent and Banks from any and all liabilities
(including strict liability), actions, demands, penalties, losses, costs or
expenses (including, without limitation, reasonable attorneys' fees and
expenses, and remedial costs), suits, costs of any settlement or judgment and
claims of any and every kind whatsoever which may now or in the future (whether
before or after the release of this Deed of Trust) be paid, incurred or suffered
by or asserted against the Administrative Agent or Banks by any person or entity
or governmental agency for, with respect to, or as a direct or indirect result
of, the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission or release from any Mortgaged Property of any Hazardous
Materials or any Hazardous Materials Contamination or arise out of or result
from the environmental condition of any Mortgaged Property or the applicability
of any Governmental Requirements relating to Hazardous Materials (including,
without limitation, CERCLA or any federal, state or local so-called "superfund"
or "superlien" laws, or any code, rule, regulation, order or decree promulgated
thereunder); provided, however, the indemnity provided above shall not apply to
any liabilities, actions, demands, penalties, losses, costs or expenses, suits,
costs of any settlement or judgment and claims of any and every kind whatsoever
which are determined in a final, non-appealable judgment by a court of competent
jurisdiction to have been (i) caused by or within the control of the
Administrative Agent and/or Banks as a result of actions in their capacities as
beneficiaries of this Deed of Trust and not as a result of any determination in
such judgment or otherwise that any covenants, conditions or provisions in any
of the Loan Documents give or purport to give control over Grantor or any of the
Mortgaged Property or (ii) which are the result of an event that occurs after
foreclosure of the Mortgaged Property (or any portion thereof) or the taking of
a deed in lieu of foreclosure covering the Mortgaged Property (or any portion
thereof), unless such event occurs as a result of or arises out of a Hazardous
Materials Contamination or an environmental condition of the Mortgaged Property
that occurred or existed prior to such foreclosure or such taking of a deed in
lieu of foreclosure. The covenants, warranties and indemnifications contained
in this Section 5.5 shall survive the release of this Deed of Trust and
termination of the Credit Agreement. For the purposes of this Section 5.5, the
term
J-2-24
<PAGE>
"Administrative Agent" and "Banks" shall include all subsequent owners or
holders of any obligations secured by this Deed of Trust, all directors,
officers, employees and agents of such entity and any persons or entities owned
or controlled by or affiliated with the Administrative Agent or any Bank, and
their respective directors, officers, employees and agents.
ARTICLE VI.
Miscellaneous
-------------
6.1. Release. If all of the Secured Indebtedness be finally and fully paid
-------
and the Commitments (as defined the Credit Agreement) have terminated, the
Property shall become wholly clear of the liens, security interests, conveyances
and assignments evidenced hereby, which shall be released by the Administrative
Agent at Grantor's cost.
6.2. Successor Trustee. The Trustee may resign by an instrument in writing
-----------------
addressed to the Administrative Agent, or the Trustee may be removed at any time
with or without cause by an instrument in writing executed by the Administrative
Agent. In case of the death, resignation, removal or disqualification of the
Trustee or if for any reason the Administrative Agent shall deem it desirable to
appoint a substitute or successor trustee to act instead of the herein named
trustee or any substitute or successor trustee, then the Administrative Agent
shall have the right and hereby is authorized and empowered to appoint a
successor trustee, or a substitute trustee, without other formality than
appointment and designation in writing executed by the Administrative Agent and
the authority hereby conferred shall extend to the appointment of other
successor and substitute trustees successively until the Secured Indebtedness
finally has been paid in full or until the Property is sold hereunder. In the
event the Secured Indebtedness is owned by more than one person or entity, the
holder or holders of not less than a majority in the amount of such indebtedness
shall have the right and authority to make the appointment of a successor or
substitute trustee provided for in the preceding sentence. Such appointment and
designation by Administrative Agent or by the holder or holders of not less
than a majority of the Secured Obligations shall be full evidence of the right
and authority to make the same and of all facts therein recited. If the
Administrative Agent is a corporation and such appointment is executed in its
behalf by an officer of such corporation, such appointment shall be conclusively
presumed to be executed with authority and shall be valid and sufficient without
proof of any action by the board of directors or any superior officer of the
corporation. Upon the making of any such appointment and designation, all of
the estate and title of the Trustee in the Property shall vest in the named
successor or substitute trustee and thereupon he shall succeed to and shall
hold, possess and execute all the rights, powers, privileges, immunities and
duties herein conferred upon the Trustee; but, nevertheless, upon the written
request of the Administrative Agent or of the successor or substitute Trustee,
the Trustee ceasing to act shall execute and deliver an instrument transferring
to such successor or substitute Trustee all of the estate and title in the
Property of the Trustee so ceasing to act, together with all the rights, powers,
privileges, immunities and duties herein conferred upon the Trustee, and shall
assign, transfer and deliver any of the properties and moneys held by said
Trustee hereunder to said successor or substitute Trustee. All references
herein to the Trustee shall be deemed to refer to the Trustee (including any
successor or substitute appointed and designated as herein provided) from time
to time acting hereunder. Grantor hereby ratifies and confirms any and all acts
which the herein named Trustee or her successor or successors, substitute or
substitutes, in this trust, lawfully shall do by virtue hereof.
J-2-25
<PAGE>
6.3. Liability and Indemnification of Trustee. The Trustee shall not be
----------------------------------------
liable for any error of judgment or act done by the Trustee in good faith, or be
otherwise responsible or accountable under any circumstances whatsoever, except
for the Trustee's gross negligence or willful misconduct. The Trustee shall
have the right to rely on any instrument, document or signature authorizing or
supporting any action taken or proposed to be taken by him or her hereunder,
believed by him or her in good faith to be genuine. All moneys received by the
Trustee, until used or applied as herein provided, shall be held in trust for
the purposes for which they were received, but need not be segregated in any
manner from any other moneys (except to the extent required by law), and the
Trustee shall be under no liability for interest on any monies received by him
or her hereunder, except to the extent required hereunder or under Applicable
Law. Grantor will reimburse the Trustee for, and indemnify and save harmless
him or her against, any and all liability and expenses which reasonably may be
incurred by him or her in the performance of his or her duties hereunder, except
for such liability and expenses attributable to the Trustee's gross negligence
or willful misconduct. The foregoing indemnity shall not terminate upon
release, foreclosure or other termination of this Deed of Trust.
6.4. Waiver by the Administrative Agent. The Administrative Agent may at
----------------------------------
any time and from time to time in writing (a) waive compliance by Grantor with
any covenant herein made by Grantor to the extent and in the manner specified in
such writing; (b) consent to Grantor doing any act which Grantor hereunder is
prohibited from doing, or consent to Grantor failing to do any act which Grantor
hereunder is required to do, to the extent and in the manner specified in such
writing; (c) release any part of the Property, or any interest therein, from the
lien and security interest of this Deed of Trust without the joinder of the
Trustee, or (d) release any party liable, either directly or indirectly, for the
Secured Indebtedness or for any covenant herein or in any other instrument now
or hereafter securing the payment of the Secured Indebtedness, without impairing
or releasing the liability of any other party. No such act shall in any way
impair the rights of the Trustee or the Administrative Agent hereunder except to
the extent specifically agreed to by the Administrative Agent in such writing.
6.5. Actions by the Administrative Agent. The lien, security interest and
-----------------------------------
other security rights of the Administrative Agent and Banks hereunder shall not
be impaired by any indulgence, moratorium or release granted by the
Administrative Agent (except as provided in Section 6.1), including but not
limited to (a) any renewal, extension, increase or modification which the
Administrative Agent or any Bank may grant with respect to any Secured
Indebtedness, (b) any surrender, compromise, release, renewal, extension,
exchange or substitution which the Administrative Agent or any Bank may grant in
respect of the Property, or any part thereof or any interest therein (except to
the extent specifically surrendered, compromised, released, renewed, extended,
exchanged or substituted), or (c) any release or indulgence granted to any
endorser, guarantor or surety of any Secured Indebtedness. The taking of
additional security by the Administrative Agent or any Bank shall not release or
impair the lien, security interest or other security rights of the
Administrative Agent hereunder or affect the liability of Grantor or of any
endorser or guarantor or other surety or improve the right of any permitted
junior lienholder in the Property.
6.6. Rights of the Administrative Agent. The Administrative Agent may,
----------------------------------
subject to the Credit Agreement, waive any Default or other default without
waiving any other prior or subsequent Default or other default. the
Administrative Agent may remedy any Default or other default without waiving the
Default or other default remedied. Neither the failure by the Administrative
Agent to exercise, nor the
J-2-26
<PAGE>
delay by the Administrative Agent in exercising, any right, power or remedy upon
any Default or other default shall be construed as a waiver of such Default or
other default or as a waiver of the right to exercise any such right, power or
remedy at a later date. No single or partial exercise by the Administrative
Agent of any right, power or remedy hereunder shall exhaust the same or shall
preclude any other or further exercise thereof, and every such right, power or
remedy hereunder may be exercised at any time and from time to time. No
modification or waiver of any provision hereof or consent to any departure by
Grantor therefrom shall in any event be effective unless the same shall be in
writing and signed by the Administrative Agent, and then such waiver or consent
shall be effective only in the specific instances, for the purpose for which
given and to the extent therein specified. No notice to or demand on Grantor in
any case shall of itself entitle Grantor to any other or further notice or
demand in similar or other circumstances. Acceptance by the Administrative
Agent of any payment in an amount less than the amount then due on any Secured
Indebtedness shall be deemed an acceptance on account only and shall not in any
way affect the existence of a Default or other default hereunder.
6.7. Reproduction as Financing Statement. A carbon, photographic or other
-----------------------------------
reproduction of this Deed of Trust or of any financing statement relating to
this Deed of Trust shall be sufficient as a financing statement.
6.8. Fixture Filing. This Deed of Trust shall be effective as a financing
--------------
statement filed as a fixture filing with respect to all fixtures included within
the Property and is to be filed for record in the real property records of the
county where the Property (including said fixtures) is situated. This Deed of
Trust shall also be effective as a financing statement covering minerals or the
like (including oil and gas) and accounts subject to Section 9.103(e) of the
Texas Business and Commerce Code, as amended, and is to be filed for record in
the real property records of the county where the Property is situated. The
mailing address of Grantor is set forth below the signature of Grantor to this
Deed of Trust and the address of the Administrative Agent from which information
concerning the security interest may be obtained is 901 Main Street, 67th Floor,
Dallas, Texas 75202. Grantor does have an interest of record in the Mortgaged
Property.
6.9. Filing and Recordation. Grantor will cause this Deed of Trust and all
----------------------
amendments and supplements thereto and substitutions therefor and all financing
statements and continuation statements relating hereto to be recorded, filed,
re-recorded and refiled in such manner and in such places as the Trustee or the
Administrative Agent shall reasonably request, and will pay all such recording,
filing, re-recording and refiling taxes, fees and other charges.
6.10. Dealing with Successor. In the event the ownership of the Property
----------------------
or any part thereof becomes vested in a person other than Grantor, the
Administrative Agent may, without notice to Grantor, deal with such successor or
successors in interest with reference to this Deed of Trust and to the Secured
Indebtedness in the same manner as with Grantor, without in any way vitiating or
discharging Grantor's liability hereunder or for the payment of the Secured
Indebtedness. Except as agreed to in writing by all Banks and the
Administrative Agent, no sale of the Property, no forbearance on the part of the
Administrative Agent or any Bank and no extension of the time for the payment of
any of the Secured Indebtedness given by the Administrative Agent or any Bank
shall operate to release, discharge, modify, change or affect, in whole or in
part, the liability of Grantor hereunder or for the payment of the Secured
J-2-27
<PAGE>
Indebtedness or the liability of any other person hereunder or for the payment
of the Secured Indebtedness, except to the extent proceeds of any such sale are
applied as provided in Paragraph 3.7.
6.11. Place of Payment. All Secured Indebtedness which may be owing
----------------
hereunder at any time by Grantor shall be payable at the place designated in the
Loan Documents, or if no such designation is made, at the office of the
Administrative Agent at the address indicated in this Deed of Trust, or at such
other place in the continental United States as the Administrative Agent may
designate in writing.
6.12. Subrogation. To the extent that proceeds of the Secured
-----------
Indebtedness are used to pay indebtedness secured by any outstanding lien,
security interest, charge or prior encumbrance against the Property, such
proceeds have been advanced by Banks at Grantor's request and Banks shall be
subrogated to any and all rights, security interests and liens owned or held by
any owner or holder of such outstanding liens, security interests, charges or
encumbrances, irrespective of whether said liens, security interests, charges or
encumbrances are released; provided, however, that the terms and provisions of
this Deed of Trust shall govern the rights and remedies of Banks and shall
supersede the terms, provisions, rights and remedies under and pursuant to the
instruments creating the lien or liens to which Banks are subrogated hereunder.
6.13. Application of Indebtedness. If any part of the Secured
---------------------------
Indebtedness cannot be lawfully secured by this Deed of Trust or if any part of
the Property cannot be lawfully subject to the lien and security interest hereof
to the full extent of such indebtedness, then all payments made shall be applied
on said indebtedness first in discharge of that portion thereof which is
unsecured by this Deed of Trust.
6.14. Usury. It is the intent of the Administrative Agent, the Banks and
-----
Grantor in the execution of the Credit Agreement, this Deed of Trust, the other
Loan Documents and all other instruments now or hereafter securing the Secured
Indebtedness or executed in connection therewith or under any other written or
oral agreement by the undersigned in favor of the Administrative Agent and/or
Banks to contract in strict compliance with applicable usury law. In
furtherance thereof, the Administrative Agent, Banks and Grantor stipulate and
agree that none of the terms and provisions contained in the Credit Agreement,
this Deed of Trust, the other Loan Documents or any other instrument securing
the Notes or executed in connection herewith, or in any other written or oral
agreement by Grantor in favor of Banks and/or the Administrative Agent, shall
ever be construed to create a contract to pay for the use, forbearance or
detention of money, interest at a rate in excess of the maximum interest rate
permitted to be charged by applicable law. Neither Grantor nor any guarantors,
endorsers, sureties or other parties now or hereafter becoming liable for the
Secured Indebtedness, or any part thereof, shall ever be required to pay
interest on Secured Indebtedness, under any instrument securing the Secured
Indebtedness or under any of the other Loan Documents, or in any other written
or oral agreement by Grantor in favor of Banks and/or the Administrative Agent,
at a rate in excess of the maximum interest that may be lawfully charged under
applicable law, and the provisions of this Paragraph 6.14 shall control over all
other provisions of the Credit Agreement, this Deed of Trust, the other Loan
Documents and any other instruments now or hereafter securing the Secured
Indebtedness or executed in connection herewith or any other oral or written
agreements which may be in apparent conflict herewith. All interest paid or
agreed to be paid to Banks and/or the Administrative Agent shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full period until payment in full of the principal of the Secured
Indebtedness so that the interest thereon for such full period shall not exceed
the maximum amount
J-2-28
<PAGE>
permitted by applicable law. Banks and/or the Administrative Agent expressly
disavow any intention to charge or collect excessive unearned interest or
finance charges in the event the maturity of the Secured Indebtedness is
accelerated. If the maturity of the Secured Indebtedness shall be accelerated
for any reason or if the principal of the Secured Indebtedness is paid prior to
the end of the term of the Secured Indebtedness, and as a result thereof the
interest received for the actual period of existence of the loan evidenced by
the Secured Indebtedness exceeds the applicable maximum lawful rate, Banks
and/or the Administrative Agent shall refund to Grantor the amount of such
excess or shall credit the amount of such excess against the principal balance
of the Secured Indebtedness then outstanding. In the event that Banks and/or
the Administrative Agent shall collect monies and/or any other thing of value
which are deemed to constitute interest which would increase the effective
interest rate on the Secured Indebtedness to a rate in excess of that permitted
to be charged by applicable law, an amount equal to interest in excess of the
lawful rate shall, upon such determination, at the option of Banks and/or the
Administrative Agent, be either immediately returned to Grantor or credited
against the principal balance of the other Secured Indebtedness, without further
penalty to such holder. By execution of this Deed of Trust, Grantor
acknowledges that it believes the loan to be non-usurious and agrees that if, at
any time, Grantor should have reason to believe that such loan is in fact
usurious, it will give Banks and/or the Administrative Agent notice of such
condition, and Grantor agrees that Banks and/or the Administrative Agent shall
have 90 days after receipt of such notice in which to make appropriate refund or
other adjustment in order to correct such condition if in fact such condition
exists. As used in this Paragraph 6.14, "interest" means any sum that must be
treated as interest under applicable law in determining whether a loan is
usurious. THE TERM "APPLICABLE LAW" AS USED IN THIS PARAGRAPH 6.14 SHALL MEAN
THE LAWS OF THE STATE OF TEXAS OR THE LAWS OF THE UNITED STATES, WHICHEVER LAWS
ALLOW THE GREATER RATE OF INTEREST, AS SUCH LAWS NOW EXIST OR MAY BE CHANGED OR
AMENDED OR COME INTO EFFECT IN THE FUTURE.
6.15. Notice. Any notice, request, demand or other communication required
------
or permitted hereunder, or under the Loan Documents, or under any other
instrument securing the payment of the Loan Documents (unless otherwise
expressly provided therein) shall be given in the same manner as set forth in
Section 11.1(a) of the Credit Agreement.
6.16. Successors and Assigns. The terms, provisions, covenants and
----------------------
conditions hereof shall be binding upon Grantor, and the representatives,
successors and assigns of Grantor including all successors in interest of
Grantor in and to all or any part of the Property, and shall inure to the
benefit of the Trustee, the Administrative Agent and the Banks, and their
respective heirs, successors, substitutes and assigns and shall constitute
covenants running with the land. All references in this Deed of Trust to
Grantor, Trustee, the Administrative Agent or the Banks shall be deemed to
include all such heirs, devisees, representatives, successors, substitutes and
assigns.
6.17. Severability. A determination that any provision of this Deed of
------------
Trust is unenforceable or invalid shall not affect the enforceability or
validity of any other provision and any determination that the application of
any provision of this Deed of Trust to any person or circumstance is illegal or
unenforceable shall not affect the enforceability or validity of such provision
as it may apply to any other persons or circumstances.
J-2-29
<PAGE>
6.18. Gender and Number. Within this Deed of Trust, words of any gender
-----------------
shall be held and construed to include any other gender, and words in the
singular and plural number shall be held and construed to include the other
number, unless the context otherwise requires.
6.19. Counterparts. This Deed of Trust may be executed in any number of
------------
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall
constitute one instrument.
6.20. Reporting Requirements. Grantor agrees to comply with any and all
----------------------
reporting requirements applicable to the transaction secured by this Deed of
Trust which are set forth in any law, statute, ordinance, rule, regulation,
order or determination of any governmental authority, and further agrees upon
request of the Administrative Agent to furnish the Administrative Agent with
evidence of such compliance.
6.21. Headings. The paragraph headings contained in this Deed of Trust
--------
are for convenience only and shall in no way enlarge or limit the scope or
meaning of the various and several paragraphs hereof.
6.22. Consent of the Administrative Agent. Except where otherwise
-----------------------------------
provided herein or in any of the other Loan Documents, in any instance hereunder
where the approval, consent or the exercise of judgment of the Administrative
Agent is required, the granting or denial of such approval or consent and the
exercise of such judgment shall be within the sole discretion of the
Administrative Agent, and the Administrative Agent shall not, for any reason or
to any extent, be required to grant such approval or consent or exercise such
judgment in any particular manner, regardless of the reasonableness of either
the request or the Administrative Agent's judgment.
6.23. Modification or Termination. The Loan Documents may only be
---------------------------
modified or terminated by a written instrument or instruments executed by the
party against whom enforcement of the modification or termination is asserted.
Any alleged modification or termination which is not so documented shall not be
effective as to any party.
6.24. ENTIRE AGREEMENT. THIS DEED OF TRUST, TOGETHER WITH THE CREDIT
----------------
AGREEMENT, AND ALL OTHER LOAN DOCUMENTS (ALL AS IN EFFECT ON THE DATE HEREOF AND
AS THE SAME MAY BE AMENDED, SUPPLEMENTED, RESTATED OR OTHERWISE MODIFIED
HEREAFTER FROM TIME TO TIME) REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
6.25. GOVERNING LAW. EXCEPT TO THE EXTENT THAT THE REAL PROPERTY LAWS OF
-------------
ANY STATE IN WHICH ANY OF THE MORTGAGED PROPERTY MAY BE LOCATED MAY CONTROL,
THIS DEED OF TRUST SHALL BE CONSTRUED, INTERPRETED, ENFORCED AND GOVERNED BY AND
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED
STATES APPLICABLE TO TRANSACTIONS WITHIN SUCH STATE.
J-2-30
<PAGE>
6.26. Multiple Advance Loan. This Deed of Trust is given to secure, among
---------------------
other things, a multiple advance loan and shall secure not only presently
existing indebtedness but also future advances, whether such advances are
obligatory or to be made at the option of the Administrative Agent or any Bank
or otherwise, to the same extent as if such future advances were made on the
date of execution of this Deed of Trust. The lien of this Deed of Trust shall
be valid as to all indebtedness hereby secured, including future advances, from
the time of its filing for record in the recorder's or registrar's office of the
county in which the Mortgaged Property is located.
6.27. Credit Agreement Controls. In the event of any conflict or
-------------------------
inconsistency between any of the terms and provisions of the Credit Agreement or
any other Loan Documents (other than this Deed of Trust) and any of the terms
and provisions of this Deed of Trust, the terms and provisions of the Credit
Agreement and such other Loan Documents shall control.
IN WITNESS WHEREOF, Grantor has executed this Deed of Trust, Assignment of
Leases and Rents, Security Agreement and Financing Statement as of the __th day
of September, 1997.
DOSKOCIL MANUFACTURING COMPANY, INC., a
Texas corporation
By:
Name: _____________________
Title: _____________________
Address: 4209 Barnett
Arlington, Texas 76017
J-2-31
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was acknowledged before me on the __th day of ___________,
_____, by ______________________________, _____________________________ of
DOSKOCIL MANUFACTURING COMPANY, INC., on behalf of said corporation.
----------------------------------------
Notary Public, State of Texas
My Commission Expires: ----------------------------------------
- ------------------ Print name of Notary here
J-2-32
<PAGE>
EXHIBIT "A"
-----------
[Description of Property]
J-2-33
<PAGE>
EXHIBIT "B"
-----------
[Description of Permitted Encumbrances]
J-2-34
<PAGE>
EXHIBIT K
K-1
<PAGE>
EXHIBIT L
SWING LINE NOTE
---------------
Dallas, Texas $5,000,000.00 September 19, 1997
DOSKOCIL MANUFACTURING COMPANY, INC., a Texas corporation (the "Borrower"),
for value received, promises to pay to the order of NATIONSBANK OF TEXAS, N.A.
("Lender"), at the principal office of NationsBank of Texas, N.A., in lawful
money of the United States of America, the principal sum of FIVE MILLION AND
NO/100 DOLLARS ($5,000,000.00), or such lesser sum as shall be due and payable
from time to time hereunder, as hereinafter provided. All terms used but not
defined herein shall have the meanings set forth in the Credit Agreement
described below.
Principal of and interest on the unpaid principal balance of Swing Line
Advances under this Swing Line Note (the "Note") from time to time outstanding
shall be due and payable as set forth in the Credit Agreement.
This Note is issued pursuant to and evidences Swing Line Advances under a
Credit Agreement, dated as of September 19, 1997, among the Borrower,
NationsBank of Texas, N.A., as Administrative Agent, and the lenders parties
thereto (as amended, restated, supplemented, renewed, extended or otherwise
modified from time to time, "Credit Agreement"), to which reference is made for
a statement of the rights and obligations of the Lender and the duties and
obligations of the Borrower in relation thereto; but neither this reference to
the Credit Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal sum
of and interest on this Note when due.
THIS NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW), AND OF THE UNITED STATES OF AMERICA. THE
BORROWER AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS,
TEXAS SHALL HAVE JURISDICTION OVER THE PROCEEDINGS IN CONNECTION WITH THIS NOTE
AND THE OTHER LOAN DOCUMENTS.
THIS NOTE, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
L-1
<PAGE>
THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
DOSKOCIL MANUFACTURING COMPANY, INC.
By: ____________________________________
Name:_____________________________
Title:____________________________
L-2
<PAGE>
EXHIBIT 10.11
Commercial - Industrial Lease Agreement
ARTICLE ONE: BASIC TERMS
1.01 DATE OF LEASE December 4, 1996
-----------------------------------------------------------
1.02 LANDLORD: Col Met Inc.
-----------------------------------------------------------
-----------------------------------------------------------
1.03 TENANT: Doskocil Manufacturing Company, Inc.
-----------------------------------------------------------
-----------------------------------------------------------
1.04 PROPERTY: Approximately 45,000 square feet of space situated at
------
4301 Kathey Drive
--------------------------------------------------------------------------
(street address)
Arlington (Tarrant County, Texas)
--------------------------------------------------------------------------
(City)
Legal Description: Lot 6R, Blk 4 of the Southland Acres Addition
--------------------------------------------------------
See Attached Exhibit "A"
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1.05 LEASE TERM: -12 months, commencing on the 1 day of January, (1997)
--- - ------- --
and ending on the 31, day of December, 1997
-- -------- --
1.06 RENT: Nine thousand one hundred eighty-seven and 50/100--- Dollars
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($9,187.50-----)
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per month beginning the commencement Date through
December 31, 1997.
----------- --
-----------------------------------------------Dollars ($ )
per month beginning , 19 through , 19 .
------- -- -------- --
-----------------------------------------------Dollars ($ )
per month beginning , 19 through , 19 .
------- -- -------- --
-----------------------------------------------Dollars ($ )
per month beginning , 19 through , 19 .
------- -- -------- --
-----------------------------------------------Dollars ($ )
per month beginning , 19 through , 19 .
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1.07 SECURITY DEPOSIT (See Section 3.03): eight thousand four hundred thirty
----------------------------------
seven & Dollars ($ 8,437.50). (If none, so state)
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1.08 LAST MONTH'S RENT PAYABLE IN ADVANCE: none Dollars ($ ).
----
(If none, so state)
1.09 PERMITTED USE (See Section 4.01) Light Manufacturing
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- --------------------------------------------------------------------------------
1.10 BASE YEAR FOR TAXES (See Section 12.02) 1996
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1.11 RENT TO BE PAID TO: Col Met Inc., Attn: Allen W. Brown
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Address: P.O.Box 271800, Tampa, Florida 33638
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1.12 DAILY RATE CHARGE (See Section 3.02) (2%) two percent of the monthly rent
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($ 168.74) per day. (If none, so state)
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1.13 PRINCIPAL REALTOR (If none, so state): Prudential Sutherland
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1.14 COOPERATING REALTOR (If none, so state): Grubb & Ellis Company
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1.15 REALTORS COMMISSIONS (See Section 10.01 and 10.02):
A. Lease Commission due to the Principal Realtor shall be equal to four
----
percent (4%) calculated in accordance with Section 10.01. Said lease
----
commission shall be payable to the Principal Realtor in Tarrant County,
Texas:
(i) In installments equal to the percentage stated in this Section 1.15A
of each rental payment to become due to Landlord and each such installment
shall be paid at the time each such rental payment is due: or
(ii) In cash payable as follows: 2% payable to Prudential Sutherland and
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2% payable to Grubb & Ellis upon execution of the Lease Agreement.
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(Strike subparagraph (i) and complete subparagraph (ii))
B. Sales commission (See Section 10.22): six percent (6%).
--- ----
C. If there is a Cooperating Realtor named in Section 1.14, Principal
Realtor agrees to pay Cooperating Realtor a fee equal to two percent (2%)
---
of the lease commission and sales commission received by Principal Realtor
hereunder. Such fee shall be payable to Cooperating Realtor in Tarrant
County, Texas, within five (5) business days (Monday through Friday) after
Principal Realtor receives each payment of lease commission or sales
commission.
<PAGE>
2.01 LEASE OF PROPERTY. Landlord hereby leases the Property to Tenant and Tenant
hereby leases the Property from Landlord for the Lease Term stated in Section
1.05. As used herein, the "Commencement Date" shall be the date specified in
Section 1.05 for the beginning of the Lease Term.
2.02 EARLY OCCUPANCY. If Tenant occupies the Property prior to the Commencement
Date, Tenant's occupancy of the Property shall be subject to all the provisions
of this Lease. Early occupancy of the Property shall not advance the expiration
date of this Lease.
2.03 HOLDING OVER. Tenant shall vacate the Property upon the expiration or
earlier termination of this Lease. Tenant shall reimburse Landlord for and
indemnify Landlord against all damages incurred by Landlord from any delay by
Tenant in vacating the Property. If Tenant does not vacate the Property upon the
expiration or earlier termination of this Lease, Tenant's occupancy of the
Property shall be a "month-to-month" tenancy, subject to all the terms and
provisions applicable to a month-to-month tenancy, except that the rent then in
effect shall be increased by fifty percent (50%)
ARTICLE THREE: RENT AND SECURITY DEPOSIT
3.01 RENT. Tenant agrees to pay rent for the Property at the rate specified in
Section 1.06. Tenant shall pay the rent for the first and last (if applicable
under Section 1.08) months of the Lease Term upon the execution of this Lease.
One monthly rental installment shall be due and payable on or before the same
day of the second calendar month of the Lease Term as the Commencement Date, and
a like monthly installment shall be due and payable on or before the same day of
each succeeding calendar month during the Lease Term. All rent shall be paid to
the party designated in Section 1.11 at the address stated herein for such
party.
3.02 LATE CHARGE. If any rent due hereunder is not received within five (5)
days after its due date, Tenant shall pay the party named in Section 1.11 above
a late charge equal to the sum stated in Section 1.12 above for each day from
its due date until such delinquent sum is received. The parties agree that such
late charge represents a fair and reasonable estimate of the costs of Landlord
will incur by reason of such late payment.
3.03 SECURITY DEPOSIT. Upon execution of hereof, Tenant shall deposit with the
party named in Section 1.11 above a cash Security Deposit in the sum stated in
Section 1.07. Landlord may apply all or part of the Security Deposit to any
unpaid rent or other charges due from Tenant or to cure any other defaults of
Tenant. No interest shall be paid on the Security Deposit. Landlord shall not be
required to keep the Security Deposit separate from its other accounts and no
trust relationship is created in respect to the Security Deposit. Upon any
termination of the Lease not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund the unused portion of the Security Deposit to Tenant.
ARTICLE FOUR: USE OF PROPERTY
4.01 PERMITTED USE. Tenant may use the Property only for Permitted Use stated
in Section 1.09
4.02 COMPLIANCE WITH LAW. Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the use of the Property. Tenant agrees
to not store or permit hazardous or toxic substances to be placed on the
premises without prior written permission from the Landlord. Hazardous or toxic
substances as referred to in this paragraph shall be defined by U.S.
Environmental Protection Agency Regulations and/or Texas Water Commission
Regulations. Tenant further agrees to not place underground or above ground
storage tanks on the leased premises without prior written consent of Landlord.
4.03 SIGNS. Without the prior written consent of Landlord, Tenant shall not
place or affix any signs or other objects upon or to the Property, including but
not limited to the roof or exterior walls of the building or other improvements
thereon, or paint or otherwise deface said exterior walls. Any signs installed
by Tenant shall conform with applicable laws and deed and other restrictions.
Tenant shall remove all signs at the termination of this Lease and shall repair
any damage and close any holes caused or revealed by such removal.
4.04 UTILITIES. Tenant shall pay the cost of all utility services, including
but not limited to initial connection charges, all charges for gas, water and
electricity used on the Property, and for all electric lights, lamps and tubes.
4.05 LANDLORD'S ACCESS. Landlord and its authorized agents shall have the
right, during normal business hours, to enter the Property and any buildings and
other improvements thereon to view, inspect, repair or show the Property.
Landlord shall attempt to advise tenant of the intent of Landlord or its
authorized agents to enter the property.
4.06 INTERRUPTION OF SERVICE. Interruption or curtailment of services furnished
to the Property, if caused by strikes, mechanical difficulties, or any cause
beyond Landlord's control, whether similar or dissimilar to those enumerated,
shall not entitle Tenant to any claim against Landlord or to any abatement in
rent, nor shall the same constitute constructive or partial eviction, unless
Landlord fails to take such measures as may be reasonable in the circumstances
to restore the service without undue delay. If the premises are rendered
untenantable in whole or in part for fifteen (15) business days because of such
interruption or curtailment of services (other than caused by any act or
omission of Tenant or its invitees, employees or customers) there shall be a
proportionate abatement of rent during the period of such untenantability.
4.07 EXEMPTIONS FROM LIABILITY. Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant. Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas, or rain;
(b) the breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures or any other
cause; (c) conditions arising on or about the Property or upon other portions of
any building of which the property is a part, or from other sources or places;
or (d) any act or omission of any other tenant of any building of which the
Property is a part. Landlord shall not be liable for any such damage or injury
even though the cause of or the means of repairing such damage or injury are not
accessible to Tenant. The provisions of this Section 4.07 shall not, however,
exempt Landlord from liability for Landlord's negligence or willful misconduct.
ARTICLE FIVE: MAINTENANCE, REPAIRS AND ALTERATIONS
5.01 ACCEPTANCE OF PREMISES. Tenant acknowledges that Tenant has fully inspected
the property. Tenant hereby accepts the property and the buildings and
improvements situated thereon, as suitable for the purpose for which the same
are leased, in their present condition (including all latent or environmental
defects or risks), with such changes therein as may be caused by reasonable
deterioration between the date hereof and the Commencement Date; provided that
Landlord agrees to (a) repair promptly any presently installed plumbing,
plumbing fixtures, electrical wiring, lighting fixtures, air conditioning or
heating equipment or doors that are not in good working condition on the
Commencement Date of which Tenant delivers written notice to Landlord within
thirty days after the Commencement Date; and (b) make any additional repairs and
alterations necessary for Tenant to obtain a Certificate of Occupancy from the
municipality in which the Property is located, except for those repairs and
alterations required solely because of the nature of Tenant's business. Landlord
expressly disclaims and Tenant waives any and all warranties (including the
warranty of suitability), representations and obligations of Landlord or
Landlord's agents that are not expressly stated herein. Landlord and Tenant
acknowledge that Principal Realtor and
(2) 1/93
<PAGE>
Cooperating Realtor have no expertise in detection or correction of
environmentally hazardous or undesirable items. Expert inspections are
necessary. Current or future laws may require clean up by past, current and/or
future owners and/or tenants of the Property. It is the responsibility of
Landlord and Tenant to retain qualified experts to detect and correct such
matters. Landlord and Tenant acknowledge that neither Principal Realtor, nor
Cooperating Realtor, have made an independent investigation or determination
with respect to the existence of hazardous substances or environmental
conditions in, on or about the Property. Any such investigation or determination
shall be the responsibility of Landlord and/or Tenant. The Principal Realtor or
Cooperating Realtor shall not be responsible for such an investigation. Landlord
and Tenant shall, jointly and severally, defend, indemnify and hold harmless
Principal Realtor and Cooperating Realtor from and against all claims, costs,
expenses, actions, losses, damages and liabilities of any kind whatsoever
(including reasonable attorney's fees) directly or indirectly arising out of the
existence of hazardous substances and/or environmental conditions in, on or
about the Property. This indemnification shall survive the termination of this
Lease.
5.02 MAINTENANCE AND REPAIRS BY LANDLORD. Landlord shall at his expense
maintain only the roof, foundation, underground pipes, all outside plumbing and
the structural soundness of the exterior walls (excluding all windows, window
glass, plate glass, and all doors) of the improvements on the Property in good
repair and condition, except for reasonable wear and tear and any damage caused
by the act or omission of Tenant, or Tenant's invitees, employees or customers.
Tenant shall give immediate written notice to Landlord of the need for repairs
or corrections and Landlord shall proceed promptly to make such repairs.
5.03 MAINTENANCE AND REPAIRS BY TENANT. Tenant shall at his expense and
risk maintain all other parts of the improvements on the Property in good repair
and condition, including but not limited to repairs (including necessary
replacement) to the interior plumbing, windows, window glass, plate glass,
doors, heating system, air condition equipment, fire protection sprinkler
system, elevators and the interior of the said improvements in general; and
including the reasonable care of landscaping and regular mowing of the grass,
and maintenance of the paving outside of the improvements and any railroad
siding. In the event Tenant should neglect reasonably to maintain the demised
premises, Landlord shall have the right (but not the obligation) to cause
repairs or corrections to be made and any reasonable costs therefor shall be
payable by Tenant to Landlord as additional rental on the next rental payment
due date. Upon termination of this Lease, Tenant shall deliver up the Property
in good repair and condition, reasonable wear and tear, and damage by fire,
windstorms or other casualty excepted. Tenant shall repair any damage caused by
Tenant's act or omission, or the act or omission of Tenant's invitees, employees
or customers.
5.04 ALTERATIONS. Tenant shall not create any openings in the roof or
exterior wall, or make any alterations, additions or improvements to the
Property without the prior written consent of Landlord. Consent to
nonstructural alterations, additions or improvements shall not be unreasonably
withheld by Landlord. Tenant shall have the right to erect or install shelves,
bins, machinery, air conditioning or heating equipment and trade fixtures,
provided that Tenant complies with all applicable governmental laws, ordinances
and regulations. At the expiration or termination of this Lease, Tenant shall,
subject to the restrictions of Section 5.05 below, have the right to remove such
items so installed by it, provided Tenant is not in default at the time of such
removal and provided further that Tenant shall, at the time of removal of such
items, repair in a good and workmanlike manner any damage caused by installation
or removal thereof. Tenant shall pay for all costs incurred or arising out of
alterations, additions or improvements in or to the Property and shall not
permit a mechanic's or materialman's lien to be asserted against the Property.
5.5 CONDITION UPON TERMINATION. Upon termination of this Lease, Tenant shall
surrender the Property to Landlord, broom clean and in the same condition as
received except for ordinary wear and tear which Tenant was not otherwise
obligated to remedy under any provision of this Lease. However, Tenant shall
not be obligated to repair any damage which Landlord is required to repair
under Article Five. In addition, landlord may require Tenant to remove any
alterations, additions or improvements (whether or not made with Landlord's
consent) prior to the termination of this Lease. In no event, however, shall
tenant remove any of the following materials or equipment without Landlord's
prior written consent, except to the extent that Tenant shall have made such
alterations or improvements pursuant to Section 5.04 above; any power wiring
or power panels; lighting or lighting fixtures; wall coverings; drapes,
blinds or other window covering; carpets or other floor coverings; heaters;
air conditioners or any other heating or air conditioning equipment; fencing
or security gates; or other similar building operation equipment and
decorations.
ARTICLE SIX: INSURANCE AND INDEMNITY
6.01 PROPERTY INSURANCE. Tenant shall not keep anything upon the Property, or
do anything in or about Property except the usage specified herein, which will
increase the rates for fire and standard extended coverage insurance upon the
building or buildings which are part of the Property. Tenant agrees to pay on
demand any increase in insurance premiums that may be charged to Landlord during
the term of this Lease resulting from a deviation from the usage specified
hereon or from any other cause within Tenant's control. Tenant shall be
responsible for maintaining insurance on Tenant's equipment and other personal
property located on the Property.
6.02 LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a
policy of comprehensive public liability insurance, at Tenant's expense,
insuring Landlord against liability arising out of the ownership, use occupancy
or maintenance of the Property. The initial amount of such insurance shall be
at least $1,000,000. Such policy shall contain a provision which prohibits
cancellation or modification of the policy except upon thirty (30) days prior
written notice to Landlord. Tenant shall deliver a copy of such policy or
certificate (or a renewal thereof) to Landlord prior to the Commencement Date
and prior to the expiration of any such policy during the Lease Term. If Tenant
fails to maintain such policy, Landlord may elect to maintain such insurance at
Tenant's expense.
6.03 INDEMNITY. Tenant hereby agrees to indemnify Landlord and hold harmless
from any loss, expense or claims arising out of any injury to persons or damage
to property on or about the Property or any adjacent area owned by Landlord
caused by the negligence or misconduct of Tenant, its employees, subtenants,
licensees or concessionaires or any other person entering the Property under
express or implied invitation of Tenant, or arising out of the use of the
Property by Tenant and the conduct of its business therein, or arising out of
any breach or default by Tenant in the performance of its obligations hereunder.
Tenant shall not be liable for any injury or damage caused by the negligence or
misconduct of Landlord, or its employees or agents, and Landlord agrees to
indemnify Tenant and hold it harmless from any loss, expenses or damage
arising out of such damage or injury.
6.04 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive any and all
rights of recovery against the other, or against the officers, employees, agents
or representatives of the other, for loss of or damage to its property, or the
property of others under its control, if such loss or damage is covered by any
insurance policy in force whether or not described in this Lease) at the time of
such loss or damage; provided however such waiver is made only on the condition
that it does not adversely affect the right of the insured to recover under the
applicable insurance policy or policies.
ARTICLE SEVEN: ASSIGNMENT AND SUBLETTING
Tenant shall not assign this agreement or sublet the premises, or any part
thereof without the consent of the Landlord in writing, which consent Landlord
agrees it will not unreasonably withhold, but no assignment or subletting shall
release Tenant from any obligation hereunder. Provided, however, Tenant shall
be permitted to assign this Agreement without Landlord's consent in connection
with a sale of all or substantially all of Tenant's assets or a merger of Tenant
with and into another entity.
(3)
<PAGE>
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
8.01 PARTIAL DAMAGE. In event the improvements situated on the property are
partially damaged, or rendered partially unfit for occupancy, by fire or other
casualty, Tenant shall give immediate written notice thereof to Landlord. If
Landlord's insurance proceeds are sufficient to pay for the necessary repairs,
and if the repairs can reasonably be made within 90 days after Landlord receives
such written notice from Tenant, Landlord shall forthwith cause such repairs to
be made and this Lease shall not terminate. While such repairs are being made,
Landlord shall allow Tenant a fair reduction in rent in proportion to the extent
the improvements are partially unfit for occupancy, is due to the act or
omission of Tenant or Tenant's employees, invitees or licensees.
8.02 UNINSURED PARTIAL DAMAGE OR TOTAL OR SUBSTANTIAL DESTRUCTION. In the event
of total or substantial destruction of the Improvements situated on the Property
by like or other casualty, Tenant shall give prompt written notice thereof to
Landlord. If the repairs or restoration cannot reasonably be made within 90 days
after Landlord receives such written notice from Tenant, Tenant may terminate
this Lease and the rent shall be paid to the date of such casualty. However, if
such damage or destruction is due to the act or omission of Tenant or tenant's
employees, invitees or licensees, Tenant shall pay to Landlord, within 60 days
after the occurrence of such casualty, any portion of the reasonably anticipated
cost of repairing or restoring the Improvements to the same condition as on the
date of this Lease that are not reimbursed to Landlord by insurance proceeds.
Such anticipated cost shall be determined by Landlord. Tenant shall make such
payment to Landlord, whether or not Landlord repairs or restores the
improvements. During the term of the Lease, the Landlord shall maintain property
insurance with respect to the premises in the amount equal to fair market value
of property.
ARTICLE NINE: DEFAULT AND REMEDIES
9.01 DEFAULT. The following events shall be deemed to be events of default
under this Lease:
a. Failure of Tenant to pay any installment of the rent or other sum payable to
Landlord hereunder on the date that same is due and such failure shall continue
for a period of five (5) days after written notice thereof to tenant;
b. Failure of Tenant to comply with any term, condition or covenant of this
Lease, other than the payment of rent or other sum of money, and such failure
shall not be cured within thirty (30) days after written notice thereof to
Tenant;
c. Tenant shall make a general assignment for the benefit of creditors;
d. Abandonment by Tenant of any substantial portion of the Property or cessation
of the use of the Property for the purpose leased for a period of more than 5
consecutive calendar days.
9.02 REMEDIES. Upon the occurrence of any of the events of default listed in
Section 9.01, Landlord shall have the option to pursue any one or more of the
following remedies without any notice or demand whatsoever.
a. Terminate this Lease. In which event Tenant shall immediately surrender the
Property to Landlord. If Tenant fails to so surrender such premises, Landlord
may, without prejudice to any other remedy which it may have for possession of
the Property or arrearages in rent, enter upon and take possession of the
Property and expel or remove Tenant and any other person who may be occupying
such premises or any part thereof. Landlord may hold Tenant liable for all rent
and other indebtedness accrued to the date of such termination, plus, as
liquidated damages and not as a penalty, an amount equal to the then present
value of rent provided for hereunder for the remaining portion of the Lease Term
(had this Lease not been terminated) using a ten (10%) percent value discount
factor. In the event Landlord elects to terminate this Lease by reason of an
event of default, in lieu of recovering from Tenant under the preceding
sentence, Landlord may hold Tenant liable for the amount of all loss and damage
which Landlord may suffer by reason of such termination, whether through
inability to relet the Property on satisfactory terms or otherwise.
b. Enter upon and take possession of the Property without terminating this
Lease, and expel or remove Tenant and any other person who may be occupying such
premises or any part thereof. Landlord may relet the Property and receive the
rent therefor. Tenant agrees to pay to Landlord monthly or on demand from time
to time any deficiency that may arise by reason of any such releting. In
determining the amount of such deficiency, the brokerage commission, attorneys
fees, remodeling expenses and other costs of reletting shall be subtracted from
the amount of rent received under such reletting.
c. Enter upon the Property without terminating the Lease, and do whatever Tenant
is obligated to due under the terms of this Lease. Tenant agrees to pay Landlord
on demand for expenses which Landlord may incur in thus effecting compliance
with Tenant's obligations under this Lease, together with interest thereon at
the rate of eighteen (18%) percent per annum from the date expended until paid.
Landlord shall not be liable for any damages resulting to Tenant from such
action, whether caused by negligence of Landlord or otherwise.
d. Tenant is presumed to have abandoned the Property if Tenant's goods,
equipment, or other property are removed from the Property in an amount
substantial enough to indicate a probable intent to abandon the Property and
such removal is not within the normal course of Tenant's business. In the event
that Tenant is presumed to have abandoned the Property, Landlord may remove and
store any property of Tenant that remains on the Property. Landlord may store
such property at any location satisfactory to Landlord. Landlord may dispose of
such stored property after the expiration of sixty (60) days from the date such
property is so stored. Landlord shall deliver by certified mail to Tenant at
Tenant's last known address as shown by Landlord's records a notice stating that
Landlord may dispose of Tenant's property if Tenant does not claim the same
within sixty (60) days after the date the property was stored.
e. In the event Tenant is in default under this Lease by reason of Tenant's
failure to pay rent as set forth above, then Landlord may, at Landlord's option,
change all door locks and leave a written notice on a door to Tenant's leased
premises stating the name and address or telephone number of the individual from
whom a new key can be obtained during Tenant's regular business hours, which are
defined for this purpose as being between 9:00 a.m. and 5:00 p.m. on Monday
through Friday of each week.
Upon the occurrence of any of such events of default, Landlord may enter upon
and take possession of the Property by force, if necessary, without being liable
for prosecution of any claim for damages therefor. Pursuit of any of the
foregoing remedies shall not preclude pursuit of any of the other remedies
herein provided or any other remedies provided by law, nor shall pursuit of any
remedy herein provided constitute a forfeiture or waiver of any rent due to
landlord hereunder or of any damages accruing to Landlord by reason of the
violation of any of the terms, conditions and covenants herein contained.
ARTICLE TEN: REALTOR'S COMMISSIONS
10.01 AMOUNT AND MANNER OF PAYMENT OF LEASE COMMISSIONS: Landlord agrees to pay
to the Principal Realtor a commission for negotiating the Lease equal to the
percentage stated in Section 1.15A of the total rent to become due to the
Landlord during or because of (i) the Lease Term; (ii) each period of occupancy
of the Property by Tenant, as affiliates, successors or assign, beyond the Lease
Term, whether such continued occupancy be caused by renewal, extension, holding
over, new lease or agreement or otherwise and whether upon the same or different
terms, conditions of covenants of this Lease; (iii) any expansion, lease
extension, renewal or other rental agreement with Landlord, its affiliates,
successors or assigns, demising to Tenant, its affiliates, successors or
assigns, any premises
(4) 1/93
<PAGE>
located on or constituting all or part of any tract or parcel of real property
adjoining, adjacent to or contiguous to the Property. Said lease commission
shall be paid in accordance with Section 1.15A. If the lease commission is
payable in cash under Section 1.15A (ii), the lease commission for any continued
occupancy or expansion, as provided above, shall be payable in cash for the
entire term of any such continued occupancy or expansion at the beginning of
such term and at the beginning of any subsequent term. Notwithstanding that
Principal Realtor, or Cooperating Realtor, may be designated under Section 1.11
to receive rent hereunder and may from time to time gratuitously perform rent
collection and limited property management services for Landlord, neither
Principal Realtor, nor Cooperating Realtor shall have any obligation under this
Lease to perform such rent collection and management services, unless such
obligation arises under a separate agreement with Landlord that provides for an
additional fee for such services.
10.02 COMMISSION ON PURCHASE. In the event Tenant, its affiliates, successors
or assigns, should purchase the Property during the term of this Lease (as the
same may be renewed or extended) and for a period of one hundred twenty (120)
days after Tenant, its affiliates, successors or assigns, vacates the Property,
Landlord shall pay to the undersigned Principal Realtor a sales commission in
cash equal to the percentage stated in Section 1.15B of the purchase price
payable at the closing. Upon the closing of such sale, the lease commission
payments shall terminate if the lease commission is payable in installments in
accordance with Section 1.15A(i); or, in the event the lease commission is
payable in case in accordance with Section 1.15A(ii), Landlord shall receive a
credit against the sales commission equal to the total lease commission paid by
Landlord to the Principal Realtor multiplied by the unexpired percentage of the
Lease Term as of the date of such closing. (In the event the Principal Realtor
is paid a lease commission in cash in accordance with Section 1.15A(ii) for any
continued occupancy beyond the Lease Term or expansion, such credit shall be
equal to the total lease commission paid for such continued occupancy or
expansion multiplied by the unexpired percentage of the term of such continued
occupancy or expansion as of the date of such closing).
10.03 PROTECTION OF REALTORS. If Landlord sells the Property, or assigns
Landlord's interest in this Lease, the buyer or assignee shall, by accepting
such conveyance of the Property or assignment of the lease, be conclusively
deemed to have agreed to make all payments to Principal Realtor thereafter
required of Landlord under this Article Ten. Principal Realtor shall have the
right to bring a legal action to enforce or declare rights under this provision.
The prevailing party in such action shall be entitled to reasonable attorneys
fees to be paid by the losing party. This section is included in this lease for
the benefit of Principal Realtor.
10.04 REALTOR'S LIEN. The Principal Realtor is hereby granted a lien against
the Property to secure payment of all commissions payable under this Article Ten
(including any additional commissions which may hereafter become payable by
reason of renewals, new leases, rental agreements, sales or otherwise). This
lien is subject to the rights of Tenants under this lease, but prior and
superior to any liens hereafter created against the Property, excepting only
liens in favor of banks, insurance companies, savings and loan associations and
similar regulated financial institutions securing indebtedness incurred for the
purpose of acquiring the Property of constructing, repairing, rebuilding or
remodeling buildings and other improvements thereon, to all of which liens the
lien hereby created shall be subordinate and inferior.
10.05 PAYMENT TO PRINCIPAL REALTOR. Landlord shall be liable for payment of all
commissions to Principal Realtor only, whereupon it shall be protected from any
claims from any Cooperating Realtor or broker.
ARTICLE ELEVEN: CONDEMNATION
Landlord shall notify Tenant if Landlord receives notice of any potential
condemnation of the Property or portion thereof. If all or any portion of the
Property is taken under the power of eminent domain or sold under the threat of
that power (all of which are called "Condemnation"), this Lease shall terminate
as to the part taken or sold on the date the condemning authority takes title or
possession, by delivering written notice to the other within ten (10) days after
receipt of written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority takes possession). If
neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the rent shall
be reduced in proportion to the reduction in floor area of the Property. Any
Condemnation award or payment shall be distributed in the following order: (a)
first, to any ground lessor, mortgagee or beneficiary under a deed of trust
encumbering the Property, the amount of its interest in the Property; (b)
second, to Tenant, only the amount of any award specifically designated for loss
of or damage to Tenant's trade fixtures or removable personal property; and (c)
third, to Landlord, the remainder of such award, whether as compensation for
reduction in the value of the leasehold, the taking of the fee, or otherwise.
If this Lease is not terminated, Landlord shall repair any damage to the
Property caused by the Condemnation, except that Landlord shall not be obligated
to repair any damage for which Tenant has been reimbursed by the condemning
authority. If the severance damages received by Landlord are not sufficient to
pay such repair, Landlord shall have the right to terminate this Lease or make
such repair at Landlord's expense.
ARTICLE TWELVE: TAXES
12.01 PAYMENT BY LANDLORD. Landlord shall pay the real estate taxes on the
Property during the Lease Term.
12.02 PAYMENT BY TENANT. Tenant shall pay the party named in Section 1.11
above, as additional rental, the excess, if any, of the real estate taxes on the
Property for any year during the Lease Term over the real estate taxes on the
Property for the base year stated in Section 1.10. Tenant shall make such
payment within fifteen (15) days after receipt of a statement showing the amount
and computation of such increase. Tenant shall be responsible for the pro-rata
portion of such additional rental for any fractional part of a year preceding
the end of the Lease Term, which prorated sum shall be due and payable upon the
termination of this Lease. If the termination of this Lease occurs before the
tax rate is fixed for the particular year, the proration shall be upon the basis
of the tax rate for the preceding year applied to the latest assessed valuation,
and notwithstanding the termination of this Lease, any difference in the actual
real estate taxes for such year shall be adjusted between the parties upon
receipt of written evidence of the payment thereof. Tenant agrees to pay all
personal property taxes levied against the leased premises and Tenant during the
term hereof by reason of Tenant's improvements, inventory, equipment and
business conducted at the leased premises.
12.03 JOINT ASSESSMENT. If the Property is not separately assessed, Tenant's
share of the real estate taxes payable by Tenant under Section 12.02 shall be
determined from reasonably available information. Landlord shall make a
reasonable determination of Tenant's proportionate share of such real estate
taxes and Tenant shall pay such share to Landlord within fifteen (15) days
after receipt of Landlord's written statement.
12.04 CONTEST BY TENANT. Tenant may, at its own expense, contest any tax or
assessment for which Tenant may be wholly or partially responsible. Except as
hereinafter provided, Tenant need not pay the tax, assessment or charge during
the pendency of the contest and Tenant may prevent Landlord from paying any tax,
assessment or charge that Tenant is contesting pursuant to this Section 12.04,
pending any resolution of the contest, by depositing with Landlord, before such
tax, assessment or charge becomes delinquent, Tenant's portion of the full
amount of the tax or assessment, plus the full amount of any penalty that might
be imposed for failure to make timely payment and six (6) months of interest at
the rate imposed by the entity levying the tax or assessment. Upon final
resolution of the tax or assessment contest, Landlord may use the money
deposited by Tenant to pay Tenant's portion of any tax or assessment, plus the
(5) 1/93
<PAGE>
Landlord may pay, or require Tenant to pay, any tax, assessment or charge, or
any portion thereof, for which Tenant is responsible under this Article Twelve,
pending resolution of Tenant's contest of the tax, assessment or charge, if
payment is demanded by a holder of a mortgage on the property, or if failure to
pay will subject all or part of the Property to forfeiture or loss. Landlord
reserves the right to contest any tax, assessment or charge on the Property.
ARTICLE THIRTEEN: LANDLORD'S LIEN
In addition to the statutory landlord's lien, Tenant hereby grants to Landlord a
security interest to secure payment of all rent and other sums of money becoming
due hereunder from Tenant, upon all goods, wares, equipment, fixtures, furniture
and other personal property of Tenant situated in or upon the Property, together
with the proceeds from the sale or lease thereof. Such property shall not be
removed without the consent of Landlord until all arrearages in rent and other
sums of money then due to Landlord hereunder shall first have been paid and
discharged. Upon request by Landlord, Tenant agrees to execute and deliver to
Landlord a financing statement in form sufficient to perfect the security
interest of Landlord in the aforementioned property and proceeds thereof under
the provisions of the Uniform Commercial Code in force in the State of Texas.
ARTICLE FOURTEEN: SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
14.01 SUBORDINATION. Landlord shall have the right to subordinate this lease to
any ground lease, deed of trust or mortgage encumbering the Property, and
advances made on the security thereof and any renewals, modifications,
consolidations, replacements or extensions thereof, whenever made or recorded.
However, Tenant's right to quiet possession of the Property during the Lease
Term shall not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, deed of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
14.02 ATTORNMENT. If Landlord's interest in the Property is acquired by any
ground lessor, beneficiary under a deed of trust, mortgage or purchaser at a
foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Property and recognize such transferee or successor
as landlord under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the property upon the transfer of Landlord's
interest.
14.03 SIGNING OF DOCUMENTS. Tenant shall sign and deliver any instruments or
documents necessary or appropriate to evidence any such attornment or
subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
14.04 ESTOPPEL CERTIFICATES
(a) Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying (i) that none of the
terms or provisions of this Lease have been changed (or if they have been
changed, stating how they have been changed); (ii) that this Lease has not been
cancelled or terminated; (iii) the last due date of payment of the rent and
other charges and the time period covered by such payment; and (iv) that
Landlord is not in default under this Lease (or, if Landlord is claimed to be in
default, stating why). Tenant shall deliver such statement to Landlord within
ten (10) days after Landlord's request. Any such statement by Tenant may be
given by Landlord to any prospective purchaser or encumbrancer of the Property.
Such purchaser or encumbrancer may rely conclusively upon such statement as true
and correct.
(b) If Tenant does not deliver such statement to Landlord within such ten
(10) day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by the Landlord; (iii) that not more than one month's rent
or other charges have been paid in advance; and (iv) that Landlord is not in
default under the Lease. In such event, Tenant shall be estopped form denying
the truth of such facts.
ARTICLE FIFTEEN: MISCELLANEOUS
15.01 EXHIBITS. All exhibits, attachments, annexed instruments and addenda
referred to herein shall be considered a part hereof for all purposes with the
same force and effect as if copied at full length herein.
15.02 INTERPRETATION. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular shall be held
to include the plural, unless the context otherwise requires. In any provision
relating to the conduct, acts or omissions of Tenant, the term "Tenant" shall
include Tenant's agents, employees, contractors, invitees, successors, permitted
assigns or others using the Property with Tenant's expressed or implied
permission.
15.03 CAPTIONS. The captions or headings of paragraphs in the Lease are
inserted for convenience only, and shall not be considered in construing the
provisions hereof if any question of intent should arise.
15.04 WAIVERS. All waivers must be in writing and signed by the waiving party.
Landlord's failure to enforce any provision of this Lease or its acceptance of
rent shall not be a waiver and shall not prevent Landlord from enforcing that
provision or any other provision of this Lease in the future. No statement on a
check from Tenant or in a letter accompanying a payment check shall be binding
on Landlord. Landlord may, with or without notice to Tenant, negotiate such
check without being bound to the condition of such statement.
15.05 SEVERABILITY. A determination by a court of competent jurisdiction that
any provision of this Lease or any part thereof is illegal or unenforceable
shall not cancel or invalidate the remainder of such provision of this Lease,
which shall remain in full force and effect.
15.06 JOINT AND SEVERAL LIABILITY. All parties signing this Lease as Tenants
shall be jointly and severally liable for the obligations of Tenant.
15.07 INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease is the only
agreement between the parties pertaining to the lease of the Property and no
other agreements are effect. All amendments to this Lease shall be in writing
and signed by all parties. Any other attempted amendment shall be void.
15.08 BINDING EFFECT. The terms, conditions and covenants contained in the
Lease, shall apply to, inure to the benefit of, and be binding upon the parties
hereto and their respective heirs, representatives, successors and permitted
assigns, except as otherwise herein expressly provided. All rights, powers,
privileges, immunities and duties of Landlord under this Lease, including but
not limited to any notices required or permitted to be delivered by Landlord to
Tenant hereunder, may, at Landlord's option, be exercised or performed by
Landlord's agent or attorney.
(6) 1/93
<PAGE>
15.09 NOTICES. Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or not
when deposited in the United States Mail, postage prepaid, registered or
certified mail, return receipt requested, addressed to parties hereto at the
respective addresses stated herein, or at such other address as they have
theretofore specified by written notice delivered in accordance herewith.
Notices to Tenant shall be delivered to the address specified on the signature
page hereof, except that, upon Tenant's taking possession of the Property, the
Property address shall be Tenant's address for notice purposes.
15.10 FORCE MAJEURE. In the event performance by Landlord of any term,
condition or covenant in this Lease is delayed or prevented by any Act of God,
strike, lockout, shortage of material or labor, restriction by any governmental
authority, civil riot, flood or any other cause not within the control of
Landlord, the period of performance of such term, condition or covenant shall be
extended for a period equal to the period Landlord is so delayed or hindered.
15.11 ATTORNEYS' FEES. If on account of any breach or default of any party
hereto in its obligations to any other party hereto (including but not limited
to the Principal Realtor), it shall become necessary for the non-defaulting
party to employ an attorney to enforce or defend any of its rights or remedies
hereunder, the defaulting party agrees to pay the non-defaulting party its
reasonable attorneys' fees, whether or not suit is instituted in connection
therewith.
15.12 TIME OF ESSENCE. Time is the essence of this Lease.
ARTICLE SIXTEEN: SPECIAL PROVISIONS AND RIDERS.
Special provisions may be set forth in the blank space and/or on a rider
or riders attached hereto. If no additional provisions are to be inserted in the
blank space below, please draw line through such space. If no rider or riders
are to be attached hereto, please state "No Riders" in the blank space below. If
a rider or riders are to be attached hereto, please state in the blank space
below: "See Rider or Riders Attached," and please have Landlord and Tenant
initial all such riders.
1. Landlord shall give tenant the first right of refusal towards the
purchase of the property.
2. Tenant shall make improvements to the property with written consent from
the Landlord of which consent shall not be unreasonably withheld or
delayed.
4. Tenant shall comply with all government orders and directives for the
correction prevention and abatement of nuisances, created by Tenant, on
or upon or connected with the property at the Tenant's sole expense.
5. Landlord shall hold Tenant harmless from any liability as a result of any
hazardous materials caused/found in barrels on the Property prior to
Tenant's occupancy.
THIS IS A LEGAL DOCUMENT. READ IT CAREFULLY. IF YOU DO NOT UNDERSTAND THE
EFFECT OF ANY PART OF THIS LEASE, SEEK COMPETENT LEGAL ADVICE. THE GREATER FORT
WORTH ASSOCIATION OF REALTORS ("GFWAR") HAS FURNISHED THIS FORM FOR THE
CONVENIENCE OF ITS MEMBERS. LANDLORD AND TENANT ACKNOWLEDGE THAT THEY HAVE NOT
RELIED ON ANY LEGAL ADVICE FROM PRINCIPAL REALTOR, COOPERATING REALTOR, GFWAR OR
GFWAR'S OFFICERS, DIRECTORS, EMPLOYEES, MEMBERS, AFFILIATES OR ATTORNEYS.
EXECUTED as of the date stated in Section 1.01 above.
<TABLE>
<CAPTION>
LANDLORD TENANT
<S> <C>
Col Met Inc. Doskocil Manufacturing Co., Inc.
- --------------------------------------------------------- ---------------------------------------------------------
By: ^^[ILLEGIBLE SIGNATURE]^^ By: /s/ EDWARD DOSKOCIL
---------------------------------------------------- --------------------------------------------------
TITLE: President TITLE: V.P. Operations/General Manager
-------------------------------------------------- --------------------------------------------------
ADDRESS: P. O. Box 271800 ADDRESS: 4209 Barnett
Tampa, Florida 33688 Arlington, Tx. 76017
----------------------------------------------- -----------------------------------------------
Date of execution by Landlord: 7th January 1996 Date of execution by Tenant: 14th Jan. 1997
------------------------- ---------------------------
PRINCIPAL REALTOR, MEMBER OF THE COOPERATING REALTOR
GREATER FORT WORTH ASSOCIATION OF REALTORS
Prudential Sutherland Grubb & Ellis Company
- --------------------------------------------------------- ---------------------------------------------------------
By: ^^[ILLEGIBLE SIGNATURE]^^ By:
---------------------------------------------------- ----------------------------------------------------
ADDRESS: 4200 South Cooper Avenue, Suite 101 ADDRESS: 777 Main Street, Ste. 1507
----------------------------------------------- -----------------------------------------------
Arlington, Texas 76015 Fort Worth, Texas 76102
----------------------------------------------- -----------------------------------------------
(817) 332-7315
</TABLE>
<PAGE>
[MAP OF PROPERTY]
<PAGE>
EXHIBIT 10.12
BUILDING A
INDUSTRIAL REAL ESTATE LEASE
ARTICLE 1
BASIC TERMS
-----------
This Article 1 contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article 1 explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.1 Date of Lease: July 1, 1997
-------------
Section 1.2 Landlord (include legal entity): Benjamin L. Doskocil and Mary
-------------------------------
Frances Doskocil
Address of Landlord: 5306 Mansfield Road, Arlington, Texas 76017
Section 1.3 Tenant (include legal entity): Doskocil Manufacturing
-----------------------------
Company, Inc. Address of Tenant: 4209 Barnett, Arlington, Texas 76017
Section 1.4 Property: (include street address, approximate square footage
--------
and description) Building "A" located at 4209 Barnett, Arlington, Texas, as
more particularly described on Exhibit "A" attached hereto.
-----------
Section 1.5 Lease Term:
----------
(a) The initial term of this Lease shall be for ten (10) years
("Term") and shall commence on the date hereof ("Commencement Date") and shall
---- -----------------
terminate 5:00 P.M. local time on the tenth (10th) anniversary of the
Commencement Date (the "Expiration Date").
---------------
(b) Provided that Tenant is not in default of this Lease, Tenant
shall have the option to renew this Lease for three (3) renewal terms of five
(5) years each commencing upon the expiration of the initial ten (10) year Term
or any previous renewal term, as the case may be, and ending at 5:00 P.M. local
time five (5) years thereafter, unless any such renewal term shall sooner
terminate in accordance with this Lease or otherwise; provided that (i) Tenant
shall have notified Landlord in writing of Tenant's exercise of such renewal
option not later than six (6) months prior to the expiration of the initial Term
hereof or the then existing renewal term, as the case may be, (ii) at the time
such notice is given, this Lease
<PAGE>
shall be in full force and effect and Tenant shall not be in default hereunder
for such period of time as would entitle Landlord to terminate this Lease
pursuant to the terms hereof. Such renewal terms shall be upon all of the
agreements, terms, covenants and conditions hereof except that Tenant shall pay
Base Rent (hereinafter defined) to Landlord in monthly installments in an amount
equal to the greater of (i) the fair market rate (the "Fair Market Rent") for
----------------
the Real Property (as defined herein) or (ii) one hundred and ten percent (110%)
of the existing Base Rent on an "AS IS, WHERE IS" basis as of the commencement
of the renewal term, as designated by Landlord within twenty (20) days after
Landlord receives Tenant's renewal notice, but in no event greater than the rate
of Base Rent in effect at the scheduled expiration of the Term or the applicable
renewal term plus twenty-five percent (25%) thereof. In addition, during the
renewal term, Tenant shall pay all other rent and other amounts due under the
Lease. If Tenant does not approve of Landlord's designation of the Base Rent
for the renewal term, then Tenant, as its sole remedy, may submit in writing to
Landlord within ten (10) days after the Landlord's delivery of its determination
Fair Market Rent to Tenant (the "Renewal Commencement Date"), its good faith
-------------------------
determination of Fair Market Rent with appropriate back-up documentation. If
the Tenant's determination of Fair Market Rent is within ten percent (10%) of
the Landlord's determination of the same, the "Fair Market Rent" shall equal the
----------------
median number between each of the Tenant's and Landlord's determination (but in
no event shall the Fair Market Rent be less than the Base Rent existing on the
last day of the Term plus ten percent (10%)). If the Tenant's determination of
Fair Market Rent is not within ten percent (10%) of the Landlord's determination
---
of the same, each of the Landlord and the Tenant shall choose an appraiser on
the eleventh (11th) day after the Renewal Commencement Date to determine the
"fair market rent" and the initial determinations shall be disregarded for all
purposes in determining the Fair Market Rent. Each appraiser shall diligently
attempt to agree on the Fair Market Rent on or before the twenty-fourth (24th)
day after the Renewal Commencement Date. If such appraisers agree on the Fair
Market Rent on or before the twenty-fourth day after the Renewal Commencement
Date, such agreed sum shall constitute the "Fair Market Rent". If the
appraisers have not agreed on the Fair Market Rent by such day, (a) the
appraisers shall select an independent third appraiser (the "Final Appraiser"),
---------------
and (b) each such original appraiser shall deliver in writing to the Final
Appraiser their last determination of the sum (each such sum being hereinafter
referred to as the "Appraisal Price") that such appraiser believes is the Fair
---------------
Market Rent. On or before the twenty-ninth (29th) day after the Renewal
Commencement Date, the Final Appraiser shall choose one Appraisal Price or the
other Appraisal Price as the "Fair Market Rent". Notwithstanding anything to
----------------
the contrary herein, in no event shall the Fair Market Rent be less than the
Base Rent in effect at the last day of the Term plus ten percent (10%) thereof.
Tenant shall have no further renewal rights after the expiration of such renewal
terms. Upon the commencement of each renewal term, (x) the renewal term shall
be added to and become part of the Term, (y) any reference in this
2
<PAGE>
Lease, to the "Term", the "term of this Lease" or any similar expression shall
----
be deemed to include the renewal terms, and (z) the Expiration Date shall become
the expiration of the applicable renewal term.
Section 1.6 Permitted Uses: (See Article Five) Tenant may use the
--------------
Property for any lawful manufacturing or distribution purpose, including to
operate its business as operated on the day immediately preceding this Lease.
Section 1.7 Tenant's Guarantor: (If none, so state) None.
------------------
Section 1.8 Brokers: (See Article 14) (if none, so state) None.
-------
Landlord's Broker: None.
Tenant's Broker: None.
Section 1.9 Commission Payable to Landlord's Broker: (See Article 14) $
---------------------------------------
None
- ----
Section 1.10 Initial Security Deposit: (See Section 3.3) None.
------------------------
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: N/A
------------------------------------------
Section 1.12 Rent and Other Charges Payable by Tenant: See below.
----------------------------------------
(a) Base Rent. Tenant shall pay to Landlord, without notice or
---------
demand, in lawful money of the United States of America, at the office of
Landlord or at such other place as Landlord may designate, the following:
annual fixed rent ("Base Rent") of $226,080.00 per annum for the period
---------
commencing with the Commencement Date, payable in equal monthly installments in
advance on the first day of each and every month during the Term, of $18,840.00
except that the first installment of Base Rent shall be apportioned and shall be
payable on the Commencement Date if the Commencement Date shall occur on a date
other than the first day of a month and except that the installment of Base Rent
due in the month that the Expiration Date occurs shall be apportioned if the
Expiration Date shall occur on a date other than the last of a month.
Commencing upon the first day of the 61st month of the Lease, the Base Rent
shall be increased by ten percent (10%) more than the Base Rent that existed on
the preceding day.
(b) Other Periodic Payments. (i) Real Property Taxes above the
-----------------------
"Base Real Property Taxes" (See Section 4.2); (ii) Utilities (See Section 4.3);
(iii) Impounds for
3
<PAGE>
Tenant's Share of Insurance Premiums and Property Taxes (See Section 4.7); (iv)
Maintenance, Repairs and Alterations (See Article 6).
Section 1.13 Costs and Charges Payable by Landlord. (a) Base Real
-------------------------------------
Property Taxes (See Section 4.2); (b) Insurance Premiums (See Section 4.4(c);
(c) Maintenance and Repair (See Article 6). Tenant, at its expense, shall take
good care of the Property. Tenant shall promptly make all repairs, interior or
exterior, ordinary or extraordinary, as and when needed to preserve the Property
and any Improvements, therein in good working order and condition other than (a)
repairs necessitated by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors, invitees or licensees, and (b)
maintenance and repairs to the Building's roof, foundation and structural
integrity except as a result of the negligence or willful acts of the Tenant or
its agents, employees, contractors, invitees or licensees. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be at least equal in quality and class to the original work
or installation.
Section 1.14 Landlord's Share of Profit on Assignment or Sublease: (See
----------------------------------------------------
Section 9.5) Landlord's share shall equal seventy percent (70%) of the Profit
(the "Landlord's Share").
Section 1.15 Riders: The following Riders are attached to and made a part
------
of this Lease: (If none, so state) None
ARTICLE 2
LEASE TERM
----------
Section 2.1 Lease of Property For Lease Term. Landlord leases the
--------------------------------
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.5 above and shall
begin and end on the dates specified in Section 1.5 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.5 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.2 Intentionally Omitted.
Section 2.3 Intentionally Omitted.
4
<PAGE>
Section 2.4 Holding Over. Tenant shall vacate the Property upon the
------------
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall be
a "month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by twenty-five percent (25%).
ARTICLE 3
BASE RENT
---------
Section 3.1 Time and Manner of Payment. Upon execution of this Lease,
--------------------------
Tenant shall pay Landlord the Base Rent in the amount stated In Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
ARTICLE 4
OTHER CHARGES PAYABLE BY TENANT
-------------------------------
Section 4.1 Additional Rent. All charges payable by Tenant other than
---------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.2 Property Taxes.
--------------
(a) Real Property Taxes. Landlord shall pay the "Base Real
-------------------
Property Taxes" on the Property during the Lease Term. Base Real Property Taxes
are real property taxes applicable to the Property as shown on the tax bill for
the most recent tax fiscal year ending prior to the Commencement Date. As of the
first day of each of the sixty-first (61st), seventy-third (73rd), eighty-fifth
(85th), ninety-seventy (97th) and one hundred and ninth (109th) months of the
Term of this Lease, Tenant shall pay the Landlord, the amount, if any, by which
the real property taxes for the current calendar year are in excess of the real
property taxes attributable for calendar year 1996. Subject to Paragraph 4.2(c),
Tenant shall
5
<PAGE>
make such payments within fifteen (15) days after receipt of Landlord's
statement showing the amount and computation of such increase. Landlord shall
reimburse Tenant for any real property taxes paid by Tenant covering any period
of time prior to or after the Lease Term.
(b) Definition of "Real Property Tax". "Real property tax" means:
---------------------------------
(i) any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalk's, road maintenance, refuse or other services provided to the Property
by any governmental agency; (iv) any tax imposed upon this transaction or based
upon a re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed,
----------------
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.2(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
-----------------------
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property belonging
to Tenant. Tenant shall try to have personal property taxed separately from
the Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from
Landlord for such personal property taxes.
Section 4.3 Utilities. Tenant shall pay, directly to the appropriate
---------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of
6
<PAGE>
Tenant's proportionate share of the cost of such utilities and services and
Tenant shall pay such share to Landlord within fifteen (15) days after receipt
of Landlord's written statement.
Section 4.4 Insurance Policies.
------------------
(a) Liability Insurance. During the Lease Term, Tenant shall
-------------------
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be Ten Million Dollars ($10,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.4(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.5, if the matters giving rise to the indemnity under
Section 5.5 result from the negligence of Tenant. The amount and coverage of
such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary Insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
------------------------------------
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain
insurance for Tenant's fixtures or equipment or building improvements installed
by Tenant on the Property.
(c) Payment of Premiums.
-------------------
(i) Landlord shall pay the "Premiums" for the insurance
policies maintained by Landlord under Paragraph 4.4(b). Notwithstanding
the previous sentence, Tenant shall be obligated to pay the Premiums for
the insurance to the
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extent such Premiums increase as a result of Tenant's use of the Property.
For example, if Tenant changes its use of the Property to include an
activity which is inherently more dangerous than its use of the Property as
of the Commencement Date, Tenant shall be obligated to pay for the increase
in Premium resulting from such activity on the Property.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the insurance carrier
to give Landlord not less than thirty (30) days' written notice prior to
any cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which
case Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant and Landlord shall maintain all insurance required
under this Lease with companies holding a "General Policy Rating" of A-12
or better, as set forth In the most current issue of "Best Key Rating
Guide". Landlord and Tenant acknowledge the insurance markets are rapidly
changing and that insurance in the form and amounts described in this
Section 4.4 may not be available in the future. Tenant acknowledges that
the insurance described in this Section 4.4 is for the primary benefit of
Landlord, If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable
in the insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control,
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if such loss or damage is covered by any insurance policy in force (whether
or not described in this Lease) at the time of such loss or damage. Upon
obtaining the required policies of insurance, Landlord and Tenant shall
give notice to the insurance carriers of this mutual waiver of subrogation.
Section 4.5 Late Charges. Tenant's failure to pay rent promptly may cause
------------
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges end late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to ten percent (10%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
Section 4.6 Interest on Past Due Obligations. Any amount owed by Tenant
--------------------------------
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of Interest on such amounts shall not excuse or cure any
default by Tenant under this Lease, if the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.7 Impounds for Insurance Premiums and Real Property Taxes. If
-------------------------------------------------------
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant to Landlord under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-Interest bearing impound account, if unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the Impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under this
Lease.
ARTICLE 5
USE OF PROPERTY
---------------
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Section 5.1 Permitted Uses. Tenant may use the Property only for the
--------------
Permitted Uses set forth in Section 1.6 above.
Section 5.2 Manner of Use. Tenant shall not cause or permit the Property
-------------
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act provided that if any
capital improvements to the Property are required to be made for compliance and
the benefit or useful life of such capital improvements extends beyond the Lease
Term (as such term may be extended by exercise of any options), the useful life
of such capital improvements shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Section 5.3 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes" "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord provided that Landlord is
deemed to have consented to the use of the Hazardous Materials, and reasonable
replacements or substitution thereof, in use on the Property immediately prior
to the Commencement Date. Landlord shall be entitled to take into account such
other factors or facts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall Landlord be
required to consent to the installation or use of any storage tanks on the
Property.
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Section 5.4 Signs and Auctions. Tenant shall not place any signs on the
------------------
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.5 Indemnity. Tenant shall indemnify Landlord against and hold
---------
Landlord harmless from any and all costs, claims or liability arising subsequent
to the Commencement Date from: (a) Tenant's use of the Property subsequent to
the Commencement Date; (b) the conduct of Tenant's business or anything else
done or permitted by Tenant to be done in or about the Property subsequent to
the Commencement Date, including any contamination of the Property or any other
property resulting from the presence or use of Hazardous Material caused or
permitted by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant subsequent to
the Commencement Date. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.6 Landlord's Access. Landlord or its agents may enter the
-----------------
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems reasonably necessary.
Landlord shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place customary "For Sale" or "For Lease" signs on the
Property.
Section 5.7 Quiet Possession. It Tenant pays the rent and complies with
----------------
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease,
ARTICLE 6
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
-----------------------------------------------------------
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Section 6.1 Existing Conditions. Tenant accepts the Property in its
-------------------
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein or in the Recapitalization Agreement dated July 1, 1997 by and among
Enterprise Partners III, L.P., a Delaware limited partnership, Enterprise
Partners III Associates, L.P., a Delaware limited partnership, Enterprise
Partners IV, L.P., a Delaware limited partnership, Enterprise Partners IV
Associates, L.P., a Delaware limited partnership, Enterprise Management Partners
Corporation, a California corporation, EP Texas Company, LLC, a Texas limited
liability company, Benjamin L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock
International, Inc., a Texas corporation, Doskocil Manufacturing Company, Inc.,
a Texas corporation, and Spectrum Polymers, Ltd., a Texas limited partnership,
Tenant acknowledges that neither Landlord nor any agent of Landlord has made any
representation as to the condition of the Property or the suitability of the
Property for Tenant's intended use. Tenant represents and warrants that Tenant
has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease.
Section 6.2 Exemption of Landlord from Liability. Except for Landlord
------------------------------------
defaults under Section 6.3, Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or from other sources or places;
or (d) any act or omission of any other tenant of Landlord. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions of
this Section 6.2 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.3 Landlord's Obligations. Subject to the provisions of Article
----------------------
7 (Damage or Destruction) and Article 8 (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on the Property in good order,
condition and repair. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls. Landlord shall not
be obligated to make any repairs under this Section 6.3 until a reasonable time
after
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receipt of a written notice from Tenant of the need for such repairs. Tenant
waives the benefit of any present or future law which might give Tenant the
right to repair the Property at Landlord's expense or to terminate the Lease
because of the condition of the Property.
Section 6.4 Tenant's Obligations.
--------------------
(a) Except as provided in Section 6.3, Article 7 (Damage or
Destruction) and Article 8 (Condemnation). Tenant shall keep all portions of
the Property (including nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. Landlord shall have the right, upon written notice to Tenant, to
undertake the responsibility for preventive maintenance of the heating and air
conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's
expense, repair any damage to the roof, foundation or structural portions of
walls caused by Tenant's acts or omissions. It is the intention of Landlord and
Tenant that, at all times during the Lease Term, Tenant shall maintain the
Property in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.4 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.4, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
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Section 6.5 Alterations, Additions, and Improvements.
----------------------------------------
(a) Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written consent, except
for non-structural alterations which do not exceed One Hundred Thousand Dollars
($100,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and completion bonds in form
and amount satisfactory to Landlord. Tenant shall promptly remove any
alterations, additions, or improvements constructed in violation of this
Paragraph 6.5(a) upon Landlord's written request. All alterations, additions,
and improvements shall be done in a good and workmanlike manner, in conformity
with all applicable laws and regulations, and by a contractor approved by
Landlord. Upon completion of any such work, Tenant shall provide Landlord with
"as built" Plans, copies of all construction contracts, and proof of payment for
all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
Section 6.6 Condition Upon Termination. Upon the termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article 7 (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment;
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<PAGE>
fencing or security gates; or other similar building operating equipment and
decorations except to the extent installed by Tenant.
ARTICLE 7
DAMAGE OR DESTRUCTION
---------------------
Section 7.1 Partial Damage to Property.
--------------------------
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.4(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not
sufficient to pay the entire cost of repair, or if the cause of the damage is
not covered by the insurance policies which Landlord maintains under Paragraph
4.4(b), Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, and, if the damage was due to an
act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance policies and the difference between the actual cost of
repair and any insurance proceeds received by Landlord. If Landlord elects to
terminate the Lease, Tenant may elect to continue this Lease in full force and
effect, in which case Tenant shall repair any damage to the Property and any
building in which the Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either
15
<PAGE>
Landlord or Tenant may elect to terminate this Lease as of the date the damage
occurred, regardless of the sufficiency of any Insurance proceeds. The party
electing to terminate this Lease shall give written notification to the other
party of such election within thirty (30) days after Tenant's notice to Landlord
of the occurrence of the damage.
Section 7.2 Substantial or Total Destruction. If the Property is
--------------------------------
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.1), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months alter
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.3 Temporary Reduction of Rent. If the Property is destroyed or
---------------------------
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article 7, any rent payable during the period of such damage,
repair and/or restoration shall be reduced according to the degree, if any, to
which Tenant's use of the Property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.4 Waiver. Tenant waives the protection of any statute, code or
------
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.2 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8
CONDEMNATION
------------
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes
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title or possession, whichever occurs first. If more than twenty percent (20%)
of the floor area of the building in which the Property is located, or which is
located on the Property, is taken, either Landlord or Tenant may terminate this
Lease as of the date the condemning authority takes title or possession, by
delivering written notice to the other within ten (10) days after receipt of
written notice of such taking (or in the absence of such notice, within ten (10)
days after the condemning authority takes title or possession). If neither
Landlord nor Tenant terminates this Lease, this Lease shall remain in effect as
to the portion of the Property not taken, except that the Base Rent and
Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or removable
personal property; and (c) third, to Landlord, the remainder of such award,
whether as compensation for reduction in the value of the leasehold, the taking
of the fee, or otherwise. If this Lease is not terminated, Landlord shall
repair any damage to the Property caused by the Condemnation, except that
Landlord shall not be obligated to repair any damage for which Tenant has been
reimbursed by the condemning authority. If the severance damages received by
Landlord are not sufficient to pay for such repair, Landlord shall have the
right to either terminate this Lease or make such repair at Landlord's expense.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
-------------------------
Section 9.1 Landlord's Consent Required. No portion of the Property or of
---------------------------
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by sale, assignment, sublease, transfer, operation of law, or act of
Tenant, without Landlord's prior written consent, except as provided in Section
9.2 below. Landlord has the right to grant or withhold its consent as provided
in Section 9.5 below. Any attempted transfer without consent shall be void and
shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than fifty percent (50%) of the
partnership interests shall require Landlord's consent, if Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation (except as set forth in 9.2) shall require Landlord's
consent. Notwithstanding the foregoing, Tenant may mortgage, assign or transfer
its interest in this Lease to any lender and such lender or an affiliate or
designee may subsequently acquire Tenant's interest in this Lease by foreclosure
or assignment in lieu thereof, without Landlord's consent.
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Section 9.2 Tenant Affiliate. Tenant may assign this Lease or sublease
----------------
the Property, without Landlord's consent, (i) to any corporation which controls,
is controlled by or is under common control with Tenant, or to any corporation,
partnership, limited liability company or other legal entity resulting from a
reorganization or the merger of or consolidation with Tenant ("Tenant's
--------
Affiliate") or (ii) in the event of the public sale of stock of Tenant or
- ---------
Tenant's Affiliate or for subsequent transfers of stock whether or not such
transfers result in a change in control, provided that any assignee of the Lease
shall assume in writing all of Tenant's obligations under this Lease, or (iii)
in connection with the acquisition of or a business combination with another
business principally engaged in supplying products to the pet industry with
annual revenues in excess of $25,000,000, provided that any assignee of the
Lease shall assume in writing all of Tenant's obligations under this Lease.
Section 9.3 No Release of Tenant. No transfer permitted by this Article
--------------------
9, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article 9. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee defaults under
this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.
Section 9.4 Offer to Terminate. If Tenant desires to assign the Lease or
------------------
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.5 with respect to any proposed transfer shall
continue to apply.
Section 9.5 Landlord's Consent.
------------------
(a) Tenant's request for consent to any transfer described in
Sections 9.1 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g.,the term of and the
rent and security deposit payable under any proposed assignment or sublease),
and any other information Landlord deems relevant. Landlord shall have the right
to withhold consent, if reasonable, or to grant consent, based on the following
factors: (i) the
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business of the proposed assignee or subtenant and the proposed use of the
Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee, Tenant may nonetheless sublease
(but not assign), all or a portion of the Property to the proposed transferee,
but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under
the Lease the Landlord's Share (stated in Section 1.14) of the Profit
(defined below) on such transaction as and when received by Tenant, unless
Landlord gives written notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
signed, and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt of Landlord's Share shall not be a consent to any
further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.5(b) shall be a material default of the Lease.
Section 9.6 No Merger. No merger shall result from Tenant's sublease of
---------
the Property under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all
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subtenancies or succeed to the interest of Tenant as sublandlord under any or
all subtenancies.
ARTICLE 10
DEFAULTS; REMEDIES
------------------
Section 10.1 Covenants and Conditions. Tenant's performance of each of
------------------------
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.2 Defaults. Tenant shall be in material default under this
--------
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.4;
(b) If Tenant fails to pay rent or any other charge within three (3)
days after delivery of notice that such amounts are past due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general arrangement
for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take
20
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possession (or if Tenant remains a debtor in possession) and such trustee or
Tenant transfers Tenant's interest hereunder, then Landlord shall receive, as
Additional Rent, the excess, if any, of the rent (or any other consideration)
paid in connection with such assignment or sublease over the rent payable by
Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise
terminates, or purports to revoke or otherwise terminate, any guaranty of all or
any portion of Tenant's obligations under the Lease. Unless otherwise expressly
provided, no guaranty of the Lease is revocable.
Section 10.3 Remedies. On the occurrence of any material default by
--------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (10%). If Tenant has abandoned the Property,
21
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Landlord shall have the option of (i) retaking possession of the Property and
recovering from Tenant the amount specified in this Paragraph 10.3(a), or (ii)
proceeding under Paragraph 10.3(b);
(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has abandoned the Property.
In such event, Landlord shall be entitled to enforce all of Landlord's rights
and remedies under this Lease, including the right to recover the rent as it
becomes due.
(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which the Property
is located.
Section 10.4 Intentionally Omitted.
---------------------
Section 10.5 Automatic Termination. Notwithstanding any other term or
---------------------
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.3 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to Landlord's
right to possession of the Property. All such damages suffered (apart from Base
Rent and other rent payable hereunder) shall constitute pecuniary damages which
must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.6 Cumulative Remedies. Landlord's exercise of any right or
-------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11
PROTECTION OF LENDERS
---------------------
Section 11.1 Subordination. Landlord shall have the right to subordinate
-------------
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall
22
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execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property during the Lease Term shall
not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, dead of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this Lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
Section 11.2 Attornment. If Landlord's interest in the Property is
----------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.3 Signing of Documents. Tenant shall sign and deliver any
--------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant falls to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.4 Estoppel Certificates.
---------------------
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not to Tenant's knowledge in default under this Lease (or, if
Landlord is claimed to be in default, stating why); and (v) such other
representations or information with respect to Tenant or the Lease as Landlord
may reasonably request or which any prospective purchaser or encumbrancer of the
Property may require. Tenant shall deliver such statement to Landlord within ten
(10) days after Landlord's request. Landlord
23
<PAGE>
may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within
such ten (10)-day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been cancelled
or terminated except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or other charges have been paid in advance: and (iv)
that Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.5 Tenant's Financial Condition. Within ten (10) days after
----------------------------
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE 12
LEGAL COSTS
-----------
Section 12.1 Legal Proceedings. (a) If Tenant or Landlord shall be in
-----------------
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach of
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the party in whose favor a judgment is
entered, shall receive a reasonable sum as attorneys' fees and casts. The losing
party in such action shall pay such attorneys' fees and costs. Tenant shall
also indemnify Landlord against and hold Landlord harmless from all costs,
expenses, demands and liability Landlord may incur if Landlord becomes or is
made a party to any claim or action (a) instituted by Tenant against any third
party, or by any third party against Tenant, or by or against any person holding
any interest
24
<PAGE>
under or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for Tenant or such
other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
(b) Notwithstanding anything to the contrary provided herein, if a
controversy, claim or dispute arises out of or relates to this Lease, or the
breach thereof, and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration as set forth below.
If the parties hereto cannot solve a dispute by mediation within 60 days of
the commencement thereof, any controversy or claim arising out of or relating to
this Lease, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The parties hereto further agree that the
above controversy be submitted to three arbitrators. The parties hereto further
agree to faithfully observe this agreement and the rules, and that the parties
will abide by and perform any award rendered by the arbitrators, and that a
judgment of the court having jurisdiction may be entered on the award.
Section 12.2 Landlord's Consent. Tenant shall pay Landlord's reasonable
------------------
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article 9 (Assignment and Subletting), or in connection with any
other act which Tenant proposes to do and which requires Landlord's consent
ARTICLE 13
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Non-Discrimination. Tenant promises, and it is a condition
------------------
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
25
<PAGE>
Section 13.2 Landlord's Liability; Certain Duties.
------------------------------------
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or the leasehold estate
under a ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord
to perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary,
the liability of Landlord for the performance of its duties and obligations
under this Lease is limited to Landlord's interest in the Property, and neither
the Landlord nor its partners, shareholders, officers or other principals shall
have any personal liability under this Lease.
Section 13.3 Severability. A determination by a court of competent
------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.4 Interpretation. The captions of the Articles or Sections of
--------------
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
26
<PAGE>
Section 13.5 Incorporation of Prior Agreements; Modifications. This Lease
------------------------------------------------
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.6 Notices. All notices required or permitted under this Lease
-------
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.3 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.2 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.7 Waivers. All waivers must be in writing and signed by the
-------
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.8 No Recordation. Tenant shall not record this Lease without
--------------
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.9 Binding Effect; Choice of Law. This Lease binds any party
-----------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 Corporate Authority; Partnership Authority. If Tenant is a
------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the
27
<PAGE>
partnership, that he or it has full authority to sign for the partnership and
that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11 Joint and Several Liability. All parties signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12 Force Majeure. If Landlord cannot perform any of its
-------------
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control Include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13 Execution of Lease. This Lease may be executed in
------------------
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14 Survival. All representations and warranties of Landlord
--------
and Tenant shall survive the termination of this Lease.
Section 13.15 Right of First Refusal.
----------------------
(a) Subject and subordinate to the rights of Related Parties (hereinafter
defined) as set forth in paragraph (b) hereinbelow, Tenant, and its successors
-------------
and assigns, provided that Tenant is not in default of this Lease, shall have a
right of first refusal exercisable from the Commencement Date through the Term
including all extension terms and including the date upon which this Lease
expires with respect to the purchase of the Property. Such right of refusal
shall be exercisable upon and shall be subject to the following conditions:
(1) Upon receipt by Landlord of a bona fide offer acceptable to
Landlord to purchase the Property or to purchase any vacant or undeveloped
contiguous property (herein called the "Bona Fide Offer"), Landlord shall
---------------
notify Tenant of the existence and terms and conditions of the Bona Fide
Offer.
28
<PAGE>
(2) Upon Tenant's receipt of notice of the Bona Fide Offer from
Landlord, Tenant shall have thirty (30) business days to notify Landlord in
writing that Tenant irrevocably elects to (a) purchase the Property or
contiguous property upon all of the terms and conditions stated in the Bona
Fide Offer, including the purchase price stated in the Bona Fide Offer and
(b) simultaneously with Tenant's election in the preceding clause (a), at
Tenant's option, purchase any vacant or undeveloped contiguous property
owned by Landlord that is not subject to Bona Fide Offer at the fair market
value for such property as agreed by the parties. If the parties are
unable to agree upon the fair market value of the Property within ten (10)
days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined
----------------------
by an appraiser selected by the parties who is a member of the American
Institute of Real Estate Appraisers with at least five years of experience
appraising property comparable to and in the geographic area of the
Property. Such appraiser's determination of the fair market value of the
Property shall be binding on the parties. If the parties are unable to
agree upon the selection of an appraiser, each party shall select a
qualified appraiser and the two selected appraisers shall select a
qualified third appraiser who will determine the fair market value of the
Property. If Tenant does not exercise its right of refusal under this
paragraph (a), either by notifying Landlord in writing of its election not
-------------
to exercise such right or by failing to notify Landlord in writing of
Tenant's election within the thirty (30) business day period following its
receipt of notice of the Bona Fide Offer to purchase the Property, then
Tenant conclusively shall be deemed to have elected not to purchase the
Property and Landlord shall be entitled to sell the Property to any third
party at any time within 6 months of the Bona Fide Offer upon such terms of
the Bona Fide Offer, without any further notice to Tenant. If Tenant
elects to purchase the Property within said thirty (30) business day
period, the Tenant promptly shall enter into a purchase agreement with
Landlord to buy the Property on the terms and conditions set forth in such
Bona Fide Offer with appropriate adjustments as set forth in this paragraph
---------
(a). Notwithstanding anything to the contrary set forth herein, the
---
Tenants rights under this Section shall not apply to any transfer, sale, or
assignment from the Landlord to Benjamin Doskocil, Mary Frances Doskocil,
any child, family member or relative of either Benjamin or Mary Frances
Doskocil, any entity owned or controlled by any of the foregoing or any
charitable organization, any trust created for the benefit of any of the
foregoing (the "Related Parties").
---------------
(b) Notwithstanding anything to the contrary provided herein, Landlord may
at any time transfer, sell or assign the Property in any manner to a Related
Party without the consent of Tenant, and paragraph (a) hereinabove hereof shall
-------------
be subject and subordinate to
29
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the rights of Related Parties with respect to the Property provided that upon
any transfer to a Related Party, the Related Party shall be bound by the terms
of paragraph (a).
Section 13.16 Purchase Option.
---------------
(a) Landlord hereby grants to Tenant the option to elect to purchase,
during the sixty-first (61st) through the sixty-fourth (64th) month of the Term
and during the one hundred and twentieth (120th) month of the Term and to close
the purchase within 60 days of the election, all of Landlord's right, title and
interest in the Property, including without limitation, the buildings, parking
lot, fixtures and improvements constructed on the land, all of Landlord's
equipment, machinery, furniture, inventory and other personal property located
upon and used in connection with the operation of the Property. At the same
time as the Tenant's delivery of the Option Exercise Notice (hereinafter
defined) to Landlord, Tenant may elect to purchase any or all vacant or
undeveloped land that is contiguous to the Property upon the same terms and
conditions set forth herein.
(b) The total base purchase price for the Property (the "Base Purchase
-------------
Price") shall be ninety-five percent (95%) of the fair market value of the
- -----
Property as such fair market value is agreed upon by the parties. If the
parties are unable to agree upon the fair market value of the Property within
ten (10) days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined by an
----------------------
appraiser selected by the parties who is a member of the American Institute of
Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the selection
of an appraiser, each party shall select a qualified appraiser and the two
selected appraisers shall select a qualified third appraiser who will determine
the fair market value of the Property. The Purchase Price shall be paid in cash
at the Closing.
(c) At the Closing (hereinafter defined), Landlord shall convey the
Property to Tenant by special warranty deed (the "Deed") in form and substance
----
reasonably acceptable to Tenant and Landlord.
(d) The closing of the transaction pursuant to the Option Exercise Notice
(the "Closing") shall be at the main office of Old Republic Title, 1501 Summit,
-------
Fort Worth, Texas (the "Title Company"), shall be held at 10:00 o'clock a.m.,
-------------
Arlington time, on the closing date.
30
<PAGE>
(e) At the Closing, Landlord shall cause the following items to be
furnished to Tenant:
(1) The Deed in the form required hereinabove, duly executed and
acknowledged by Landlord.
(2) A fully paid Owner's Policy of Title Insurance covering the
Property issued by the Title Company in accordance with the terms of this
Agreement insuring Tenant's title in the amount of the Base Purchase Price,
containing no liens against the Landlord's fee interest in the Property.
(3) A duly executed and acknowledged bill of sale conveying title to
all personalty and all intangible property to Tenant.
(4) A duly executed and acknowledged assignment in favor of Tenant of
all service, employment and management contracts as are then in force and
pertaining to the Property and designated by Tenant, and executed copies of
all such contracts.
(5) Evidence reasonably satisfactory to Tenant and the Title Company
of the Landlord's closing representatives' power and authority to
consummate the transactions.
(f) Subject to Landlord's full performance of the conditions precedent
listed in and required by paragraph (e) above, at the Closing, Tenant shall:
-------------
(1) Pay to Landlord the Base Purchase Price in cash.
(2) Furnish evidence reasonably satisfactory to Landlord and the
Title Company of the Tenant's and Tenant's closing representatives' power
and authority to consummate the transactions.
(g) On or before Closing, Landlord shall pay: (1) the cost of the Owner's
Policy of Title Insurance required hereby, excluding the additional charges for
modification or deletion of standard exceptions, as hereinabove provided; (b)
Landlord's own attorney's fees; and (c) one-half (1/2) of any escrow fee charged
by the Title Company. On or before Closing, Tenant shall pay: (1) Tenant's own
attorneys' fees; (b) one-half (1/2) of any escrow fee charged by the Title
Company; (3) any charges for modification or deletion of standard exceptions to
the Owner's Policy of Title Insurance; (4) the official fees for filing and
recording Landlord's Deed; and (5) survey for the Property..
31
<PAGE>
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
32
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on July 1, 1997 /s/ Benjamin L. Doskocil Sr
-----------------------------------
Benjamin L. Doskocil
/s/ Mary Frances Doskocil
-----------------------------------
Mary Frances Doskocil
"TENANT"
Signed on July 1, 1997 DOSKOCIL MANUFACTURING COMPANY,
INC.
By: /s/ Larry E. Rembold
--------------------------------
Name: Larry E. Rembold
-----------------------------
Its: President
------------------------------
33
<PAGE>
BUILDING A
EXHIBIT A
The following tract or tracts of land in Tarrant County, Texas:
LOTS 4, 5, 6, AND 7, BLOCK 3, SOUTHLAND ACRES, AN ADDITION TO THE
CITY OF ARLINGTON, TARRANT COUNTY, TEXAS, ACCORDING TO PLAT RECORDED
IN VOLUME 388-Z, PAGE 137, PLAT RECORDS, TARRANT COUNTY, TEXAS.
LOT 8-R, BLOCK 3, SOUTHLAND ACRES, AN ADDITION TO THE CITY OF
ARLINGTON, TARRANT COUNTY, TEXAS, ACCORDING TO PLAT RECORDED IN VOLUME
388-200. PAGE 40, PLAT RECORDS, TARRANT COUNTY, TEXAS.
<PAGE>
EXHIBIT 10.13
BUILDING B
INDUSTRIAL REAL ESTATE LEASE
ARTICLE 1
BASIC TERMS
-----------
This Article 1 contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article 1 explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.1 Date of Lease: July 1, 1997
-------------
Section 1.2 Landlord (include legal entity): Benjamin L. Doskocil
-------------------------------
Address of Landlord: 5306 Mansfield Road, Arlington, Texas 76017
Section 1.3 Tenant (include legal entity): Doskocil Manufacturing
-----------------------------
Company, Inc. Address of Tenant: 4209 Barnett, Arlington, Texas 76017
Section 1.4 Property: (include street address, approximate square
--------
footage and description) Building "B" located at 4300 Barnett, Arlington, Texas,
as more particularly described on Exhibit "A".
-----------
Section 1.5 Lease Term:
----------
(a) The initial term of this Lease shall be for ten (10) years ("Term")
----
and shall commence on the date hereof ("Commencement Date") and shall terminate
-----------------
at 5:00 P.M. local time on the tenth (10th) anniversary of the Commencement Date
(the "Expiration Date").
---------------
(b) Provided that Tenant is not in default of this Lease, Tenant shall
have the option to renew this Lease for three (3) renewal terms of five (5)
years each commencing upon the expiration of the initial ten (10) year Term or
any previous renewal term, as the case may be, and ending at 5:00 P.M. local
time five (5) years thereafter, unless any such renewal term shall sooner
terminate in accordance with this Lease or otherwise; provided that (i) Tenant
shall have notified Landlord in writing of Tenant's exercise of such renewal
option not later than six (6) months prior to the expiration of the initial Term
hereof or the then existing renewal term, as the case may be, (ii) at the time
such notice is given, this Lease shall be in full force and effect and Tenant
shall not be in default hereunder for such period
<PAGE>
of time as would entitle Landlord to terminate this Lease pursuant to the terms
hereof. Such renewal terms shall be upon all of the agreements, terms, covenants
and conditions hereof except that Tenant shall pay Base Rent (hereinafter
defined) to Landlord in monthly installments in an amount equal to the greater
of (i) the fair market rate (the "Fair Market Rent") for the Real
----------------
Property (as defined herein) or (ii) one hundred and ten percent (110%) of the
existing Base Rent on an "AS IS, WHERE IS" basis as of the commencement of the
renewal term, as designated by Landlord within twenty (20) days after Landlord
receives Tenant's renewal notice, but in no event greater than the rate of Base
Rent in effect at the scheduled expiration of the Term or the applicable renewal
term plus twenty-five percent (25%) thereof. In addition, during the renewal
term, Tenant shall pay all other rent and other amounts due under the Lease. If
Tenant does not approve of Landlord's designation of the Base Rent for the
renewal term, then Tenant, as its sole remedy, may submit in writing to Landlord
within ten (10) days after the Landlord's delivery of its determination Fair
Market Rent to Tenant (the "Renewal Commencement Date"), its good faith
-------------------------
determination of Fair Market Rent with appropriate back-up documentation. If
the Tenant's determination of Fair Market Rent is within ten percent (10%) of
the Landlord's determination of the same, the "Fair Market Rent" shall equal the
----------------
median number between each of the Tenant's and Landlord's determination (but in
no event shall the Fair Market Rent be less than the Base Rent existing on the
last day of the Term plus ten percent (10%)). If the Tenant's determination of
Fair Market Rent is not within ten percent (10%) of the Landlord's determination
---
of the same, each of the Landlord and the Tenant shall choose an appraiser on
the eleventh (11th) day after the Renewal Commencement Date to determine the
"fair market rent" and the initial determinations shall be disregarded for all
purposes in determining the Fair Market Rent. Each appraiser shall diligently
attempt to agree on the Fair Market Rent on or before the twenty-fourth (24th)
day after the Renewal Commencement Date. If such appraisers agree on the Fair
Market Rent on or before the twenty-fourth day after the Renewal Commencement
Date, such agreed sum shall constitute the "Fair Market Rent". If the appraisers
have not agreed on the Fair Market Rent by such day, (a) the appraisers shall
select an independent third appraiser (the "Final Appraiser"), and (b) each such
---------------
original appraiser shall deliver in writing to the Final Appraiser their last
determination of the sum (each such sum being hereinafter referred to as the
"Appraisal Price") that such appraiser believes is the Fair Market Rent. On or
---------------
before the twenty-ninth (29th) day after the Renewal Commencement Date, the
Final Appraiser shall choose one Appraisal Price or the other Appraisal Price as
the "Fair Market Rent". Notwithstanding anything to the contrary herein, in no
----------------
event shall the Fair Market Rent be less than the Base Rent in effect at the
last day of the Term plus ten percent (10%) thereof. Tenant shall have no
further renewal rights after the expiration of such renewal terms. Upon the
commencement of each renewal term, (x) the renewal term shall be added to and
become part of the Term, (y) any reference in this Lease, to the "Term", the
"term of this Lease" or any similar expression shall be deemed to
----
2
<PAGE>
include the renewal terms, and (z) the Expiration Date shall become the
expiration of the applicable renewal term.
Section 1.6 Permitted Uses: (See Article Five) Tenant may use the
--------------
Property for any lawful manufacturing or distribution purpose, including to
operate its business as operated on the day immediately preceding this Lease.
Section 1.7 Tenant's Guarantor: (If none, so state) None.
------------------
Section 1.8 Brokers: (See Article 14) (if none, so state) None.
-------
Landlord's Broker: None.
Tenant's Broker: None.
Section 1.9 Commission Payable to Landlord's Broker: (See Article 14) $
---------------------------------------
None
- ----
Section 1.10 Initial Security Deposit: (See Section 3.3) None.
------------------------
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: N/A
------------------------------------------
Section 1.12 Rent and Other Charges Payable by Tenant: See below.
----------------------------------------
(a) Base Rent. Tenant shall pay to Landlord, without notice or
---------
demand, in lawful money of the United States of America, at the office of
Landlord or at such other place as Landlord may designate, the following:
annual fixed rent ("Base Rent") of $215,145.00 per annum for the period
---------
commencing with the Commencement Date, payable in equal monthly installments in
advance on the first day of each and every month during the Term, of $17,928.75
except that the first installment of Base Rent shall be apportioned and shall be
payable on the Commencement Date if the Commencement Date shall occur on a date
other than the first day of a month and except that the installment of Base Rent
due in the month that the Expiration Date occurs shall be apportioned if the
Expiration Date shall occur on a date other than the last of a month.
Commencing upon the first day of the 61st month of the Lease, the Base Rent
shall be increased by ten percent (10%) more than the Base Rent that existed on
the preceding day.
(b) Other Periodic Payments. (i) Real Property Taxes above the "Base
-----------------------
Real Property Taxes" (See Section 4.2); (ii) Utilities (See Section 4.3); (iii)
Impounds for Tenant's Share of Insurance Premiums and Property Taxes (See
Section 4.7); (iv) Maintenance, Repairs and Alterations (See Article 6).
3
<PAGE>
Section 1.13 Costs and Charges Payable by Landlord. (a) Base Real
-------------------------------------
Property Taxes (See Section 4.2); (b) Insurance Premiums (See Section 4.4(c);
(c) Maintenance and Repair (See Article 6). Tenant, at its expense, shall take
good care of the Property. Tenant shall promptly make all repairs, interior or
exterior, ordinary or extraordinary, as and when needed to preserve the Property
and any Improvements, therein in good working order and condition other than (a)
repairs necessitated by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors, invitees or licensees, and (b)
maintenance and repairs to the Building's roof, foundation and structural
integrity except as a result of the negligence or willful acts of the Tenant or
its agents, employees, contractors, invitees or licensees. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be at least equal in quality and class to the original work
or installation.
Section 1.14 Landlord's Share of Profit on Assignment or Sublease: (See
----------------------------------------------------
Section 9.5) Landlord's share shall equal seventy percent (70%) of the Profit
(the "Landlord's Share").
Section 1.15 Riders: The following Riders are attached to and made a part
------
of this Lease: (If none, so state) None
ARTICLE 2
LEASE TERM
----------
Section 2.1 Lease of Property For Lease Term. Landlord leases the
--------------------------------
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.5 above and shall
begin and end on the dates specified in Section 1.5 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.5 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.2 Intentionally Omitted.
Section 2.3 Intentionally Omitted.
Section 2.4 Holding Over. Tenant shall vacate the Property upon the
------------
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the
4
<PAGE>
Property. If Tenant does not vacate the Property upon the expiration or earlier
termination of the Lease and Landlord thereafter accepts rent from Tenant,
Tenant's occupancy of the Property shall be a "month-to-month" tenancy, subject
to all of the terms of this Lease applicable to a month-to-month tenancy, except
that the Base Rent then in effect shall be increased by twenty-five percent
(25%).
ARTICLE 3
BASE RENT
---------
Section 3.1 Time and Manner of Payment. Upon execution of this Lease,
--------------------------
Tenant shall pay Landlord the Base Rent in the amount stated In Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
ARTICLE 4
OTHER CHARGES PAYABLE BY TENANT
-------------------------------
Section 4.1 Additional Rent. All charges payable by Tenant other than
---------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.2 Property Taxes.
--------------
(a) Real Property Taxes. Landlord shall pay the "Base Real Property
-------------------
Taxes" on the Property during the Lease Term. Base Real Property Taxes are real
property taxes applicable to the Property as shown on the tax bill for the most
recent tax fiscal year ending prior to the Commencement Date. As of the first
day of each of the sixty-first (61st), seventy-third (73rd), eighty-fifth
(85th), ninety-seventy (97th) and one hundred and ninth (109th) months of the
Term of this Lease, Tenant shall pay the Landlord, the amount, if any, by which
the real property taxes for the current calendar year are in excess of the real
property taxes attributable for calendar year 1996. Subject to Paragraph
4.2(c), Tenant shall make such payments within fifteen (15) days after receipt
of Landlord's statement showing the amount and computation of such increase.
Landlord shall reimburse Tenant for any real property taxes paid by Tenant
covering any period of time prior to or after the Lease Term.
5
<PAGE>
(b) Definition of "Real Property Tax". "Real property tax" means: (i)
---------------------------------
any fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalk's,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed,
----------------
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.2(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
-----------------------
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property belonging
to Tenant. Tenant shall try to have personal property taxed separately from
the Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from
Landlord for such personal property taxes.
Section 4.3 Utilities. Tenant shall pay, directly to the appropriate
---------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
6
<PAGE>
Section 4.4 Insurance Policies.
------------------
(a) Liability Insurance. During the Lease Term, Tenant shall maintain
-------------------
a policy of commercial general liability insurance (sometimes known as broad
form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be Ten Million Dollars ($10,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.4(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.5, if the matters giving rise to the indemnity under
Section 5.5 result from the negligence of Tenant. The amount and coverage of
such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary Insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
------------------------------------
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain
insurance for Tenant's fixtures or equipment or building improvements installed
by Tenant on the Property.
(c) Payment of Premiums.
-------------------
(i) Landlord shall pay the "Premiums" for the insurance
policies maintained by Landlord under Paragraph 4.4(b). Notwithstanding
the previous sentence, Tenant shall be obligated to pay the Premiums for
the insurance to the extent such Premiums increase as a result of Tenant's
use of the Property. For example, if Tenant changes its use of the
Property to include an activity which is inherently more dangerous than its
use of the Property as of the Commencement
7
<PAGE>
Date, Tenant shall be obligated to pay for the increase in Premium
resulting from such activity on the Property.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain
under this Lease shall include a provision which requires the insurance
carrier to give Landlord not less than thirty (30) days' written notice
prior to any cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which
case Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant and Landlord shall maintain all insurance
required under this Lease with companies holding a "General Policy Rating"
of A-12 or better, as set forth In the most current issue of "Best Key
Rating Guide". Landlord and Tenant acknowledge the insurance markets are
rapidly changing and that insurance in the form and amounts described in
this Section 4.4 may not be available in the future. Tenant acknowledges
that the insurance described in this Section 4.4 is for the primary benefit
of Landlord, If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable
in the insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby waive any and all
rights of recovery against the other, or against the officers, employees,
agents or representatives of the other, for loss of or damage to its
property or the property of others under its control, if such loss or
damage is covered by any insurance policy in force (whether or not
described in this Lease) at the time of such loss or damage. Upon obtaining
the
8
<PAGE>
required policies of insurance, Landlord and Tenant shall give notice to
the insurance carriers of this mutual waiver of subrogation.
Section 4.5 Late Charges. Tenant's failure to pay rent promptly may
------------
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges end late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment within ten
(10) days after it becomes due, Tenant shall pay Landlord a late charge equal to
ten percent (10%) of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment.
Section 4.6 Interest on Past Due Obligations. Any amount owed by Tenant
--------------------------------
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of Interest on such amounts shall not excuse or cure any
default by Tenant under this Lease, if the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.7 Impounds for Insurance Premiums and Real Property Taxes. If
-------------------------------------------------------
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant to Landlord under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-Interest bearing impound account, if unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the Impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord may
apply any funds in the impound account to any obligation then due under this
Lease.
ARTICLE 5
USE OF PROPERTY
---------------
Section 5.1 Permitted Uses. Tenant may use the Property only for the
--------------
Permitted Uses set forth in Section 1.6 above.
9
<PAGE>
Section 5.2 Manner of Use. Tenant shall not cause or permit the Property
-------------
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act provided that if any
capital improvements to the Property are required to be made for compliance and
the benefit or useful life of such capital improvements extends beyond the Lease
Term (as such term may be extended by exercise of any options), the useful life
of such capital improvements shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Section 5.3 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes" "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord provided that Landlord is
deemed to have consented to the use of the Hazardous Materials, and reasonable
replacements or substitution thereof, in use on the Property immediately prior
to the Commencement Date. Landlord shall be entitled to take into account such
other factors or facts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall Landlord be
required to consent to the installation or use of any storage tanks on the
Property.
Section 5.4 Signs and Auctions. Tenant shall not place any signs on the
------------------
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
10
<PAGE>
Section 5.5 Indemnity. Tenant shall indemnify Landlord against and hold
---------
Landlord harmless from any and all costs, claims or liability arising subsequent
to the Commencement Date from: (a) Tenant's use of the Property subsequent to
the Commencement Date; (b) the conduct of Tenant's business or anything else
done or permitted by Tenant to be done in or about the Property subsequent to
the Commencement Date, including any contamination of the Property or any other
property resulting from the presence or use of Hazardous Material caused or
permitted by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant subsequent to
the Commencement Date. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.6 Landlord's Access. Landlord or its agents may enter the
-----------------
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems reasonably necessary.
Landlord shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place customary "For Sale" or "For Lease" signs on the
Property.
Section 5.7 Quiet Possession. It Tenant pays the rent and complies with
----------------
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease,
ARTICLE 6
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
-----------------------------------------------------------
Section 6.1 Existing Conditions. Tenant accepts the Property in its
-------------------
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein or in the Recapitalization Agreement dated July 1, 1997 by and among
Enterprise Partners III, L.P., a Delaware
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limited partnership, Enterprise Partners III Associates, L.P., a Delaware
limited partnership, Enterprise Partners IV, L.P., a Delaware limited
partnership, Enterprise Partners IV Associates, L.P., a Delaware limited
partnership, Enterprise Management Partners Corporation, a California
corporation, EP Texas Company, LLC, a Texas limited liability company, Benjamin
L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock International, Inc., a Texas
corporation, Doskocil Manufacturing Company, Inc., a Texas corporation, and
Spectrum Polymers, Ltd., a Texas limited partnership, Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation as to the
condition of the Property or the suitability of the Property for Tenant's
intended use. Tenant represents and warrants that Tenant has made its own
inspection of and inquiry regarding the condition of the Property and is not
relying on any representations of Landlord or any Broker with respect thereto.
If Landlord or Landlord's Broker has provided a Property Information Sheet or
other Disclosure Statement regarding the Property, a copy is attached as an
exhibit to the Lease.
Section 6.2 Exemption of Landlord from Liability. Except for Landlord
------------------------------------
defaults under Section 6.3, Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or from other sources or places;
or (d) any act or omission of any other tenant of Landlord. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions of
this Section 6.2 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.3 Landlord's Obligations. Subject to the provisions of Article
----------------------
7 (Damage or Destruction) and Article 8 (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on the Property in good order,
condition and repair. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls. Landlord shall not
be obligated to make any repairs under this Section 6.3 until a reasonable time
after receipt of a written notice from Tenant of the need for such repairs.
Tenant waives the benefit of any present or future law which might give Tenant
the right to repair the Property at Landlord's expense or to terminate the Lease
because of the condition of the Property.
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Section 6.4 Tenant's Obligations.
--------------------
(a) Except as provided in Section 6.3, Article 7 (Damage or
Destruction) and Article 8 (Condemnation). Tenant shall keep all portions of the
Property (including nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. Landlord shall have the right, upon written notice to Tenant, to
undertake the responsibility for preventive maintenance of the heating and air
conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's
expense, repair any damage to the roof, foundation or structural portions of
walls caused by Tenant's acts or omissions. It is the intention of Landlord and
Tenant that, at all times during the Lease Term, Tenant shall maintain the
Property in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.4 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.4, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.5 Alterations, Additions, and Improvements.
----------------------------------------
(a) Tenant shall not make any alterations, additions, or improvements
to the Property without Landlord's prior written consent, except for non-
structural alterations which do not exceed One Hundred Thousand Dollars
($100,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and
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completion bonds in form and amount satisfactory to Landlord. Tenant shall
promptly remove any alterations, additions, or improvements constructed in
violation of this Paragraph 6.5(a) upon Landlord's written request. All
alterations, additions, and improvements shall be done in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide Landlord with "as built" Plans, copies of all construction contracts,
and proof of payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20) days'
prior written notice of the commencement of any work on the Property, regardless
of whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
Section 6.6 Condition Upon Termination. Upon the termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article 7 (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations except to the extent installed by Tenant.
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ARTICLE 7
DAMAGE OR DESTRUCTION
---------------------
Section 7.1 Partial Damage to Property.
--------------------------
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.4(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, or if the cause of the damage is not covered
by the insurance policies which Landlord maintains under Paragraph 4.4(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, and, if the damage was due to
an act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance policies and the difference between the actual cost of
repair and any insurance proceeds received by Landlord. If Landlord elects to
terminate the Lease, Tenant may elect to continue this Lease in full force and
effect, in which case Tenant shall repair any damage to the Property and any
building in which the Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any Insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
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Section 7.2 Substantial or Total Destruction. If the Property is
--------------------------------
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.1), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months alter
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.3 Temporary Reduction of Rent. If the Property is destroyed or
---------------------------
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article 7, any rent payable during the period of such damage,
repair and/or restoration shall be reduced according to the degree, if any, to
which Tenant's use of the Property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.4 Waiver. Tenant waives the protection of any statute, code or
------
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.2 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8
CONDEMNATION
------------
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within
16
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ten (10) days after the condemning authority takes title or possession). If
neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the Base Rent
and Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or removable
personal property; and (c) third, to Landlord, the remainder of such award,
whether as compensation for reduction in the value of the leasehold, the taking
of the fee, or otherwise. If this Lease is not terminated, Landlord shall repair
any damage to the Property caused by the Condemnation, except that Landlord
shall not be obligated to repair any damage for which Tenant has been reimbursed
by the condemning authority. If the severance damages received by Landlord are
not sufficient to pay for such repair, Landlord shall have the right to either
terminate this Lease or make such repair at Landlord's expense.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
-------------------------
Section 9.1 Landlord's Consent Required. No portion of the Property or
---------------------------
of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, sublease, transfer, operation of law, or
act of Tenant, without Landlord's prior written consent, except as provided in
Section 9.2 below. Landlord has the right to grant or withhold its consent as
provided in Section 9.5 below. Any attempted transfer without consent shall be
void and shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than fifty percent (50%) of the
partnership interests shall require Landlord's consent, if Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation (except as set forth in 9.2) shall require Landlord's
consent. Notwithstanding the foregoing, Tenant may mortgage, assign or transfer
its interest in this Lease to any lender and such lender or an affiliate or
designee may subsequently acquire Tenant's interest in this Lease by foreclosure
or assignment in lieu thereof, without Landlord's consent.
Section 9.2 Tenant Affiliate. Tenant may assign this Lease or sublease
----------------
the Property, without Landlord's consent, (i) to any corporation which controls,
is controlled by or is under common control with Tenant, or to any corporation,
partnership, limited liability company or other legal entity resulting from a
reorganization or the merger of or consolidation with Tenant ("Tenant's
--------
Affiliate") or (ii) in the event of the public sale of stock
- ---------
17
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of Tenant or Tenant's Affiliate or for subsequent transfers of stock whether or
not such transfers result in a change in control, provided that any assignee of
the Lease shall assume in writing all of Tenant's obligations under this Lease,
or (iii) in connection with the acquisition of or a business combination with
another business principally engaged in supplying products to the pet industry
with annual revenues in excess of $25,000,000, provided that any assignee of the
Lease shall assume in writing all of Tenant's obligations under this Lease.
Section 9.3 No Release of Tenant. No transfer permitted by this Article
--------------------
9, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article 9. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee defaults under
this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability under
this Lease.
Section 9.4 Offer to Terminate. If Tenant desires to assign the Lease or
------------------
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.5 with respect to any proposed transfer shall
continue to apply.
Section 9.5 Landlord's Consent.
------------------
(a) Tenant's request for consent to any transfer described in
Sections 9.1 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g.,the term of and the
rent and security deposit payable under any proposed assignment or sublease),
and any other information Landlord deems relevant. Landlord shall have the right
to withhold consent, if reasonable, or to grant consent, based on the following
factors: (i) the business of the proposed assignee or subtenant and the proposed
use of the Property; (ii) the net worth and financial reputation of the proposed
assignee or subtenant; (iii) Tenant's compliance with all of its obligations
under the Lease; and (iv) such other factors as Landlord may reasonably deem
relevant. If Landlord objects to a proposed assignment solely because of the net
worth and/or financial reputation of the proposed assignee, Tenant
18
<PAGE>
may nonetheless sublease (but not assign), all or a portion of the Property to
the proposed transferee, but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under
the Lease the Landlord's Share (stated in Section 1.14) of the Profit
(defined below) on such transaction as and when received by Tenant, unless
Landlord gives written notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
signed, and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt of Landlord's Share shall not be a consent to any
further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.5(b) shall be a material default of the Lease.
Section 9.6 No Merger. No merger shall result from Tenant's sublease of
---------
the Property under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
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ARTICLE 10
DEFAULTS; REMEDIES
------------------
Section 10.1 Covenants and Conditions. Tenant's performance of each of
------------------------
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.2 Defaults. Tenant shall be in material default under this
--------
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.4;
(b) If Tenant fails to pay rent or any other charge within three (3)
days after delivery of notice that such amounts are past due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general arrangement
for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
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(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.3 Remedies. On the occurrence of any material default by
--------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (10%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.3(a), or (ii) proceeding under Paragraph
10.3(b);
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(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Property. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due.
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
Section 10.4 Intentionally Omitted.
---------------------
Section 10.5 Automatic Termination. Notwithstanding any other term or
---------------------
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.3 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default shall
include all costs and fees, including reasonable attorneys' fees that Landlord
incurs in connection with the filing, commencement, pursuing and/or defending of
any action in any bankruptcy court or other court with respect to the Lease; the
obtaining of relief from any stay in bankruptcy restraining any action to evict
Tenant; or the pursuing of any action with respect to Landlord's right to
possession of the Property. All such damages suffered (apart from Base Rent and
other rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.6 Cumulative Remedies. Landlord's exercise of any right or
-------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11
PROTECTION OF LENDERS
---------------------
Section 11.1 Subordination. Landlord shall have the right to subordinate
-------------
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall
execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property
22
<PAGE>
during the Lease Term shall not be disturbed if Tenant pays the rent and
performs all of Tenant's obligations under this Lease and is not otherwise in
default. If any ground lessor beneficiary or mortgagee elects to have this Lease
prior to the lien of its ground lease, dead of trust or mortgage and gives
written notice thereof to Tenant, this Lease shall be deemed prior to such
ground lease, deed of trust or mortgage whether this Lease is dated prior or
subsequent to the date of said ground lease, deed of trust or mortgage or the
date of recording thereof.
Section 11.2 Attornment. If Landlord's interest in the Property is
----------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.3 Signing of Documents. Tenant shall sign and deliver any
--------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant falls to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.4 Estoppel Certificates.
---------------------
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not to Tenant's knowledge in default under this Lease (or, if
Landlord is claimed to be in default, stating why); and (v) such other
representations or information with respect to Tenant or the Lease as Landlord
may reasonably request or which any prospective purchaser or encumbrancer of the
Property may require. Tenant shall deliver such statement to Landlord within ten
(10) days after Landlord's request. Landlord may give any such statement by
Tenant to any prospective purchaser or encumbrancer of the Property. Such
purchaser or encumbrancer may rely conclusively upon such statement as true and
correct.
23
<PAGE>
(b) If Tenant does not deliver such statement to Landlord within such
ten (10)-day period, Landlord, and any prospective purchaser or encumbrancer,
may conclusively presume and rely upon the following facts: (i) that the terms
and provisions of this Lease have not been changed except as otherwise
represented by Landlord; (ii) that this Lease has not been cancelled or
terminated except as otherwise represented by Landlord; (iii) that not more than
one month's Base Rent or other charges have been paid in advance: and (iv) that
Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.5 Tenant's Financial Condition. Within ten (10) days after
----------------------------
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE 12
LEGAL COSTS
-----------
Section 12.1 Legal Proceedings. (a) If Tenant or Landlord shall be in
-----------------
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach of
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the party in whose favor a judgment is entered,
shall receive a reasonable sum as attorneys' fees and casts. The losing party in
such action shall pay such attorneys' fees and costs. Tenant shall also
indemnify Landlord against and hold Landlord harmless from all costs, expenses,
demands and liability Landlord may incur if Landlord becomes or is made a party
to any claim or action (a) instituted by Tenant against any third party, or by
any third party against Tenant, or by or against any person holding any interest
under or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for Tenant or such
other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
24
<PAGE>
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
(b) Notwithstanding anything to the contrary provided herein, if a
controversy, claim or dispute arises out of or relates to this Lease, or the
breach thereof, and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration as set forth below.
If the parties hereto cannot solve a dispute by mediation within 60 days of
the commencement thereof, any controversy or claim arising out of or relating to
this Lease, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The parties hereto further agree that the
above controversy be submitted to three arbitrators. The parties hereto further
agree to faithfully observe this agreement and the rules, and that the parties
will abide by and perform any award rendered by the arbitrators, and that a
judgment of the court having jurisdiction may be entered on the award.
Section 12.2 Landlord's Consent. Tenant shall pay Landlord's reasonable
------------------
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article 9 (Assignment and Subletting), or in connection with any
other act which Tenant proposes to do and which requires Landlord's consent
ARTICLE 13
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Non-Discrimination. Tenant promises, and it is a condition
------------------
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
25
<PAGE>
Section 13.2 Landlord's Liability; Certain Duties.
------------------------------------
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is obligated
to perform the obligations of Landlord under this Lease only during the time
such Landlord owns such interest or title. Any Landlord who transfers its title
or interest is relieved of all liability with respect to the obligations of
Landlord under this Lease to be performed on or after the date of transfer.
However each Landlord shall deliver to its transferee all funds that Tenant
previously paid if such funds have not yet been applied under the terms of this
Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall have
any personal liability under this Lease.
Section 13.3 Severability. A determination by a court of competent
------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.4 Interpretation. The captions of the Articles or Sections of
--------------
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
26
<PAGE>
Section 13.5 Incorporation of Prior Agreements; Modifications. This Lease
------------------------------------------------
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.6 Notices. All notices required or permitted under this Lease
-------
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.3 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.2 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.7 Waivers. All waivers must be in writing and signed by the
-------
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.8 No Recordation. Tenant shall not record this Lease without
--------------
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.9 Binding Effect; Choice of Law. This Lease binds any party
-----------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 Corporate Authority; Partnership Authority. If Tenant is a
------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the
27
<PAGE>
partnership, that he or it has full authority to sign for the partnership and
that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11 Joint and Several Liability. All parties signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12 Force Majeure. If Landlord cannot perform any of its
-------------
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control Include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13 Execution of Lease. This Lease may be executed in
------------------
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14 Survival. All representations and warranties of Landlord
--------
and Tenant shall survive the termination of this Lease.
Section 13.15 Tenant's Termination Rights. Provided that Tenant is not in
---------------------------
default of this Lease, Tenant shall have the right to terminate this Lease at
any time during the term for any reason upon six (6) months' prior written
notice to Landlord. Upon such termination, each party shall be released from all
its obligations pursuant to this Lease except for those obligations which
specifically survive the termination of this Lease.
Section 13.16 Right of First Refusal.
----------------------
(a) Subject and subordinate to the rights of Related Parties (hereinafter
defined) as set forth in paragraph (b) hereinbelow, Tenant, and its successors
-------------
and assigns, provided that Tenant is not in default of this Lease, shall have a
right of first refusal exercisable from the Commencement Date through the Term
including all extension terms and including the date upon which this Lease
expires with respect to the purchase of the Property. Such right of refusal
shall be exercisable upon and shall be subject to the following conditions:
28
<PAGE>
(1) Upon receipt by Landlord of a bona fide offer acceptable to
Landlord to purchase the Property or to purchase any vacant or undeveloped
contiguous property (herein called the "Bona Fide Offer"), Landlord shall
---------------
notify Tenant of the existence and terms and conditions of the Bona Fide
Offer.
(2) Upon Tenant's receipt of notice of the Bona Fide Offer from
Landlord, Tenant shall have thirty (30) business days to notify Landlord in
writing that Tenant irrevocably elects to (a) purchase the Property or
contiguous property upon all of the terms and conditions stated in the Bona
Fide Offer, including the purchase price stated in the Bona Fide Offer and
(b) simultaneously with Tenant's election in the preceding clause (a), at
Tenant's option, purchase any vacant or undeveloped contiguous property
owned by Landlord that is not subject to Bona Fide Offer at the fair market
value for such property as agreed by the parties. If the parties are unable
to agree upon the fair market value of the Property within ten (10) days
after delivery of Tenant's election to purchase the Property (the "Option
------
Exercise Notice"), then the fair market value shall be determined by an
---------------
appraiser selected by the parties who is a member of the American Institute
of Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the
selection of an appraiser, each party shall select a qualified appraiser
and the two selected appraisers shall select a qualified third appraiser
who will determine the fair market value of the Property. If Tenant does
not exercise its right of refusal under this paragraph (a), either by
-------------
notifying Landlord in writing of its election not to exercise such right or
by failing to notify Landlord in writing of Tenant's election within the
thirty (30) business day period following its receipt of notice of the Bona
Fide Offer to purchase the Property, then Tenant conclusively shall be
deemed to have elected not to purchase the Property and Landlord shall be
entitled to sell the Property to any third party at any time within 6
months of the Bona Fide Offer upon such terms of the Bona Fide Offer,
without any further notice to Tenant. If Tenant elects to purchase the
Property within said thirty (30) business day period, the Tenant promptly
shall enter into a purchase agreement with Landlord to buy the Property on
the terms and conditions set forth in such Bona Fide Offer with appropriate
adjustments as set forth in this paragraph (a). Notwithstanding anything to
-------------
the contrary set forth herein, the Tenants rights under this Section shall
not apply to any transfer, sale, or assignment from the Landlord to
Benjamin Doskocil, Mary Frances Doskocil, any child, family member or
relative of either Benjamin or Mary Frances Doskocil, any entity owned or
controlled by any of the foregoing or any charitable organization, any
trust created for the benefit of any of the foregoing (the "Related
-------
Parties").
-------
29
<PAGE>
(b) Notwithstanding anything to the contrary provided herein, Landlord may
at any time transfer, sell or assign the Property in any manner to a Related
Party without the consent of Tenant, and paragraph (a) hereinabove hereof shall
-------------
be subject and subordinate to the rights of Related Parties with respect to the
Property provided that upon any transfer to a Related Party, the Related Party
shall be bound by the terms of paragraph (a).
Section 13.17 Purchase Option.
---------------
(a) Landlord hereby grants to Tenant the option to elect to purchase,
during the sixty-first (61st) through the sixty-fourth (64th) month of the Term
and during the one hundred and twentieth (120th) month of the Term and to close
the purchase within 60 days of the election, all of Landlord's right, title and
interest in the Property, including without limitation, the buildings, parking
lot, fixtures and improvements constructed on the land, all of Landlord's
equipment, machinery, furniture, inventory and other personal property located
upon and used in connection with the operation of the Property. At the same
time as the Tenant's delivery of the Option Exercise Notice (hereinafter
defined) to Landlord, Tenant may elect to purchase any or all vacant or
undeveloped land that is contiguous to the Property upon the same terms and
conditions set forth herein.
(b) The total base purchase price for the Property (the "Base Purchase
-------------
Price") shall be ninety-five percent (95%) of the fair market value of the
- -----
Property as such fair market value is agreed upon by the parties. If the
parties are unable to agree upon the fair market value of the Property within
ten (10) days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined by an
----------------------
appraiser selected by the parties who is a member of the American Institute of
Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the selection
of an appraiser, each party shall select a qualified appraiser and the two
selected appraisers shall select a qualified third appraiser who will determine
the fair market value of the Property. The Purchase Price shall be paid in cash
at the Closing.
(c) At the Closing (hereinafter defined), Landlord shall convey the
Property to Tenant by special warranty deed (the "Deed") in form and substance
----
reasonably acceptable to Tenant and Landlord.
(d) The closing of the transaction pursuant to the Option Exercise Notice
(the "Closing") shall be at the main office of Old Republic Title, 1501 Summit,
-------
Fort Worth,
30
<PAGE>
Texas (the "Title Company"), shall be held at 10:00 o'clock a.m., Arlington
-------------
time, on the closing date.
(e) At the Closing, Landlord shall cause the following items to be
furnished to Tenant:
(1) The Deed in the form required hereinabove, duly executed and
acknowledged by Landlord.
(2) A fully paid Owner's Policy of Title Insurance covering the
Property issued by the Title Company in accordance with the terms of this
Agreement insuring Tenant's title in the amount of the Base Purchase Price,
containing no liens against the Landlord's fee interest in the Property.
(3) A duly executed and acknowledged bill of sale conveying title to
all personalty and all intangible property to Tenant.
(4) A duly executed and acknowledged assignment in favor of Tenant of
all service, employment and management contracts as are then in force and
pertaining to the Property and designated by Tenant, and executed copies of
all such contracts.
(5) Evidence reasonably satisfactory to Tenant and the Title Company
of the Landlord's closing representatives' power and authority to
consummate the transactions.
(f) Subject to Landlord's full performance of the conditions precedent
listed in and required by paragraph (e) above, at the Closing, Tenant shall:
-------------
(1) Pay to Landlord the Base Purchase Price in cash.
(2) Furnish evidence reasonably satisfactory to Landlord and the
Title Company of the Tenant's and Tenant's closing representatives' power
and authority to consummate the transactions.
(g) On or before Closing, Landlord shall pay: (1) the cost of the Owner's
Policy of Title Insurance required hereby, excluding the additional charges for
modification or deletion of standard exceptions, as hereinabove provided; (b)
Landlord's own attorney's fees; and (c) one-half (1/2) of any escrow fee charged
by the Title Company. On or before Closing, Tenant shall pay: (1) Tenant's own
attorneys' fees; (b) one-half (1/2) of any
31
<PAGE>
escrow fee charged by the Title Company; (3) any charges for modification or
deletion of standard exceptions to the Owner's Policy of Title Insurance; (4)
the official fees for filing and recording Landlord's Deed; and (5) survey for
the Property..
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
32
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
/s/ Benjamin L. Doskocil
Signed on July 1, 1997 -------------------------------------
Benjamin L. Doskocil
"TENANT"
Signed on July 1, 1997 DOSKOCIL MANUFACTURING COMPANY,
INC.
By:/s/ Larry E. Rembold
----------------------------------
Name: Larry E. Rembold
--------------------------------
Its: President
---------------------------------
33
<PAGE>
BUILDING B
EXHIBIT A
The following tract or tracts of land in Tarrant County, Texas:
Lot 16-R, Block 4, SOUTHLAND ACRES, an Addition
to the City of Arlington, Tarrant County, Texas,
according to revised plat recorded in Volume
388-152, Page 79, Plat Records, Tarrant County,
Texas.
<PAGE>
EXHIBIT 10.14
BUILDING C
INDUSTRIAL REAL ESTATE LEASE
ARTICLE 1
BASIC TERMS
-----------
This Article 1 contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article 1 explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.1 Date of Lease: July 1, 1997
-------------
Section 1.2 Landlord (include legal entity): Benjamin L. Doskocil
-------------------------------
Address of Landlord: 5306 Mansfield Road, Arlington, Texas 76017
Section 1.3 Tenant (include legal entity): Doskocil Manufacturing
-----------------------------
Company, Inc. Address of Tenant: 4209 Barnett, Arlington, Texas 76017
Section 1.4 Property: (include street address, approximate square footage
--------
and description) The first floor (containing approximately 24,000 square feet)
of Building "C" located at 4408 Barnett, Arlington, Texas, as more particularly
described on Exhibit "A".
-----------
Section 1.5 Lease Term:
----------- ----------
(a) The initial term of this Lease shall be for ten (10) years ("Term") and
----
shall commence on the date hereof ("Commencement Date") and shall terminate at
-----------------
5:00 P.M. local time on the tenth (10th) anniversary of the Commencement Date
(the "Expiration Date").
---------------
(b) Provided that Tenant is not in default of this Lease, Tenant shall have
the option to renew this Lease for three (3) renewal terms of five (5) years
each commencing upon the expiration of the initial ten (10) year Term or any
previous renewal term, as the case may be, and ending at 5:00 P.M. local time
five (5) years thereafter, unless any such renewal term shall sooner terminate
in accordance with this Lease or otherwise; provided that (i) Tenant shall have
notified Landlord in writing of Tenant's exercise of such renewal option not
later than six (6) months prior to the expiration of the initial Term hereof or
the then existing renewal term, as the case may be, (ii) at the time such notice
is given, this Lease shall be in full force and effect and Tenant shall not be
in default hereunder for such period
<PAGE>
of time as would entitle Landlord to terminate this Lease pursuant to the terms
hereof. Such renewal terms shall be upon all of the agreements, terms,
covenants and conditions hereof except that Tenant shall pay Base Rent
(hereinafter defined) to Landlord in monthly installments in an amount equal to
the greater of (i) the fair market rate (the "Fair Market Rent") for the Real
----------------
Property (as defined herein) or (ii) one hundred and ten percent (110%) of the
existing Base Rent on an "AS IS, WHERE IS" basis as of the commencement of the
renewal term, as designated by Landlord within twenty (20) days after Landlord
receives Tenant's renewal notice, but in no event greater than the rate of Base
Rent in effect at the scheduled expiration of the Term or the applicable renewal
term plus twenty-five percent (25%) thereof. In addition, during the renewal
term, Tenant shall pay all other rent and other amounts due under the Lease. If
Tenant does not approve of Landlord's designation of the Base Rent for the
renewal term, then Tenant, as its sole remedy, may submit in writing to Landlord
within ten (10) days after the Landlord's delivery of its determination Fair
Market Rent to Tenant (the "Renewal Commencement Date"), its good faith
-------------------------
determination of Fair Market Rent with appropriate back-up documentation. If
the Tenant's determination of Fair Market Rent is within ten percent (10%) of
the Landlord's determination of the same, the "Fair Market Rent" shall equal the
----------------
median number between each of the Tenant's and Landlord's determination (but in
no event shall the Fair Market Rent be less than the Base Rent existing on the
last day of the Term plus ten percent (10%)). If the Tenant's determination of
Fair Market Rent is not within ten percent (10%) of the Landlord's determination
---
of the same, each of the Landlord and the Tenant shall choose an appraiser on
the eleventh (11th) day after the Renewal Commencement Date to determine the
"fair market rent" and the initial determinations shall be disregarded for all
purposes in determining the Fair Market Rent. Each appraiser shall diligently
attempt to agree on the Fair Market Rent on or before the twenty-fourth (24th)
day after the Renewal Commencement Date. If such appraisers agree on the Fair
Market Rent on or before the twenty-fourth day after the Renewal Commencement
Date, such agreed sum shall constitute the "Fair Market Rent". If the
appraisers have not agreed on the Fair Market Rent by such day, (a) the
appraisers shall select an independent third appraiser (the "Final Appraiser"),
---------------
and (b) each such original appraiser shall deliver in writing to the Final
Appraiser their last determination of the sum (each such sum being hereinafter
referred to as the "Appraisal Price") that such appraiser believes is the Fair
---------------
Market Rent. On or before the twenty-ninth (29th) day after the Renewal
Commencement Date, the Final Appraiser shall choose one Appraisal Price or the
other Appraisal Price as the "Fair Market Rent". Notwithstanding anything to
----------------
the contrary herein, in no event shall the Fair Market Rent be less than the
Base Rent in effect at the last day of the Term plus ten percent (10%) thereof.
Tenant shall have no further renewal rights after the expiration of such renewal
terms. Upon the commencement of each renewal term, (x) the renewal term shall
be added to and become part of the Term, (y) any reference in this Lease, to the
"Term", the "term of this Lease" or any similar expression shall be deemed to
----
2
<PAGE>
include the renewal terms, and (z) the Expiration Date shall become the
expiration of the applicable renewal term.
Section 1.6 Permitted Uses: (See Article Five) Tenant may use the
--------------
Property for any lawful manufacturing or distribution purpose, including to
operate its business as operated on the day immediately preceding this Lease.
Section 1.7 Tenant's Guarantor: (If none, so state) None.
------------------
Section 1.8 Brokers: (See Article 14) (if none, so state) None.
-------
Landlord's Broker: None.
Tenant's Broker: None.
Section 1.9 Commission Payable to Landlord's Broker: (See Article 14) $
---------------------------------------
None
- ----
Section 1.10 Initial Security Deposit: (See Section 3.3) None.
------------------------
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: N/A
------------------------------------------
Section 1.12 Rent and Other Charges Payable by Tenant: See below.
----------------------------------------
(a) Base Rent. Tenant shall pay to Landlord, without notice or
---------
demand, in lawful money of the United States of America, at the office of
Landlord or at such other place as Landlord may designate, the following:
annual fixed rent ("Base Rent") of $75,600.00 per annum for the period
---------
commencing with the Commencement Date, payable in equal monthly installments in
advance on the first day of each and every month during the Term, of $6,300.00
except that the first installment of Base Rent shall be apportioned and shall be
payable on the Commencement Date if the Commencement Date shall occur on a date
other than the first day of a month and except that the installment of Base Rent
due in the month that the Expiration Date occurs shall be apportioned if the
Expiration Date shall occur on a date other than the last of a month.
Commencing upon the first day of the 61st month of the Lease, the Base Rent
shall be increased by ten percent (10%) more than the Base Rent that existed on
the preceding day.
(b) Other Periodic Payments. (i) Real Property Taxes above the "Base
-----------------------
Real Property Taxes" (See Section 4.2); (ii) Utilities (See Section 4.3); (iii)
Impounds for Tenant's Share of Insurance Premiums and Property Taxes (See
Section 4.7); (iv) Maintenance, Repairs and Alterations (See Article 6).
3
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Section 1.13 Costs and Charges Payable by Landlord. (a) Base Real
-------------------------------------
Property Taxes (See Section 4.2); (b) Insurance Premiums (See Section 4.4(c);
(c) Maintenance and Repair (See Article 6). Tenant, at its expense, shall take
good care of the Property. Tenant shall promptly make all repairs, interior or
exterior, ordinary or extraordinary, as and when needed to preserve the Property
and any Improvements, therein in good working order and condition other than (a)
repairs necessitated by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors, invitees or licensees, and (b)
maintenance and repairs to the Building's roof, foundation and structural
integrity except as a result of the negligence or willful acts of the Tenant or
its agents, employees, contractors, invitees or licensees. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be at least equal in quality and class to the original work
or installation.
Section 1.14 Landlord's Share of Profit on Assignment or Sublease: (See
----------------------------------------------------
Section 9.5) Landlord's share shall equal seventy percent (70%) of the Profit
(the "Landlord's Share").
Section 1.15 Riders: The following Riders are attached to and made a part
------
of this Lease: (If none, so state) None
ARTICLE 2
LEASE TERM
----------
Section 2.1 Lease of Property For Lease Term. Landlord leases the
--------------------------------
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.5 above and shall
begin and end on the dates specified in Section 1.5 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.5 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.2 Intentionally Omitted.
Section 2.3 Intentionally Omitted.
Section 2.4 Holding Over. Tenant shall vacate the Property upon the
------------
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the
4
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Property. If Tenant does not vacate the Property upon the expiration or earlier
termination of the Lease and Landlord thereafter accepts rent from Tenant,
Tenant's occupancy of the Property shall be a "month-to-month" tenancy, subject
to all of the terms of this Lease applicable to a month-to-month tenancy, except
that the Base Rent then in effect shall be increased by twenty-five percent
(25%).
ARTICLE 3
BASE RENT
---------
Section 3.1 Time and Manner of Payment. Upon execution of this Lease,
--------------------------
Tenant shall pay Landlord the Base Rent in the amount stated In Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
ARTICLE 4
OTHER CHARGES PAYABLE BY TENANT
-------------------------------
Section 4.1 Additional Rent. All charges payable by Tenant other than
---------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.2 Property Taxes.
--------------
(a) Real Property Taxes. Landlord shall pay the "Base Real Property
-------------------
Taxes" on the Property during the Lease Term. Base Real Property Taxes are real
property taxes applicable to the Property as shown on the tax bill for the most
recent tax fiscal year ending prior to the Commencement Date. As of the first
day of each of the sixty-first (61st), seventy-third (73rd), eighty-fifth
(85th), ninety-seventy (97th) and one hundred and ninth (109th) months of the
Term of this Lease, Tenant shall pay the Landlord, the amount, if any, by which
the real property taxes for the current calendar year are in excess of the real
property taxes attributable for calendar year 1996. Subject to Paragraph
4.2(c), Tenant shall make such payments within fifteen (15) days after receipt
of Landlord's statement showing the amount and computation of such increase.
Landlord shall reimburse Tenant for any real property taxes paid by Tenant
covering any period of time prior to or after the Lease Term.
5
<PAGE>
(b) Definition of "Real Property Tax". "Real property tax" means: (i)
---------------------------------
any fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalk's,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed,
----------------
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.2(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
-----------------------
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the
Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from
Landlord for such personal property taxes.
Section 4.3 Utilities. Tenant shall pay, directly to the appropriate
---------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
6
<PAGE>
Section 4.4 Insurance Policies.
------------------
(a) Liability Insurance. During the Lease Term, Tenant shall
-------------------
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be Ten Million Dollars ($10,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.4(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.5, if the matters giving rise to the indemnity under
Section 5.5 result from the negligence of Tenant. The amount and coverage of
such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary Insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
------------------------------------
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain
insurance for Tenant's fixtures or equipment or building improvements installed
by Tenant on the Property.
(c) Payment of Premiums.
-------------------
(i) Landlord shall pay the "Premiums" for the insurance
policies maintained by Landlord under Paragraph 4.4(b). Notwithstanding
the previous sentence, Tenant shall be obligated to pay the Premiums for
the insurance to the extent such Premiums increase as a result of Tenant's
use of the Property. For example, if Tenant changes its use of the
Property to include an activity which is inherently more dangerous than its
use of the Property as of the Commencement
7
<PAGE>
Date, Tenant shall be obligated to pay for the increase in Premium
resulting from such activity on the Property.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the insurance carrier
to give Landlord not less than thirty (30) days' written notice prior to
any cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which
case Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant and Landlord shall maintain all insurance
required under this Lease with companies holding a "General Policy Rating"
of A-12 or better, as set forth In the most current issue of "Best Key
Rating Guide". Landlord and Tenant acknowledge the insurance markets are
rapidly changing and that insurance in the form and amounts described in
this Section 4.4 may not be available in the future. Tenant acknowledges
that the insurance described in this Section 4.4 is for the primary benefit
of Landlord, If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable
in the insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at
the time of such loss or damage. Upon obtaining the
8
<PAGE>
required policies of insurance, Landlord and Tenant shall give notice to
the insurance carriers of this mutual waiver of subrogation.
Section 4.5 Late Charges. Tenant's failure to pay rent promptly may cause
------------
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges end late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to ten percent (10%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
Section 4.6 Interest on Past Due Obligations. Any amount owed by Tenant
--------------------------------
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of Interest on such amounts shall not excuse or cure any
default by Tenant under this Lease, if the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.7 Impounds for Insurance Premiums and Real Property Taxes. If
-------------------------------------------------------
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant to Landlord under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-Interest bearing impound account, if unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the Impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under this
Lease.
ARTICLE 5
USE OF PROPERTY
---------------
Section 5.1 Permitted Uses. Tenant may use the Property only for the
--------------
Permitted Uses set forth in Section 1.6 above.
9
<PAGE>
Section 5.2 Manner of Use. Tenant shall not cause or permit the Property
-------------
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act provided that if any
capital improvements to the Property are required to be made for compliance and
the benefit or useful life of such capital improvements extends beyond the Lease
Term (as such term may be extended by exercise of any options), the useful life
of such capital improvements shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Section 5.3 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes" "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord provided that Landlord is
deemed to have consented to the use of the Hazardous Materials, and reasonable
replacements or substitution thereof, in use on the Property immediately prior
to the Commencement Date. Landlord shall be entitled to take into account such
other factors or facts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall Landlord be
required to consent to the installation or use of any storage tanks on the
Property.
Section 5.4 Signs and Auctions. Tenant shall not place any signs on the
------------------
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
10
<PAGE>
Section 5.5 Indemnity. Tenant shall indemnify Landlord against and hold
---------
Landlord harmless from any and all costs, claims or liability arising subsequent
to the Commencement Date from: (a) Tenant's use of the Property subsequent to
the Commencement Date; (b) the conduct of Tenant's business or anything else
done or permitted by Tenant to be done in or about the Property subsequent to
the Commencement Date, including any contamination of the Property or any other
property resulting from the presence or use of Hazardous Material caused or
permitted by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant subsequent to
the Commencement Date. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.6 Landlord's Access. Landlord or its agents may enter the
-----------------
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems reasonably necessary.
Landlord shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place customary "For Sale" or "For Lease" signs on the
Property.
Section 5.7 Quiet Possession. It Tenant pays the rent and complies with
----------------
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease,
ARTICLE 6
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
-----------------------------------------------------------
Section 6.1 Existing Conditions. Tenant accepts the Property in its
-------------------
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein or in the Recapitalization Agreement dated July 1, 1997 by and among
Enterprise Partners III, L.P., a Delaware
11
<PAGE>
limited partnership, Enterprise Partners III Associates, L.P., a Delaware
limited partnership, Enterprise Partners IV, L.P., a Delaware limited
partnership, Enterprise Partners IV Associates, L.P., a Delaware limited
partnership, Enterprise Management Partners Corporation, a California
corporation, EP Texas Company, LLC, a Texas limited liability company, Benjamin
L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock International, Inc., a Texas
corporation, Doskocil Manufacturing Company, Inc., a Texas corporation, and
Spectrum Polymers, Ltd., a Texas limited partnership, Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation as to the
condition of the Property or the suitability of the Property for Tenant's
intended use. Tenant represents and warrants that Tenant has made its own
inspection of and inquiry regarding the condition of the Property and is not
relying on any representations of Landlord or any Broker with respect thereto.
If Landlord or Landlord's Broker has provided a Property Information Sheet or
other Disclosure Statement regarding the Property, a copy is attached as an
exhibit to the Lease.
Section 6.2 Exemption of Landlord from Liability. Except for Landlord
------------------------------------
defaults under Section 6.3, Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or from other sources or places;
or (d) any act or omission of any other tenant of Landlord. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions of
this Section 6.2 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.3 Landlord's Obligations. Subject to the provisions of Article
----------------------
7 (Damage or Destruction) and Article 8 (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on the Property in good order,
condition and repair. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls. Landlord shall not
be obligated to make any repairs under this Section 6.3 until a reasonable time
after receipt of a written notice from Tenant of the need for such repairs.
Tenant waives the benefit of any present or future law which might give Tenant
the right to repair the Property at Landlord's expense or to terminate the Lease
because of the condition of the Property.
12
<PAGE>
Section 6.4 Tenant's Obligations.
--------------------
(a) Except as provided in Section 6.3, Article 7 (Damage or
Destruction) and Article 8 (Condemnation). Tenant shall keep all portions of
the Property (including nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. Landlord shall have the right, upon written notice to Tenant, to
undertake the responsibility for preventive maintenance of the heating and air
conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's
expense, repair any damage to the roof, foundation or structural portions of
walls caused by Tenant's acts or omissions. It is the intention of Landlord and
Tenant that, at all times during the Lease Term, Tenant shall maintain the
Property in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.4 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.4, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.5 Alterations, Additions, and Improvements.
----------------------------------------
(a) Tenant shall not make any alterations, additions, or improvements
to the Property without Landlord's prior written consent, except for non-
structural alterations which do not exceed One Hundred Thousand Dollars
($100,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and
13
<PAGE>
completion bonds in form and amount satisfactory to Landlord. Tenant shall
promptly remove any alterations, additions, or improvements constructed in
violation of this Paragraph 6.5(a) upon Landlord's written request. All
alterations, additions, and improvements shall be done in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide Landlord with "as built" Plans, copies of all construction contracts,
and proof of payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
Section 6.6 Condition Upon Termination. Upon the termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article 7 (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations except to the extent installed by Tenant.
14
<PAGE>
ARTICLE 7
DAMAGE OR DESTRUCTION
---------------------
Section 7.1 Partial Damage to Property.
--------------------------
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.4(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, or if the cause of the damage is not covered
by the insurance policies which Landlord maintains under Paragraph 4.4(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, and, if the damage was due to
an act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance policies and the difference between the actual cost of
repair and any insurance proceeds received by Landlord. If Landlord elects to
terminate the Lease, Tenant may elect to continue this Lease in full force and
effect, in which case Tenant shall repair any damage to the Property and any
building in which the Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any Insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
15
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Section 7.2 Substantial or Total Destruction. If the Property is
--------------------------------
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.1), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months alter
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.3 Temporary Reduction of Rent. If the Property is destroyed or
---------------------------
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article 7, any rent payable during the period of such damage,
repair and/or restoration shall be reduced according to the degree, if any, to
which Tenant's use of the Property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.4 Waiver. Tenant waives the protection of any statute, code or
------
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.2 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8
CONDEMNATION
------------
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within
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ten (10) days after the condemning authority takes title or possession). If
neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the Base Rent
and Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or removable
personal property; and (c) third, to Landlord, the remainder of such award,
whether as compensation for reduction in the value of the leasehold, the taking
of the fee, or otherwise. If this Lease is not terminated, Landlord shall
repair any damage to the Property caused by the Condemnation, except that
Landlord shall not be obligated to repair any damage for which Tenant has been
reimbursed by the condemning authority. If the severance damages received by
Landlord are not sufficient to pay for such repair, Landlord shall have the
right to either terminate this Lease or make such repair at Landlord's expense.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
-------------------------
Section 9.1 Landlord's Consent Required. No portion of the Property or of
---------------------------
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by sale, assignment, sublease, transfer, operation of law, or act of
Tenant, without Landlord's prior written consent, except as provided in Section
9.2 below. Landlord has the right to grant or withhold its consent as provided
in Section 9.5 below. Any attempted transfer without consent shall be void and
shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than fifty percent (50%) of the
partnership interests shall require Landlord's consent, if Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation (except as set forth in 9.2) shall require Landlord's
consent. Notwithstanding the foregoing, Tenant may mortgage, assign or transfer
its interest in this Lease to any lender and such lender or an affiliate or
designee may subsequently acquire Tenant's interest in this Lease by foreclosure
or assignment in lieu thereof, without Landlord's consent.
Section 9.2 Tenant Affiliate. Tenant may assign this Lease or sublease
----------------
the Property, without Landlord's consent, (i) to any corporation which controls,
is controlled by or is under common control with Tenant, or to any corporation,
partnership, limited liability company or other legal entity resulting from a
reorganization or the merger of or consolidation with Tenant ("Tenant's
--------
Affiliate") or (ii) in the event of the public sale of stock
- ---------
17
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of Tenant or Tenant's Affiliate or for subsequent transfers of stock whether or
not such transfers result in a change in control, provided that any assignee of
the Lease shall assume in writing all of Tenant's obligations under this Lease,
or (iii) in connection with the acquisition of or a business combination with
another business principally engaged in supplying products to the pet industry
with annual revenues in excess of $25,000,000, provided that any assignee of the
Lease shall assume in writing all of Tenant's obligations under this Lease.
Section 9.3 No Release of Tenant. No transfer permitted by this Article
--------------------
9, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article 9. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee defaults under
this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.
Section 9.4 Offer to Terminate. If Tenant desires to assign the Lease or
------------------
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.5 with respect to any proposed transfer shall
continue to apply.
Section 9.5 Landlord's Consent.
------------------
(a) Tenant's request for consent to any transfer described in Sections
9.1 shall set forth in writing the details of the proposed transfer, including
the name, business and financial condition of the prospective transferee,
financial details of the proposed transfer (e.g.,the term of and the rent and
security deposit payable under any proposed assignment or sublease), and any
other information Landlord deems relevant. Landlord shall have the right to
withhold consent, if reasonable, or to grant consent, based on the following
factors: (i) the business of the proposed assignee or subtenant and the proposed
use of the Property; (ii) the net worth and financial reputation of the proposed
assignee or subtenant; (iii) Tenant's compliance with all of its obligations
under the Lease; and (iv) such other factors as Landlord may reasonably deem
relevant. If Landlord objects to a proposed assignment solely because of the
net worth and/or financial reputation of the proposed assignee, Tenant
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may nonetheless sublease (but not assign), all or a portion of the Property to
the proposed transferee, but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the
Lease the Landlord's Share (stated in Section 1.14) of the Profit (defined
below) on such transaction as and when received by Tenant, unless Landlord
gives written notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
signed, and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt of Landlord's Share shall not be a consent to any
further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.5(b) shall be a material default of the Lease.
Section 9.6 No Merger. No merger shall result from Tenant's sublease of
---------
the Property under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
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ARTICLE 10
DEFAULTS; REMEDIES
------------------
Section 10.1 Covenants and Conditions. Tenant's performance of each of
------------------------
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.2 Defaults. Tenant shall be in material default under this
--------
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.4;
(b) If Tenant fails to pay rent or any other charge within three (3)
days after delivery of notice that such amounts are past due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general arrangement
for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
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(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.3 Remedies. On the occurrence of any material default by
--------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (10%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.3(a), or (ii) proceeding under Paragraph
10.3(b);
21
<PAGE>
(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has abandoned the Property.
In such event, Landlord shall be entitled to enforce all of Landlord's rights
and remedies under this Lease, including the right to recover the rent as it
becomes due.
(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which the Property
is located.
Section 10.4 Intentionally Omitted.
---------------------
Section 10.5 Automatic Termination. Notwithstanding any other term or
---------------------
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.3 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to Landlord's
right to possession of the Property. All such damages suffered (apart from Base
Rent and other rent payable hereunder) shall constitute pecuniary damages which
must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.6 Cumulative Remedies. Landlord's exercise of any right or
-------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11
PROTECTION OF LENDERS
---------------------
Section 11.1 Subordination. Landlord shall have the right to subordinate
-------------
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall
execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property
22
<PAGE>
during the Lease Term shall not be disturbed if Tenant pays the rent and
performs all of Tenant's obligations under this Lease and is not otherwise in
default. If any ground lessor beneficiary or mortgagee elects to have this
Lease prior to the lien of its ground lease, dead of trust or mortgage and gives
written notice thereof to Tenant, this Lease shall be deemed prior to such
ground lease, deed of trust or mortgage whether this Lease is dated prior or
subsequent to the date of said ground lease, deed of trust or mortgage or the
date of recording thereof.
Section 11.2 Attornment. If Landlord's interest in the Property is
----------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.3 Signing of Documents. Tenant shall sign and deliver any
--------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant falls to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.4 Estoppel Certificates.
---------------------
(a) Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying: (i) that none of the
terms or provisions of this Lease have been changed (or if they have been
changed, stating how they have been changed); (ii) that this Lease has not been
cancelled or terminated; (iii) the last date of payment of the Base Rent and
other charges and the time period covered by such payment; (iv) that Landlord is
not to Tenant's knowledge in default under this Lease (or, if Landlord is
claimed to be in default, stating why); and (v) such other representations or
information with respect to Tenant or the Lease as Landlord may reasonably
request or which any prospective purchaser or encumbrancer of the Property may
require. Tenant shall deliver such statement to Landlord within ten (10) days
after Landlord's request. Landlord may give any such statement by Tenant to any
prospective purchaser or encumbrancer of the Property. Such purchaser or
encumbrancer may rely conclusively upon such statement as true and correct.
23
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(b) If Tenant does not deliver such statement to Landlord within
such ten (10)-day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been cancelled
or terminated except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or other charges have been paid in advance: and (iv)
that Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.5 Tenant's Financial Condition. Within ten (10) days after
----------------------------
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE 12
LEGAL COSTS
-----------
Section 12.1 Legal Proceedings. (a) If Tenant or Landlord shall be in
-----------------
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach of
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the party in whose favor a judgment is
entered, shall receive a reasonable sum as attorneys' fees and casts. The losing
party in such action shall pay such attorneys' fees and costs. Tenant shall
also indemnify Landlord against and hold Landlord harmless from all costs,
expenses, demands and liability Landlord may incur if Landlord becomes or is
made a party to any claim or action (a) instituted by Tenant against any third
party, or by any third party against Tenant, or by or against any person holding
any interest under or using the Property by license of or agreement with Tenant;
(b) for foreclosure of any lien for labor or material furnished to or for Tenant
or such other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
24
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proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
(b) Notwithstanding anything to the contrary provided herein, if a
controversy, claim or dispute arises out of or relates to this Lease, or the
breach thereof, and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration as set forth below.
If the parties hereto cannot solve a dispute by mediation within 60 days of
the commencement thereof, any controversy or claim arising out of or relating to
this Lease, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The parties hereto further agree that the
above controversy be submitted to three arbitrators. The parties hereto further
agree to faithfully observe this agreement and the rules, and that the parties
will abide by and perform any award rendered by the arbitrators, and that a
judgment of the court having jurisdiction may be entered on the award.
Section 12.2 Landlord's Consent. Tenant shall pay Landlord's reasonable
------------------
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article 9 (Assignment and Subletting), or in connection with any
other act which Tenant proposes to do and which requires Landlord's consent
ARTICLE 13
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Non-Discrimination. Tenant promises, and it is a condition
------------------
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
25
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Section 13.2 Landlord's Liability; Certain Duties.
------------------------------------
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or the leasehold estate
under a ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord
to perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary,
the liability of Landlord for the performance of its duties and obligations
under this Lease is limited to Landlord's interest in the Property, and neither
the Landlord nor its partners, shareholders, officers or other principals shall
have any personal liability under this Lease.
Section 13.3 Severability. A determination by a court of competent
------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.4 Interpretation. The captions of the Articles or Sections of
--------------
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
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Section 13.5 Incorporation of Prior Agreements; Modifications. This Lease
------------------------------------------------
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.6 Notices. All notices required or permitted under this Lease
-------
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.3 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.2 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.7 Waivers. All waivers must be in writing and signed by the
-------
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.8 No Recordation. Tenant shall not record this Lease without
--------------
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.9 Binding Effect; Choice of Law. This Lease binds any party
-----------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 Corporate Authority; Partnership Authority. If Tenant is a
------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the
27
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partnership, that he or it has full authority to sign for the partnership and
that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11 Joint and Several Liability. All parties signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12 Force Majeure. If Landlord cannot perform any of its
-------------
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control Include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13 Execution of Lease. This Lease may be executed in
------------------
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14 Survival. All representations and warranties of Landlord
--------
and Tenant shall survive the termination of this Lease.
Section 13.15 Tenant's Termination Rights. Provided that Tenant is not in
---------------------------
default of this Lease, Tenant shall have the right to terminate this Lease at
any time during the term for any reason upon six (6) months' prior written
notice to Landlord. Upon such termination, each party shall be released from
all its obligations pursuant to this Lease except for those obligations which
specifically survive the termination of this Lease.
Section 13.16 Right of First Refusal.
----------------------
(a) Subject and subordinate to the rights of Related Parties (hereinafter
defined) as set forth in paragraph (b) hereinbelow, Tenant, and its successors
-------------
and assigns, provided that Tenant is not in default of this Lease, shall have a
right of first refusal exercisable from the Commencement Date through the Term
including all extension terms and including the date upon which this Lease
expires with respect to the purchase of the Property. Such right of refusal
shall be exercisable upon and shall be subject to the following conditions:
28
<PAGE>
(1) Upon receipt by Landlord of a bona fide offer acceptable to
Landlord to purchase the Property or to purchase any vacant or undeveloped
contiguous property (herein called the "Bona Fide Offer"), Landlord shall
---------------
notify Tenant of the existence and terms and conditions of the Bona Fide
Offer.
(2) Upon Tenant's receipt of notice of the Bona Fide Offer from
Landlord, Tenant shall have thirty (30) business days to notify Landlord in
writing that Tenant irrevocably elects to (a) purchase the Property or
contiguous property upon all of the terms and conditions stated in the Bona
Fide Offer, including the purchase price stated in the Bona Fide Offer and
(b) simultaneously with Tenant's election in the preceding clause (a), at
Tenant's option, purchase any vacant or undeveloped contiguous property
owned by Landlord that is not subject to Bona Fide Offer at the fair market
value for such property as agreed by the parties. If the parties are
unable to agree upon the fair market value of the Property within ten (10)
days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined
-----------------------
by an appraiser selected by the parties who is a member of the American
Institute of Real Estate Appraisers with at least five years of experience
appraising property comparable to and in the geographic area of the
Property. Such appraiser's determination of the fair market value of the
Property shall be binding on the parties. If the parties are unable to
agree upon the selection of an appraiser, each party shall select a
qualified appraiser and the two selected appraisers shall select a
qualified third appraiser who will determine the fair market value of the
Property. If Tenant does not exercise its right of refusal under this
paragraph (a), either by notifying Landlord in writing of its election not
-------------
to exercise such right or by failing to notify Landlord in writing of
Tenant's election within the thirty (30) business day period following its
receipt of notice of the Bona Fide Offer to purchase the Property, then
Tenant conclusively shall be deemed to have elected not to purchase the
Property and Landlord shall be entitled to sell the Property to any third
party at any time within 6 months of the Bona Fide Offer upon such terms of
the Bona Fide Offer, without any further notice to Tenant. If Tenant
elects to purchase the Property within said thirty (30) business day
period, the Tenant promptly shall enter into a purchase agreement with
Landlord to buy the Property on the terms and conditions set forth in such
Bona Fide Offer with appropriate adjustments as set forth in this paragraph
---------
(a). Notwithstanding anything to the contrary set forth herein, the
---
Tenants rights under this Section shall not apply to any transfer, sale, or
assignment from the Landlord to Benjamin Doskocil, Mary Frances Doskocil,
any child, family member or relative of either Benjamin or Mary Frances
Doskocil, any entity owned or controlled by any of the foregoing or any
charitable organization, any trust created for the benefit of any of the
foregoing (the "Related Parties").
---------------
29
<PAGE>
(b) Notwithstanding anything to the contrary provided herein, Landlord may
at any time transfer, sell or assign the Property in any manner to a Related
Party without the consent of Tenant, and paragraph (a) hereinabove hereof shall
-------------
be subject and subordinate to the rights of Related Parties with respect to the
Property provided that upon any transfer to a Related Party, the Related Party
shall be bound by the terms of paragraph (a).
Section 13.17 Purchase Option.
---------------
(a) Landlord hereby grants to Tenant the option to elect to purchase,
during the sixty-first (61st) through the sixty-fourth (64th) month of the Term
and during the one hundred and twentieth (120th) month of the Term and to close
the purchase within 60 days of the election, all of Landlord's right, title and
interest in the Property, including without limitation, the buildings, parking
lot, fixtures and improvements constructed on the land, all of Landlord's
equipment, machinery, furniture, inventory and other personal property located
upon and used in connection with the operation of the Property. At the same
time as the Tenant's delivery of the Option Exercise Notice (hereinafter
defined) to Landlord, Tenant may elect to purchase any or all vacant or
undeveloped land that is contiguous to the Property upon the same terms and
conditions set forth herein.
(b) The total base purchase price for the Property (the "Base Purchase
-------------
Price") shall be ninety-five percent (95%) of the fair market value of the
- -----
Property as such fair market value is agreed upon by the parties. If the
parties are unable to agree upon the fair market value of the Property within
ten (10) days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined by an
----------------------
appraiser selected by the parties who is a member of the American Institute of
Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the selection
of an appraiser, each party shall select a qualified appraiser and the two
selected appraisers shall select a qualified third appraiser who will determine
the fair market value of the Property. The Purchase Price shall be paid in cash
at the Closing.
(c) At the Closing (hereinafter defined), Landlord shall convey the
Property to Tenant by special warranty deed (the "Deed") in form and substance
----
reasonably acceptable to Tenant and Landlord.
(d) The closing of the transaction pursuant to the Option Exercise Notice
(the "Closing") shall be at the main office of Old Republic Title, 1501 Summit,
-------
Fort Worth,
30
<PAGE>
Texas (the "Title Company"), shall be held at 10:00 o'clock a.m., Arlington
-------------
time, on the closing date.
(e) At the Closing, Landlord shall cause the following items to be
furnished to Tenant:
(1) The Deed in the form required hereinabove, duly executed and
acknowledged by Landlord.
(2) A fully paid Owner's Policy of Title Insurance covering the
Property issued by the Title Company in accordance with the terms of this
Agreement insuring Tenant's title in the amount of the Base Purchase Price,
containing no liens against the Landlord's fee interest in the Property.
(3) A duly executed and acknowledged bill of sale conveying title to
all personalty and all intangible property to Tenant.
(4) A duly executed and acknowledged assignment in favor of Tenant of
all service, employment and management contracts as are then in force and
pertaining to the Property and designated by Tenant, and executed copies of
all such contracts.
(5) Evidence reasonably satisfactory to Tenant and the Title Company
of the Landlord's closing representatives' power and authority to
consummate the transactions.
(f) Subject to Landlord's full performance of the conditions precedent
listed in and required by paragraph (e) above, at the Closing, Tenant shall:
-------------
(1) Pay to Landlord the Base Purchase Price in cash.
(2) Furnish evidence reasonably satisfactory to Landlord and the Title
Company of the Tenant's and Tenant's closing representatives' power and
authority to consummate the transactions.
(g) On or before Closing, Landlord shall pay: (1) the cost of the Owner's
Policy of Title Insurance required hereby, excluding the additional charges for
modification or deletion of standard exceptions, as hereinabove provided; (b)
Landlord's own attorney's fees; and (c) one-half (1/2) of any escrow fee charged
by the Title Company. On or before Closing, Tenant shall pay: (1) Tenant's own
attorneys' fees; (b) one-half (1/2) of any
31
<PAGE>
escrow fee charged by the Title Company; (3) any charges for modification or
deletion of standard exceptions to the Owner's Policy of Title Insurance; (4)
the official fees for filing and recording Landlord's Deed; and (5) survey for
the Property..
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
32
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on July 1, 1997 /s/ BENJAMIN L. DOSKOCIL, SR.
---------------------------------
Benjamin L. Doskocil, Sr.
"TENANT"
Signed on July 1, 1997 DOSKOCIL MANUFACTURING COMPANY,
INC.
By: /s/ LARRY E. REMBOLD
------------------------------
Name: Larry E. Rembold
----------------------------
Its: President
-----------------------------
33
<PAGE>
BULIDING C
EXHIBIT A
The following tract or tracts of land in Tarrant County, Texas:
BEING ALL OF LOT 14-A, BLOCK 4, TO SOUTHLAND ACRES ADDITION.
AN ADDITION TO THE CITY OF ARLINGTON, TARRANT COUNTY, TEXAS
ACCORDING TO THE PLAT THEREOF RECORDED IN VOLUME 988-189.
PAGE 99 OF THE PLAT RECORDS OF TARRANT COUNTY, TEXAS.
<PAGE>
EXHIBIT 10.15
BUILDING D
INDUSTRIAL REAL ESTATE LEASE
ARTICLE 1
BASIC TERMS
-----------
This Article 1 contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article 1 explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.1 Date of Lease: July 1, 1997
-------------
Section 1.2 Landlord (include legal entity): Benjamin L. Doskocil
-------------------------------
Address of Landlord: 5306 Mansfield Road, Arlington, Texas 76017
- ------------------------------------------------------------------
Section 1.3 Tenant (include legal entity): Doskocil Manufacturing
-----------------------------
Company, Inc. Address of Tenant: 4209 Barnett, Arlington, Texas 76017
Section 1.4 Property: (include street address, approximate square footage
--------
and description) Building "D" located at 4401 Barnett, Arlington, Texas, as more
particularly described on Exhibit "A" attached hereto.
-----------
Section 1.5 Lease Term:
----------
(a) The initial term of this Lease shall be for ten (10) years ("Term") and
----
shall commence on the date hereof ("Commencement Date") and shall terminate at
-----------------
5:00 P.M. local time on the tenth (10th) anniversary of the Commencement Date
(the "Expiration Date").
---------------
(b) Provided that Tenant is not in default of this Lease, Tenant shall have
the option to renew this Lease for three (3) renewal terms of five (5) years
each commencing upon the expiration of the initial ten (10) year Term or any
previous renewal term, as the case may be, and ending at 5:00 P.M. local time
five (5) years thereafter, unless any such renewal term shall sooner terminate
in accordance with this Lease or otherwise; provided that (i) Tenant shall have
notified Landlord in writing of Tenant's exercise of such renewal option not
later than six (6) months prior to the expiration of the initial Term hereof or
the then existing renewal term, as the case may be, (ii) at the time such notice
is given, this Lease shall be in full force and effect and Tenant shall not be
in default hereunder for such period
<PAGE>
of time as would entitle Landlord to terminate this Lease pursuant to the terms
hereof. Such renewal terms shall be upon all of the agreements, terms,
covenants and conditions hereof except that Tenant shall pay Base Rent
(hereinafter defined) to Landlord in monthly installments in an amount equal to
the greater of (i) the fair market rate (the "Fair Market Rent") for the Real
----------------
Property (as defined herein) or (ii) one hundred and ten percent (110%) of the
existing Base Rent on an "AS IS, WHERE IS" basis as of the commencement of the
renewal term, as designated by Landlord within twenty (20) days after Landlord
receives Tenant's renewal notice, but in no event greater than the rate of Base
Rent in effect at the scheduled expiration of the Term or the applicable renewal
term plus twenty-five percent (25%) thereof. In addition, during the renewal
term, Tenant shall pay all other rent and other amounts due under the Lease. If
Tenant does not approve of Landlord's designation of the Base Rent for the
renewal term, then Tenant, as its sole remedy, may submit in writing to Landlord
within ten (10) days after the Landlord's delivery of its determination Fair
Market Rent to Tenant (the "Renewal Commencement Date"), its good faith
-------------------------
determination of Fair Market Rent with appropriate back-up documentation. If
the Tenant's determination of Fair Market Rent is within ten percent (10%) of
the Landlord's determination of the same, the "Fair Market Rent" shall equal the
----------------
median number between each of the Tenant's and Landlord's determination (but in
no event shall the Fair Market Rent be less than the Base Rent existing on the
last day of the Term plus ten percent (10%)). If the Tenant's determination of
Fair Market Rent is not within ten percent (10%) of the Landlord's determination
---
of the same, each of the Landlord and the Tenant shall choose an appraiser on
the eleventh (11th) day after the Renewal Commencement Date to determine the
"fair market rent" and the initial determinations shall be disregarded for all
purposes in determining the Fair Market Rent. Each appraiser shall diligently
attempt to agree on the Fair Market Rent on or before the twenty-fourth (24th)
day after the Renewal Commencement Date. If such appraisers agree on the Fair
Market Rent on or before the twenty-fourth day after the Renewal Commencement
Date, such agreed sum shall constitute the "Fair Market Rent". If the
appraisers have not agreed on the Fair Market Rent by such day, (a) the
appraisers shall select an independent third appraiser (the "Final Appraiser"),
---------------
and (b) each such original appraiser shall deliver in writing to the Final
Appraiser their last determination of the sum (each such sum being hereinafter
referred to as the "Appraisal Price") that such appraiser believes is the Fair
---------------
Market Rent. On or before the twenty-ninth (29th) day after the Renewal
Commencement Date, the Final Appraiser shall choose one Appraisal Price or the
other Appraisal Price as the "Fair Market Rent". Notwithstanding anything to
----------------
the contrary herein, in no event shall the Fair Market Rent be less than the
Base Rent in effect at the last day of the Term plus ten percent (10%) thereof.
Tenant shall have no further renewal rights after the expiration of such renewal
terms. Upon the commencement of each renewal term, (x) the renewal term shall
be added to and become part of the Term, (y) any reference in this Lease, to the
"Term", the "term of this Lease" or any similar expression shall be deemed to
----
2
<PAGE>
include the renewal terms, and (z) the Expiration Date shall become the
expiration of the applicable renewal term.
Section 1.6 Permitted Uses: (See Article Five) Tenant may use the
--------------
Property for any lawful manufacturing or distribution purpose, including to
operate its business as operated on the day immediately preceding this Lease.
Section 1.7 Tenant's Guarantor: (If none, so state) None.
------------------
Section 1.8 Brokers: (See Article 14) (if none, so state) None.
-------
Landlord's Broker: None.
Tenant's Broker: None.
Section 1.9 Commission Payable to Landlord's Broker: (See Article 14) $
---------------------------------------
None
- ----
Section 1.10 Initial Security Deposit: (See Section 3.3) None.
------------------------
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: N/A
------------------------------------------
Section 1.12 Rent and Other Charges Payable by Tenant: See below.
----------------------------------------
(a) Base Rent. Tenant shall pay to Landlord, without notice or
---------
demand, in lawful money of the United States of America, at the office of
Landlord or at such other place as Landlord may designate, the following:
annual fixed rent ("Base Rent") of $200,025.00 per annum for the period
---------
commencing with the Commencement Date, payable in equal monthly installments in
advance on the first day of each and every month during the Term, of $16,668.75
except that the first installment of Base Rent shall be apportioned and shall be
payable on the Commencement Date if the Commencement Date shall occur on a date
other than the first day of a month and except that the installment of Base Rent
due in the month that the Expiration Date occurs shall be apportioned if the
Expiration Date shall occur on a date other than the last of a month. Commencing
upon the first day of the 61st month of the Lease, the Base Rent shall be
increased by ten percent (10%) more than the Base Rent that existed on the
preceding day.
(b) Other Periodic Payments. (i) Real Property Taxes above the
-----------------------
"Base Real Property Taxes" (See Section 4.2); (ii) Utilities (See Section 4.3);
(iii) Impounds for Tenant's Share of Insurance Premiums and Property Taxes (See
Section 4.7); (iv) Maintenance, Repairs and Alterations (See Article 6).
3
<PAGE>
Section 1.13 Costs and Charges Payable by Landlord. (a) Base Real
-------------------------------------
Property Taxes (See Section 4.2); (b) Insurance Premiums (See Section 4.4(c);
(c) Maintenance and Repair (See Article 6). Tenant, at its expense, shall take
good care of the Property. Tenant shall promptly make all repairs, interior or
exterior, ordinary or extraordinary, as and when needed to preserve the Property
and any Improvements, therein in good working order and condition other than (a)
repairs necessitated by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors, invitees or licensees, and (b)
maintenance and repairs to the Building's roof, foundation and structural
integrity except as a result of the negligence or willful acts of the Tenant or
its agents, employees, contractors, invitees or licensees. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be at least equal in quality and class to the original work
or installation.
Section 1.14 Landlord's Share of Profit on Assignment or Sublease: (See
----------------------------------------------------
Section 9.5) Landlord's share shall equal seventy percent (70%) of the Profit
(the "Landlord's Share").
Section 1.15 Riders: The following Riders are attached to and made a part
------
of this Lease: (If none, so state) None
ARTICLE 2
LEASE TERM
----------
Section 2.1 Lease of Property For Lease Term. Landlord leases the
--------------------------------
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.5 above and shall
begin and end on the dates specified in Section 1.5 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.5 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.2 Intentionally Omitted.
Section 2.3 Intentionally Omitted.
Section 2.4 Holding Over. Tenant shall vacate the Property upon the
------------
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the
4
<PAGE>
Property. If Tenant does not vacate the Property upon the expiration or earlier
termination of the Lease and Landlord thereafter accepts rent from Tenant,
Tenant's occupancy of the Property shall be a "month-to-month" tenancy, subject
to all of the terms of this Lease applicable to a month-to-month tenancy, except
that the Base Rent then in effect shall be increased by twenty-five percent
(25%).
ARTICLE 3
BASE RENT
---------
Section 3.1 Time and Manner of Payment. Upon execution of this Lease,
--------------------------
Tenant shall pay Landlord the Base Rent in the amount stated In Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
ARTICLE 4
OTHER CHARGES PAYABLE BY TENANT
-------------------------------
Section 4.1 Additional Rent. All charges payable by Tenant other than
---------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.2 Property Taxes.
--------------
(a) Real Property Taxes. Landlord shall pay the "Base Real
-------------------
Property Taxes" on the Property during the Lease Term. Base Real Property Taxes
are real property taxes applicable to the Property as shown on the tax bill for
the most recent tax fiscal year ending prior to the Commencement Date. As of the
first day of each of the sixty-first (61st), seventy-third (73rd), eighty-fifth
(85th), ninety-seventy (97th) and one hundred and ninth (109th) months of the
Term of this Lease, Tenant shall pay the Landlord, the amount, if any, by which
the real property taxes for the current calendar year are in excess of the real
property taxes attributable for calendar year 1996. Subject to Paragraph 4.2(c),
Tenant shall make such payments within fifteen (15) days after receipt of
Landlord's statement showing the amount and computation of such increase.
Landlord shall reimburse Tenant for any real property taxes paid by Tenant
covering any period of time prior to or after the Lease Term.
5
<PAGE>
(b) Definition of "Real Property Tax". "Real property tax" means: (i)
---------------------------------
any fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalk's,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed,
----------------
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.2(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
-----------------------
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property belonging
to Tenant. Tenant shall try to have personal property taxed separately from
the Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from
Landlord for such personal property taxes.
Section 4.3 Utilities. Tenant shall pay, directly to the appropriate
---------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
6
<PAGE>
Section 4.4 Insurance Policies.
------------------
(a) Liability Insurance. During the Lease Term, Tenant shall
-------------------
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be Ten Million Dollars ($10,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.4(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.5, if the matters giving rise to the indemnity under
Section 5.5 result from the negligence of Tenant. The amount and coverage of
such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary Insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
------------------------------------
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain
insurance for Tenant's fixtures or equipment or building improvements installed
by Tenant on the Property.
(c) Payment of Premiums.
-------------------
(i) Landlord shall pay the "Premiums" for the insurance
policies maintained by Landlord under Paragraph 4.4(b). Notwithstanding
the previous sentence, Tenant shall be obligated to pay the Premiums for
the insurance to the extent such Premiums increase as a result of Tenant's
use of the Property. For example, if Tenant changes its use of the
Property to include an activity which is inherently more dangerous than its
use of the Property as of the Commencement
7
<PAGE>
Date, Tenant shall be obligated to pay for the increase in Premium
resulting from such activity on the Property.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the insurance carrier
to give Landlord not less than thirty (30) days' written notice prior to
any cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which
case Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant and Landlord shall maintain all insurance
required under this Lease with companies holding a "General Policy Rating"
of A-12 or better, as set forth In the most current issue of "Best Key
Rating Guide". Landlord and Tenant acknowledge the insurance markets are
rapidly changing and that insurance in the form and amounts described in
this Section 4.4 may not be available in the future. Tenant acknowledges
that the insurance described in this Section 4.4 is for the primary benefit
of Landlord, If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable
in the insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby waive any and all
rights of recovery against the other, or against the officers, employees,
agents or representatives of the other, for loss of or damage to its
property or the property of others under its control, if such loss or
damage is covered by any insurance policy in force (whether or not
described in this Lease) at the time of such loss or damage. Upon obtaining
the
8
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required policies of insurance, Landlord and Tenant shall give notice to
the insurance carriers of this mutual waiver of subrogation.
Section 4.5 Late Charges. Tenant's failure to pay rent promptly may cause
------------
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges end late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to ten percent (10%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
Section 4.6 Interest on Past Due Obligations. Any amount owed by Tenant
--------------------------------
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of Interest on such amounts shall not excuse or cure any
default by Tenant under this Lease, if the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.7 Impounds for Insurance Premiums and Real Property Taxes. If
-------------------------------------------------------
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant to Landlord under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-Interest bearing impound account, if unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the Impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under this
Lease.
ARTICLE 5
USE OF PROPERTY
---------------
Section 5.1 Permitted Uses. Tenant may use the Property only for the
--------------
Permitted Uses set forth in Section 1.6 above.
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Section 5.2 Manner of Use. Tenant shall not cause or permit the Property
-------------
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act provided that if any
capital improvements to the Property are required to be made for compliance and
the benefit or useful life of such capital improvements extends beyond the Lease
Term (as such term may be extended by exercise of any options), the useful life
of such capital improvements shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Section 5.3 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes" "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord provided that Landlord is
deemed to have consented to the use of the Hazardous Materials, and reasonable
replacements or substitution thereof, in use on the Property immediately prior
to the Commencement Date. Landlord shall be entitled to take into account such
other factors or facts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall Landlord be
required to consent to the installation or use of any storage tanks on the
Property.
Section 5.4 Signs and Auctions. Tenant shall not place any signs on the
------------------
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
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Section 5.5 Indemnity. Tenant shall indemnify Landlord against and hold
---------
Landlord harmless from any and all costs, claims or liability arising subsequent
to the Commencement Date from: (a) Tenant's use of the Property subsequent to
the Commencement Date; (b) the conduct of Tenant's business or anything else
done or permitted by Tenant to be done in or about the Property subsequent to
the Commencement Date, including any contamination of the Property or any other
property resulting from the presence or use of Hazardous Material caused or
permitted by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant subsequent to
the Commencement Date. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.6 Landlord's Access. Landlord or its agents may enter the
-----------------
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems reasonably necessary.
Landlord shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place customary "For Sale" or "For Lease" signs on the
Property.
Section 5.7 Quiet Possession. It Tenant pays the rent and complies with
----------------
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease,
ARTICLE 6
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
-----------------------------------------------------------
Section 6.1 Existing Conditions. Tenant accepts the Property in its
-------------------
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein or in the Recapitalization Agreement dated July 1, 1997 by and among
Enterprise Partners III, L.P., a Delaware
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limited partnership, Enterprise Partners III Associates, L.P., a Delaware
limited partnership, Enterprise Partners IV, L.P., a Delaware limited
partnership, Enterprise Partners IV Associates, L.P., a Delaware limited
partnership, Enterprise Management Partners Corporation, a California
corporation, EP Texas Company, LLC, a Texas limited liability company, Benjamin
L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock International, Inc., a Texas
corporation, Doskocil Manufacturing Company, Inc., a Texas corporation, and
Spectrum Polymers, Ltd., a Texas limited partnership, Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation as to the
condition of the Property or the suitability of the Property for Tenant's
intended use. Tenant represents and warrants that Tenant has made its own
inspection of and inquiry regarding the condition of the Property and is not
relying on any representations of Landlord or any Broker with respect thereto.
If Landlord or Landlord's Broker has provided a Property Information Sheet or
other Disclosure Statement regarding the Property, a copy is attached as an
exhibit to the Lease.
Section 6.2 Exemption of Landlord from Liability. Except for Landlord
------------------------------------
defaults under Section 6.3, Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or from other sources or places;
or (d) any act or omission of any other tenant of Landlord. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions of
this Section 6.2 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.3 Landlord's Obligations. Subject to the provisions of Article
----------------------
7 (Damage or Destruction) and Article 8 (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on the Property in good order,
condition and repair. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls. Landlord shall not
be obligated to make any repairs under this Section 6.3 until a reasonable time
after receipt of a written notice from Tenant of the need for such repairs.
Tenant waives the benefit of any present or future law which might give Tenant
the right to repair the Property at Landlord's expense or to terminate the Lease
because of the condition of the Property.
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Section 6.4 Tenant's Obligations.
--------------------
(a) Except as provided in Section 6.3, Article 7 (Damage or
Destruction) and Article 8 (Condemnation). Tenant shall keep all portions of the
Property (including nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. Landlord shall have the right, upon written notice to Tenant, to
undertake the responsibility for preventive maintenance of the heating and air
conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's
expense, repair any damage to the roof, foundation or structural portions of
walls caused by Tenant's acts or omissions. It is the intention of Landlord and
Tenant that, at all times during the Lease Term, Tenant shall maintain the
Property in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.4 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.4, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.5 Alterations, Additions, and Improvements.
----------------------------------------
(a) Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written consent, except
for non-structural alterations which do not exceed One Hundred Thousand Dollars
($100,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and
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<PAGE>
completion bonds in form and amount satisfactory to Landlord. Tenant shall
promptly remove any alterations, additions, or improvements constructed in
violation of this Paragraph 6.5(a) upon Landlord's written request. All
alterations, additions, and improvements shall be done in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide Landlord with "as built" Plans, copies of all construction contracts,
and proof of payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
Section 6.6 Condition Upon Termination. Upon the termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article 7 (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations except to the extent installed by Tenant.
14
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ARTICLE 7
DAMAGE OR DESTRUCTION
---------------------
Section 7.1 Partial Damage to Property.
--------------------------
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.4(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not
sufficient to pay the entire cost of repair, or if the cause of the damage is
not covered by the insurance policies which Landlord maintains under Paragraph
4.4(b), Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, and, if the damage was due to an
act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance policies and the difference between the actual cost of
repair and any insurance proceeds received by Landlord. If Landlord elects to
terminate the Lease, Tenant may elect to continue this Lease in full force and
effect, in which case Tenant shall repair any damage to the Property and any
building in which the Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any Insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
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Section 7.2 Substantial or Total Destruction. If the Property is
--------------------------------
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.1), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months alter
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.3 Temporary Reduction of Rent. If the Property is destroyed or
---------------------------
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article 7, any rent payable during the period of such damage,
repair and/or restoration shall be reduced according to the degree, if any, to
which Tenant's use of the Property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.4 Waiver. Tenant waives the protection of any statute, code or
------
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.2 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8
CONDEMNATION
------------
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within
16
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ten (10) days after the condemning authority takes title or possession). If
neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the Base Rent
and Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or removable
personal property; and (c) third, to Landlord, the remainder of such award,
whether as compensation for reduction in the value of the leasehold, the taking
of the fee, or otherwise. If this Lease is not terminated, Landlord shall
repair any damage to the Property caused by the Condemnation, except that
Landlord shall not be obligated to repair any damage for which Tenant has been
reimbursed by the condemning authority. If the severance damages received by
Landlord are not sufficient to pay for such repair, Landlord shall have the
right to either terminate this Lease or make such repair at Landlord's expense.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
-------------------------
Section 9.1 Landlord's Consent Required. No portion of the Property or of
---------------------------
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by sale, assignment, sublease, transfer, operation of law, or act of
Tenant, without Landlord's prior written consent, except as provided in Section
9.2 below. Landlord has the right to grant or withhold its consent as provided
in Section 9.5 below. Any attempted transfer without consent shall be void and
shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than fifty percent (50%) of the
partnership interests shall require Landlord's consent, if Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation (except as set forth in 9.2) shall require Landlord's
consent. Notwithstanding the foregoing, Tenant may mortgage, assign or transfer
its interest in this Lease to any lender and such lender or an affiliate or
designee may subsequently acquire Tenant's interest in this Lease by foreclosure
or assignment in lieu thereof, without Landlord's consent.
Section 9.2 Tenant Affiliate. Tenant may assign this Lease or sublease
----------------
the Property, without Landlord's consent, (i) to any corporation which controls,
is controlled by or is under common control with Tenant, or to any corporation,
partnership, limited liability company or other legal entity resulting from a
reorganization or the merger of or consolidation with Tenant ("Tenant's
--------
Affiliate") or (ii) in the event of the public sale of stock
- ---------
17
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of Tenant or Tenant's Affiliate or for subsequent transfers of stock whether or
not such transfers result in a change in control, provided that any assignee of
the Lease shall assume in writing all of Tenant's obligations under this Lease,
or (iii) in connection with the acquisition of or a business combination with
another business principally engaged in supplying products to the pet industry
with annual revenues in excess of $25,000,000, provided that any assignee of the
Lease shall assume in writing all of Tenant's obligations under this Lease.
Section 9.3 No Release of Tenant. No transfer permitted by this Article
--------------------
9, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article 9. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee defaults under
this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.
Section 9.4 Offer to Terminate. If Tenant desires to assign the Lease or
------------------
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.5 with respect to any proposed transfer shall
continue to apply.
Section 9.5 Landlord's Consent.
------------------
(a) Tenant's request for consent to any transfer described in
Sections 9.1 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g.,the term of and the
rent and security deposit payable under any proposed assignment or sublease),
and any other information Landlord deems relevant. Landlord shall have the right
to withhold consent, if reasonable, or to grant consent, based on the following
factors: (i) the business of the proposed assignee or subtenant and the proposed
use of the Property; (ii) the net worth and financial reputation of the proposed
assignee or subtenant; (iii) Tenant's compliance with all of its obligations
under the Lease; and (iv) such other factors as Landlord may reasonably deem
relevant. If Landlord objects to a proposed assignment solely because of the net
worth and/or financial reputation of the proposed assignee, Tenant
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may nonetheless sublease (but not assign), all or a portion of the Property to
the proposed transferee, but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the
Lease the Landlord's Share (stated in Section 1.14) of the Profit (defined
below) on such transaction as and when received by Tenant, unless Landlord
gives written notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
signed, and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt of Landlord's Share shall not be a consent to any
further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.5(b) shall be a material default of the Lease.
Section 9.6 No Merger. No merger shall result from Tenant's sublease of
---------
the Property under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
19
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ARTICLE 10
DEFAULTS; REMEDIES
------------------
Section 10.1 Covenants and Conditions. Tenant's performance of each of
------------------------
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.2 Defaults. Tenant shall be in material default under this
--------
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of
the Property results in the cancellation of any insurance described in Section
4.4;
(b) If Tenant fails to pay rent or any other charge within three
(3) days after delivery of notice that such amounts are past due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against Tenant
and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is
appointed to take possession of substantially all of Tenant's assets located at
the Property or of Tenant's interest in this Lease and possession is not
restored to Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Property or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant transfers
Tenant's interest hereunder, then Landlord shall receive, as Additional Rent,
the excess, if any, of the rent (or any other consideration) paid in connection
with such assignment or sublease over the rent payable by Tenant under this
Lease.
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(e) If any guarantor of the Lease revokes or otherwise
terminates, or purports to revoke or otherwise terminate, any guaranty of all or
any portion of Tenant's obligations under the Lease. Unless otherwise expressly
provided, no guaranty of the Lease is revocable.
Section 10.3 Remedies. On the occurrence of any material default by
--------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (10%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.3(a), or (ii) proceeding under Paragraph
10.3(b);
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(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has abandoned the Property.
In such event, Landlord shall be entitled to enforce all of Landlord's rights
and remedies under this Lease, including the right to recover the rent as it
becomes due.
(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which the Property
is located.
Section 10.4 Intentionally Omitted.
---------------------
Section 10.5 Automatic Termination. Notwithstanding any other term or
---------------------
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.3 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to Landlord's
right to possession of the Property. All such damages suffered (apart from Base
Rent and other rent payable hereunder) shall constitute pecuniary damages which
must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.6 Cumulative Remedies. Landlord's exercise of any right or
-------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11
PROTECTION OF LENDERS
---------------------
Section 11.1 Subordination. Landlord shall have the right to subordinate
-------------
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall
execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property
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during the Lease Term shall not be disturbed if Tenant pays the rent and
performs all of Tenant's obligations under this Lease and is not otherwise in
default. If any ground lessor beneficiary or mortgagee elects to have this
Lease prior to the lien of its ground lease, dead of trust or mortgage and gives
written notice thereof to Tenant, this Lease shall be deemed prior to such
ground lease, deed of trust or mortgage whether this Lease is dated prior or
subsequent to the date of said ground lease, deed of trust or mortgage or the
date of recording thereof.
Section 11.2 Attornment. If Landlord's interest in the Property is
----------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.3 Signing of Documents. Tenant shall sign and deliver any
--------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant falls to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.4 Estoppel Certificates.
---------------------
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not to Tenant's knowledge in default under this Lease (or, if
Landlord is claimed to be in default, stating why); and (v) such other
representations or information with respect to Tenant or the Lease as Landlord
may reasonably request or which any prospective purchaser or encumbrancer of the
Property may require. Tenant shall deliver such statement to Landlord within ten
(10) days after Landlord's request. Landlord may give any such statement by
Tenant to any prospective purchaser or encumbrancer of the Property. Such
purchaser or encumbrancer may rely conclusively upon such statement as true and
correct.
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(b) If Tenant does not deliver such statement to Landlord within
such ten (10)-day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been cancelled
or terminated except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or other charges have been paid in advance: and (iv)
that Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.5 Tenant's Financial Condition. Within ten (10) days after
----------------------------
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE 12
LEGAL COSTS
-----------
Section 12.1 Legal Proceedings. (a) If Tenant or Landlord shall be in
-----------------
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach of
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the party in whose favor a judgment is
entered, shall receive a reasonable sum as attorneys' fees and casts. The losing
party in such action shall pay such attorneys' fees and costs. Tenant shall
also indemnify Landlord against and hold Landlord harmless from all costs,
expenses, demands and liability Landlord may incur if Landlord becomes or is
made a party to any claim or action (a) instituted by Tenant against any third
party, or by any third party against Tenant, or by or against any person holding
any interest under or using the Property by license of or agreement with Tenant;
(b) for foreclosure of any lien for labor or material furnished to or for Tenant
or such other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
24
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proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
(b) Notwithstanding anything to the contrary provided herein, if a
controversy, claim or dispute arises out of or relates to this Lease, or the
breach thereof, and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration as set forth below.
If the parties hereto cannot solve a dispute by mediation within 60 days of
the commencement thereof, any controversy or claim arising out of or relating to
this Lease, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The parties hereto further agree that the
above controversy be submitted to three arbitrators. The parties hereto further
agree to faithfully observe this agreement and the rules, and that the parties
will abide by and perform any award rendered by the arbitrators, and that a
judgment of the court having jurisdiction may be entered on the award.
Section 12.2 Landlord's Consent. Tenant shall pay Landlord's reasonable
------------------
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article 9 (Assignment and Subletting), or in connection with any
other act which Tenant proposes to do and which requires Landlord's consent
ARTICLE 13
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Non-Discrimination. Tenant promises, and it is a condition
------------------
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
25
<PAGE>
Section 13.2 Landlord's Liability; Certain Duties.
------------------------------------
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or the leasehold estate
under a ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord
to perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the
contrary, the liability of Landlord for the performance of its duties and
obligations under this Lease is limited to Landlord's interest in the Property,
and neither the Landlord nor its partners, shareholders, officers or other
principals shall have any personal liability under this Lease.
Section 13.3 Severability. A determination by a court of competent
------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.4 Interpretation. The captions of the Articles or Sections of
--------------
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
26
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Section 13.5 Incorporation of Prior Agreements; Modifications. This Lease
------------------------------------------------
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.6 Notices. All notices required or permitted under this Lease
-------
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.3 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.2 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.7 Waivers. All waivers must be in writing and signed by the
-------
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.8 No Recordation. Tenant shall not record this Lease without
--------------
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.9 Binding Effect; Choice of Law. This Lease binds any party
-----------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 Corporate Authority; Partnership Authority. If Tenant is a
------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the
27
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partnership, that he or it has full authority to sign for the partnership and
that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11 Joint and Several Liability. All parties signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12 Force Majeure. If Landlord cannot perform any of its
-------------
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control Include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13 Execution of Lease. This Lease may be executed in
------------------
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14 Survival. All representations and warranties of Landlord
--------
and Tenant shall survive the termination of this Lease.
Section 13.15 Right of First Refusal.
----------------------
(a) Subject and subordinate to the rights of Related Parties (hereinafter
defined) as set forth in paragraph (b) hereinbelow, Tenant, and its successors
-------------
and assigns, provided that Tenant is not in default of this Lease, shall have a
right of first refusal exercisable from the Commencement Date through the Term
including all extension terms and including the date upon which this Lease
expires with respect to the purchase of the Property. Such right of refusal
shall be exercisable upon and shall be subject to the following conditions:
(1) Upon receipt by Landlord of a bona fide offer acceptable to
Landlord to purchase the Property or to purchase any vacant or undeveloped
contiguous property (herein called the "Bona Fide Offer"), Landlord shall
---------------
notify Tenant of the existence and terms and conditions of the Bona Fide
Offer.
28
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(2) Upon Tenant's receipt of notice of the Bona Fide Offer from
Landlord, Tenant shall have thirty (30) business days to notify Landlord in
writing that Tenant irrevocably elects to (a) purchase the Property or
contiguous property upon all of the terms and conditions stated in the Bona
Fide Offer, including the purchase price stated in the Bona Fide Offer and
(b) simultaneously with Tenant's election in the preceding clause (a), at
Tenant's option, purchase any vacant or undeveloped contiguous property
owned by Landlord that is not subject to Bona Fide Offer at the fair market
value for such property as agreed by the parties. If the parties are
unable to agree upon the fair market value of the Property within ten (10)
days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined
----------------------
by an appraiser selected by the parties who is a member of the American
Institute of Real Estate Appraisers with at least five years of experience
appraising property comparable to and in the geographic area of the
Property. Such appraiser's determination of the fair market value of the
Property shall be binding on the parties. If the parties are unable to
agree upon the selection of an appraiser, each party shall select a
qualified appraiser and the two selected appraisers shall select a
qualified third appraiser who will determine the fair market value of the
Property. If Tenant does not exercise its right of refusal under this
paragraph (a), either by notifying Landlord in writing of its election not
-------------
to exercise such right or by failing to notify Landlord in writing of
Tenant's election within the thirty (30) business day period following its
receipt of notice of the Bona Fide Offer to purchase the Property, then
Tenant conclusively shall be deemed to have elected not to purchase the
Property and Landlord shall be entitled to sell the Property to any third
party at any time within 6 months of the Bona Fide Offer upon such terms of
the Bona Fide Offer, without any further notice to Tenant. If Tenant
elects to purchase the Property within said thirty (30) business day
period, the Tenant promptly shall enter into a purchase agreement with
Landlord to buy the Property on the terms and conditions set forth in such
Bona Fide Offer with appropriate adjustments as set forth in this paragraph
---------
(a). Notwithstanding anything to the contrary set forth herein, the
---
Tenants rights under this Section shall not apply to any transfer, sale, or
assignment from the Landlord to Benjamin Doskocil, Mary Frances Doskocil,
any child, family member or relative of either Benjamin or Mary Frances
Doskocil, any entity owned or controlled by any of the foregoing or any
charitable organization, any trust created for the benefit of any of the
foregoing (the "Related Parties").
---------------
(b) Notwithstanding anything to the contrary provided herein, Landlord may
at any time transfer, sell or assign the Property in any manner to a Related
Party without the consent of Tenant, and paragraph (a) hereinabove hereof shall
-------------
be subject and subordinate to
29
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the rights of Related Parties with respect to the Property provided that upon
any transfer to a Related Party, the Related Party shall be bound by the terms
of paragraph (a).
Section 13.16 Purchase Option.
---------------
(a) Landlord hereby grants to Tenant the option to elect to purchase,
during the sixty-first (61st) through the sixty-fourth (64th) month of the Term
and during the one hundred and twentieth (120th) month of the Term and to close
the purchase within 60 days of the election, all of Landlord's right, title and
interest in the Property, including without limitation, the buildings, parking
lot, fixtures and improvements constructed on the land, all of Landlord's
equipment, machinery, furniture, inventory and other personal property located
upon and used in connection with the operation of the Property. At the same
time as the Tenant's delivery of the Option Exercise Notice (hereinafter
defined) to Landlord, Tenant may elect to purchase any or all vacant or
undeveloped land that is contiguous to the Property upon the same terms and
conditions set forth herein.
(b) The total base purchase price for the Property (the "Base Purchase
-------------
Price") shall be ninety-five percent (95%) of the fair market value of the
- -----
Property as such fair market value is agreed upon by the parties. If the
parties are unable to agree upon the fair market value of the Property within
ten (10) days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined by an
----------------------
appraiser selected by the parties who is a member of the American Institute of
Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the selection
of an appraiser, each party shall select a qualified appraiser and the two
selected appraisers shall select a qualified third appraiser who will determine
the fair market value of the Property. The Purchase Price shall be paid in cash
at the Closing.
(c) At the Closing (hereinafter defined), Landlord shall convey the
Property to Tenant by special warranty deed (the "Deed") in form and substance
----
reasonably acceptable to Tenant and Landlord.
(d) The closing of the transaction pursuant to the Option Exercise Notice
(the "Closing") shall be at the main office of Old Republic Title, 1501 Summit,
-------
Fort Worth, Texas (the "Title Company"), shall be held at 10:00 o'clock a.m.,
-------------
Arlington time, on the closing date.
30
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(e) At the Closing, Landlord shall cause the following items to be
furnished to Tenant:
(1) The Deed in the form required hereinabove, duly executed and
acknowledged by Landlord.
(2) A fully paid Owner's Policy of Title Insurance covering the
Property issued by the Title Company in accordance with the terms of this
Agreement insuring Tenant's title in the amount of the Base Purchase Price,
containing no liens against the Landlord's fee interest in the Property.
(3) A duly executed and acknowledged bill of sale conveying title to
all personalty and all intangible property to Tenant.
(4) A duly executed and acknowledged assignment in favor of Tenant of
all service, employment and management contracts as are then in force and
pertaining to the Property and designated by Tenant, and executed copies of
all such contracts.
(5) Evidence reasonably satisfactory to Tenant and the Title Company
of the Landlord's closing representatives' power and authority to
consummate the transactions.
(f) Subject to Landlord's full performance of the conditions precedent
listed in and required by paragraph (e) above, at the Closing, Tenant shall:
-------------
(1) Pay to Landlord the Base Purchase Price in cash.
(2) Furnish evidence reasonably satisfactory to Landlord and the
Title Company of the Tenant's and Tenant's closing representatives' power
and authority to consummate the transactions.
(g) On or before Closing, Landlord shall pay: (1) the cost of the Owner's
Policy of Title Insurance required hereby, excluding the additional charges for
modification or deletion of standard exceptions, as hereinabove provided; (b)
Landlord's own attorney's fees; and (c) one-half (1/2) of any escrow fee charged
by the Title Company. On or before Closing, Tenant shall pay: (1) Tenant's own
attorneys' fees; (b) one-half (1/2) of any escrow fee charged by the Title
Company; (3) any charges for modification or deletion of standard exceptions to
the Owner's Policy of Title Insurance; (4) the official fees for filing and
recording Landlord's Deed; and (5) survey for the Property..
31
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ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
32
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Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
/s/ BENJAMIN L. DOSKOCIL, SR.
Signed on July 1, 1997 -----------------------------------------
Benjamin L. Doskocil, Sr.
"TENANT"
Signed on July 1, 1997 DOSKOCIL MANUFACTURING COMPANY, INC.
By: /s/ LARRY E. REMBOLD
-------------------------------------
Name: Larry E. Rembold
------------------------------------
Its: President
------------------------------------
33
<PAGE>
BUILDING D
EXHIBIT A
The following tracts of land in Tarrant Country, Texas:
BEING ALL OF LOT 9-A-1, BLOCK 3. TO SOUTHLAND ACRES
ADDITION, AN ADDITION TO THE CITY OF ARLINGTON, TARRANT
COUNTRY. TEXAS ACCORDING TO THE PLAT THEREOF RECORDED IN
VOLUME 388-200. PAGE 40 OF THE PLAT RECORDS OF TARRANT
COUNTY, TEXAS.
<PAGE>
EXHIBIT 10.16
BUILDING E
INDUSTRIAL REAL ESTATE LEASE
ARTICLE 1
BASIC TERMS
-----------
This Article 1 contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article 1 explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.1 Date of Lease: July 1, 1997
-------------
Section 1.2 Landlord (include legal entity): Benjamin L. Doskocil and Mary
-------------------------------
Frances Doskocil
Address of Landlord: 5306 Mansfield Road, Arlington, Texas 76017
Section 1.3 Tenant (include legal entity): Doskocil Manufacturing
-----------------------------
Company, Inc.
Address of Tenant: 4209 Barnett, Arlington, Texas 76017
Section 1.4 Property: (include street address, approximate square footage
--------
and description) Building "E" located at 4208 Larry Lane, Arlington, Texas, as
more particularly described on Exhibit "A" attached hereto.
-----------
Section 1.5 Lease Term:
----------
(a) The initial term of this Lease shall be for ten (10) years ("Term") and
----
shall commence on the date hereof ("Commencement Date") and shall terminate at
-----------------
5:00 P.M. local time on the tenth (10th) anniversary of the Commencement Date
(the "Expiration Date").
---------------
(b) Provided that Tenant is not in default of this Lease, Tenant shall have
the option to renew this Lease for three (3) renewal terms of five (5) years
each commencing upon the expiration of the initial ten (10) year Term or any
previous renewal term, as the case may be, and ending at 5:00 P.M. local time
five (5) years thereafter, unless any such renewal term shall sooner terminate
in accordance with this Lease or otherwise; provided that (i) Tenant shall have
notified Landlord in writing of Tenant's exercise of such renewal option not
later than six (6) months prior to the expiration of the initial Term hereof or
the then existing renewal term, as the case may be, (ii) at the time such notice
is given, this Lease
<PAGE>
shall be in full force and effect and Tenant shall not be in default hereunder
for such period of time as would entitle Landlord to terminate this Lease
pursuant to the terms hereof. Such renewal terms shall be upon all of the
agreements, terms, covenants and conditions hereof except that Tenant shall pay
Base Rent (hereinafter defined) to Landlord in monthly installments in an amount
equal to the greater of (i) the fair market rate (the "Fair Market Rent") for
----------------
the Real Property (as defined herein) or (ii) one hundred and ten percent (110%)
of the existing Base Rent on an "AS IS, WHERE IS" basis as of the commencement
of the renewal term, as designated by Landlord within twenty (20) days after
Landlord receives Tenant's renewal notice, but in no event greater than the rate
of Base Rent in effect at the scheduled expiration of the Term or the applicable
renewal term plus twenty-five percent (25%) thereof. In addition, during the
renewal term, Tenant shall pay all other rent and other amounts due under the
Lease. If Tenant does not approve of Landlord's designation of the Base Rent
for the renewal term, then Tenant, as its sole remedy, may submit in writing to
Landlord within ten (10) days after the Landlord's delivery of its determination
Fair Market Rent to Tenant (the "Renewal Commencement Date"), its good faith
-------------------------
determination of Fair Market Rent with appropriate back-up documentation. If
the Tenant's determination of Fair Market Rent is within ten percent (10%) of
the Landlord's determination of the same, the "Fair Market Rent" shall equal the
----------------
median number between each of the Tenant's and Landlord's determination (but in
no event shall the Fair Market Rent be less than the Base Rent existing on the
last day of the Term plus ten percent (10%)). If the Tenant's determination of
Fair Market Rent is not within ten percent (10%) of the Landlord's determination
---
of the same, each of the Landlord and the Tenant shall choose an appraiser on
the eleventh (11th) day after the Renewal Commencement Date to determine the
"fair market rent" and the initial determinations shall be disregarded for all
purposes in determining the Fair Market Rent. Each appraiser shall diligently
attempt to agree on the Fair Market Rent on or before the twenty-fourth (24th)
day after the Renewal Commencement Date. If such appraisers agree on the Fair
Market Rent on or before the twenty-fourth day after the Renewal Commencement
Date, such agreed sum shall constitute the "Fair Market Rent". If the
appraisers have not agreed on the Fair Market Rent by such day, (a) the
appraisers shall select an independent third appraiser (the "Final Appraiser"),
---------------
and (b) each such original appraiser shall deliver in writing to the Final
Appraiser their last determination of the sum (each such sum being hereinafter
referred to as the "Appraisal Price") that such appraiser believes is the Fair
---------------
Market Rent. On or before the twenty-ninth (29th) day after the Renewal
Commencement Date, the Final Appraiser shall choose one Appraisal Price or the
other Appraisal Price as the "Fair Market Rent". Notwithstanding anything to
----------------
the contrary herein, in no event shall the Fair Market Rent be less than the
Base Rent in effect at the last day of the Term plus ten percent (10%) thereof.
Tenant shall have no further renewal rights after the expiration of such renewal
terms. Upon the commencement of each renewal term, (x) the renewal term shall
be added to and become part of the Term, (y) any reference in this
2
<PAGE>
Lease, to the "Term", the "term of this Lease" or any similar expression shall
----
be deemed to include the renewal terms, and (z) the Expiration Date shall become
the expiration of the applicable renewal term.
Section 1.6 Permitted Uses: (See Article Five) Tenant may use the
--------------
Property for any lawful manufacturing or distribution purpose, including to
operate its business as operated on the day immediately preceding this Lease.
Section 1.7 Tenant's Guarantor: (If none, so state) None.
------------------
Section 1.8 Brokers: (See Article 14) (if none, so state) None.
-------
Landlord's Broker: None.
Tenant's Broker: None.
Section 1.9 Commission Payable to Landlord's Broker: (See Article 14) $
---------------------------------------
None
- ----
Section 1.10 Initial Security Deposit: (See Section 3.3) None.
------------------------
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: N/A
------------------------------------------
Section 1.12 Rent and Other Charges Payable by Tenant: See below.
----------------------------------------
(a) Base Rent. Tenant shall pay to Landlord, without notice or
---------
demand, in lawful money of the United States of America, at the office of
Landlord or at such other place as Landlord may designate, the following:
annual fixed rent ("Base Rent") of $785,557.44 per annum for the period
---------
commencing with the Commencement Date, payable in equal monthly installments in
advance on the first day of each and every month during the Term, of $65,463.12
except that the first installment of Base Rent shall be apportioned and shall be
payable on the Commencement Date if the Commencement Date shall occur on a date
other than the first day of a month and except that the installment of Base Rent
due in the month that the Expiration Date occurs shall be apportioned if the
Expiration Date shall occur on a date other than the last of a month.
Commencing upon the first day of the 61st month of the Lease, the Base Rent
shall be increased by ten percent (10%) more than the Base Rent that existed on
the preceding day.
(b) Other Periodic Payments. (i) Real Property Taxes above the
-----------------------
"Base Real Property Taxes" (See Section 4.2); (ii) Utilities (See Section 4.3);
(iii) Impounds for
3
<PAGE>
Tenant's Share of Insurance Premiums and Property Taxes (See Section 4.7); (iv)
Maintenance, Repairs and Alterations (See Article 6).
Section 1.13 Costs and Charges Payable by Landlord. (a) Base Real
-------------------------------------
Property Taxes (See Section 4.2); (b) Insurance Premiums (See Section 4.4(c);
(c) Maintenance and Repair (See Article 6). Tenant, at its expense, shall take
good care of the Property. Tenant shall promptly make all repairs, interior or
exterior, ordinary or extraordinary, as and when needed to preserve the Property
and any Improvements, therein in good working order and condition other than (a)
repairs necessitated by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors, invitees or licensees, and (b)
maintenance and repairs to the Building's roof, foundation and structural
integrity except as a result of the negligence or willful acts of the Tenant or
its agents, employees, contractors, invitees or licensees. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be at least equal in quality and class to the original work
or installation.
Section 1.14 Landlord's Share of Profit on Assignment or Sublease: (See
----------------------------------------------------
Section 9.5) Landlord's share shall equal seventy percent (70%) of the Profit
(the "Landlord's Share").
Section 1.15 Riders: The following Riders are attached to and made a part
------
of this Lease: (If none, so state) None
ARTICLE 2
LEASE TERM
----------
Section 2.1 Lease of Property For Lease Term. Landlord leases the
--------------------------------
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.5 above and shall
begin and end on the dates specified in Section 1.5 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.5 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.2 Intentionally Omitted.
Section 2.3 Intentionally Omitted.
4
<PAGE>
Section 2.4 Holding Over. Tenant shall vacate the Property upon the
------------
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall be
a "month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by twenty-five percent (25%).
ARTICLE 3
BASE RENT
---------
Section 3.1 Time and Manner of Payment. Upon execution of this Lease,
--------------------------
Tenant shall pay Landlord the Base Rent in the amount stated In Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
ARTICLE 4
OTHER CHARGES PAYABLE BY TENANT
-------------------------------
Section 4.1 Additional Rent. All charges payable by Tenant other than
---------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.2 Property Taxes.
--------------
(a) Real Property Taxes. Landlord shall pay the "Base Real
-------------------
Property Taxes" on the Property during the Lease Term. Base Real Property Taxes
are real property taxes applicable to the Property as shown on the tax bill for
the most recent tax fiscal year ending prior to the Commencement Date. As of the
first day of each of the sixty-first (61st), seventy-third (73rd), eighty-fifth
(85th), ninety-seventy (97th) and one hundred and ninth (109th) months of the
Term of this Lease, Tenant shall pay the Landlord, the amount, if any, by which
the real property taxes for the current calendar year are in excess of the real
property taxes attributable for calendar year 1996. Subject to Paragraph 4.2(c),
Tenant shall
5
<PAGE>
make such payments within fifteen (15) days after receipt of Landlord's
statement showing the amount and computation of such increase. Landlord shall
reimburse Tenant for any real property taxes paid by Tenant covering any period
of time prior to or after the Lease Term.
(b) Definition of "Real Property Tax". "Real property tax"
---------------------------------
means: (i) any fee, license fee, license tax, business license fee, commercial
rental tax, levy, charge, assessment, penalty or tax imposed by any taxing
authority against the Property; (ii) any tax on the Landlord's right to receive,
or the receipt of, rent or income from the Property or against Landlord's
business of leasing the Property; (iii) any tax or charge for fire protection,
streets, sidewalk's, road maintenance, refuse or other services provided to the
Property by any governmental agency; (iv) any tax imposed upon this transaction
or based upon a re-assessment of the Property due to a change of ownership, as
defined by applicable law, or other transfer of all or part of Landlord's
interest in the Property; and (v) any charge or fee replacing any tax previously
included within the definition of real property tax. "Real property tax" does
not, however, include Landlord's federal or state income, franchise, inheritance
or estate taxes.
(c) Joint Assessment. If the Property is not separately
----------------
assessed, Landlord shall reasonably determine Tenant's share of the real
property tax payable by Tenant under Paragraph 4.2(a) from the assessor's
worksheets or other reasonably available information. Tenant shall pay such
share to Landlord within fifteen (15) days after receipt of Landlord's written
statement.
(d) Personal Property Taxes.
-----------------------
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property belonging
to Tenant. Tenant shall try to have personal property taxed separately from
the Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from
Landlord for such personal property taxes.
Section 4.3 Utilities. Tenant shall pay, directly to the appropriate
---------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of
6
<PAGE>
Tenant's proportionate share of the cost of such utilities and services and
Tenant shall pay such share to Landlord within fifteen (15) days after receipt
of Landlord's written statement.
Section 4.4 Insurance Policies.
------------------
(a) Liability Insurance. During the Lease Term, Tenant shall
-------------------
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be Ten Million Dollars ($10,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.4(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.5, if the matters giving rise to the indemnity under
Section 5.5 result from the negligence of Tenant. The amount and coverage of
such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary Insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
------------------------------------
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain
insurance for Tenant's fixtures or equipment or building improvements installed
by Tenant on the Property.
(c) Payment of Premiums.
-------------------
(i) Landlord shall pay the "Premiums" for the insurance
policies maintained by Landlord under Paragraph 4.4(b). Notwithstanding
the previous sentence, Tenant shall be obligated to pay the Premiums for
the insurance to the
7
<PAGE>
extent such Premiums increase as a result of Tenant's use of the Property.
For example, if Tenant changes its use of the Property to include an
activity which is inherently more dangerous than its use of the Property as
of the Commencement Date, Tenant shall be obligated to pay for the increase
in Premium resulting from such activity on the Property.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain
under this Lease shall include a provision which requires the insurance
carrier to give Landlord not less than thirty (30) days' written notice
prior to any cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which
case Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant and Landlord shall maintain all insurance
required under this Lease with companies holding a "General Policy Rating"
of A-12 or better, as set forth In the most current issue of "Best Key
Rating Guide". Landlord and Tenant acknowledge the insurance markets are
rapidly changing and that insurance in the form and amounts described in
this Section 4.4 may not be available in the future. Tenant acknowledges
that the insurance described in this Section 4.4 is for the primary benefit
of Landlord, If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable
in the insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby waive any and all
rights of recovery against the other, or against the officers, employees,
agents or representatives of the other, for loss of or damage to its
property or the property of others under its control,
8
<PAGE>
if such loss or damage is covered by any insurance policy in force (whether
or not described in this Lease) at the time of such loss or damage. Upon
obtaining the required policies of insurance, Landlord and Tenant shall
give notice to the insurance carriers of this mutual waiver of subrogation.
Section 4.5 Late Charges. Tenant's failure to pay rent promptly may cause
------------
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges end late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to ten percent (10%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
Section 4.6 Interest on Past Due Obligations. Any amount owed by Tenant
--------------------------------
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of Interest on such amounts shall not excuse or cure any
default by Tenant under this Lease, if the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.7 Impounds for Insurance Premiums and Real Property Taxes. If
-------------------------------------------------------
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant to Landlord under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-Interest bearing impound account, if unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the Impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under this
Lease.
9
<PAGE>
ARTICLE 5
USE OF PROPERTY
---------------
Section 5.1 Permitted Uses. Tenant may use the Property only for the
--------------
Permitted Uses set forth in Section 1.6 above.
Section 5.2 Manner of Use. Tenant shall not cause or permit the Property
-------------
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act provided that if any
capital improvements to the Property are required to be made for compliance and
the benefit or useful life of such capital improvements extends beyond the Lease
Term (as such term may be extended by exercise of any options), the useful life
of such capital improvements shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Section 5.3 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes" "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord provided that Landlord is
deemed to have consented to the use of the Hazardous Materials, and reasonable
replacements or substitution thereof, in use on the Property immediately prior
to the Commencement Date. Landlord shall be entitled to take into account such
other factors or facts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall
10
<PAGE>
Landlord be required to consent to the installation or use of any storage tanks
on the Property.
Section 5.4 Signs and Auctions. Tenant shall not place any signs on the
------------------
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.5 Indemnity. Tenant shall indemnify Landlord against and hold
---------
Landlord harmless from any and all costs, claims or liability arising subsequent
to the Commencement Date from: (a) Tenant's use of the Property subsequent to
the Commencement Date; (b) the conduct of Tenant's business or anything else
done or permitted by Tenant to be done in or about the Property subsequent to
the Commencement Date, including any contamination of the Property or any other
property resulting from the presence or use of Hazardous Material caused or
permitted by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant subsequent to
the Commencement Date. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.6 Landlord's Access. Landlord or its agents may enter the
-----------------
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems reasonably necessary.
Landlord shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place customary "For Sale" or "For Lease" signs on the
Property.
Section 5.7 Quiet Possession. It Tenant pays the rent and complies with
----------------
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease,
11
<PAGE>
ARTICLE 6
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
-----------------------------------------------------------
Section 6.1 Existing Conditions. Tenant accepts the Property in its
-------------------
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein or in the Recapitalization Agreement dated July 1, 1997 by and among
Enterprise Partners III, L.P., a Delaware limited partnership, Enterprise
Partners III Associates, L.P., a Delaware limited partnership, Enterprise
Partners IV, L.P., a Delaware limited partnership, Enterprise Partners IV
Associates, L.P., a Delaware limited partnership, Enterprise Management Partners
Corporation, a California corporation, EP Texas Company, LLC, a Texas limited
liability company, Benjamin L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock
International, Inc., a Texas corporation, Doskocil Manufacturing Company, Inc.,
a Texas corporation, and Spectrum Polymers, Ltd., a Texas limited partnership,
Tenant acknowledges that neither Landlord nor any agent of Landlord has made any
representation as to the condition of the Property or the suitability of the
Property for Tenant's intended use. Tenant represents and warrants that Tenant
has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease.
Section 6.2 Exemption of Landlord from Liability. Except for Landlord
------------------------------------
defaults under Section 6.3, Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or from other sources or places;
or (d) any act or omission of any other tenant of Landlord. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions of
this Section 6.2 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.3 Landlord's Obligations. Subject to the provisions of Article
----------------------
7 (Damage or Destruction) and Article 8 (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on
12
<PAGE>
the Property in good order, condition and repair. However, Landlord shall not
be obligated to maintain or repair windows, doors, plate glass or the surfaces
of walls. Landlord shall not be obligated to make any repairs under this
Section 6.3 until a reasonable time after receipt of a written notice from
Tenant of the need for such repairs. Tenant waives the benefit of any present
or future law which might give Tenant the right to repair the Property at
Landlord's expense or to terminate the Lease because of the condition of the
Property.
Section 6.4 Tenant's Obligations.
--------------------
(a) Except as provided in Section 6.3, Article 7 (Damage or
Destruction) and Article 8 (Condemnation). Tenant shall keep all portions of
the Property (including nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. Landlord shall have the right, upon written notice to Tenant, to
undertake the responsibility for preventive maintenance of the heating and air
conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's
expense, repair any damage to the roof, foundation or structural portions of
walls caused by Tenant's acts or omissions. It is the intention of Landlord and
Tenant that, at all times during the Lease Term, Tenant shall maintain the
Property in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.4 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.4, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
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Section 6.5 Alterations, Additions, and Improvements.
----------------------------------------
(a) Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written consent, except
for non-structural alterations which do not exceed One Hundred Thousand Dollars
($100,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and completion bonds in form
and amount satisfactory to Landlord. Tenant shall promptly remove any
alterations, additions, or improvements constructed in violation of this
Paragraph 6.5(a) upon Landlord's written request. All alterations, additions,
and improvements shall be done in a good and workmanlike manner, in conformity
with all applicable laws and regulations, and by a contractor approved by
Landlord. Upon completion of any such work, Tenant shall provide Landlord with
"as built" Plans, copies of all construction contracts, and proof of payment for
all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
Section 6.6 Condition Upon Termination. Upon the termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article 7 (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment;
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fencing or security gates; or other similar building operating equipment and
decorations except to the extent installed by Tenant.
ARTICLE 7
DAMAGE OR DESTRUCTION
---------------------
Section 7.1 Partial Damage to Property.
--------------------------
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.4(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not
sufficient to pay the entire cost of repair, or if the cause of the damage is
not covered by the insurance policies which Landlord maintains under Paragraph
4.4(b), Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, and, if the damage was due to an
act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance policies and the difference between the actual cost of
repair and any insurance proceeds received by Landlord. If Landlord elects to
terminate the Lease, Tenant may elect to continue this Lease in full force and
effect, in which case Tenant shall repair any damage to the Property and any
building in which the Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either
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Landlord or Tenant may elect to terminate this Lease as of the date the damage
occurred, regardless of the sufficiency of any Insurance proceeds. The party
electing to terminate this Lease shall give written notification to the other
party of such election within thirty (30) days after Tenant's notice to Landlord
of the occurrence of the damage.
Section 7.2 Substantial or Total Destruction. If the Property is
--------------------------------
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.1), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months alter
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.3 Temporary Reduction of Rent. If the Property is destroyed or
---------------------------
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article 7, any rent payable during the period of such damage,
repair and/or restoration shall be reduced according to the degree, if any, to
which Tenant's use of the Property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.4 Waiver. Tenant waives the protection of any statute, code or
------
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.2 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8
CONDEMNATION
------------
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this
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Lease shall terminate as to the part taken or sold on the date the condemning
authority takes title or possession, whichever occurs first. If more than
twenty percent (20%) of the floor area of the building in which the Property is
located, or which is located on the Property, is taken, either Landlord or
Tenant may terminate this Lease as of the date the condemning authority takes
title or possession, by delivering written notice to the other within ten (10)
days after receipt of written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority takes title or
possession). If neither Landlord nor Tenant terminates this Lease, this Lease
shall remain in effect as to the portion of the Property not taken, except that
the Base Rent and Additional Rent shall be reduced in proportion to the
reduction in the floor area of the Property. Any Condemnation award or payment
shall be distributed in the following order: (a) first, to any ground lessor,
mortgagee or beneficiary under a deed of trust encumbering the Property, the
amount of its interest in the Property; (b) second, to Tenant, only the amount
of any award specifically designated for loss of or damage to Tenant's trade
fixtures or removable personal property; and (c) third, to Landlord, the
remainder of such award, whether as compensation for reduction in the value of
the leasehold, the taking of the fee, or otherwise. If this Lease is not
terminated, Landlord shall repair any damage to the Property caused by the
Condemnation, except that Landlord shall not be obligated to repair any damage
for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
-------------------------
Section 9.1 Landlord's Consent Required. No portion of the Property or of
---------------------------
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by sale, assignment, sublease, transfer, operation of law, or act of
Tenant, without Landlord's prior written consent, except as provided in Section
9.2 below. Landlord has the right to grant or withhold its consent as provided
in Section 9.5 below. Any attempted transfer without consent shall be void and
shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than fifty percent (50%) of the
partnership interests shall require Landlord's consent, if Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation (except as set forth in 9.2) shall require Landlord's
consent. Notwithstanding the foregoing, Tenant may mortgage, assign or transfer
its interest in this Lease to any lender and such lender or an affiliate or
designee may subsequently acquire Tenant's interest in this Lease by foreclosure
or assignment in lieu thereof, without Landlord's consent.
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Section 9.2 Tenant Affiliate. Tenant may assign this Lease or sublease
----------------
the Property, without Landlord's consent, (i) to any corporation which controls,
is controlled by or is under common control with Tenant, or to any corporation,
partnership, limited liability company or other legal entity resulting from a
reorganization or the merger of or consolidation with Tenant ("Tenant's
--------
Affiliate") or (ii) in the event of the public sale of stock of Tenant or
- ---------
Tenant's Affiliate or for subsequent transfers of stock whether or not such
transfers result in a change in control, provided that any assignee of the Lease
shall assume in writing all of Tenant's obligations under this Lease, or (iii)
in connection with the acquisition of or a business combination with another
business principally engaged in supplying products to the pet industry with
annual revenues in excess of $25,000,000, provided that any assignee of the
Lease shall assume in writing all of Tenant's obligations under this Lease.
Section 9.3 No Release of Tenant. No transfer permitted by this Article
--------------------
9, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article 9. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee defaults under
this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.
Section 9.4 Offer to Terminate. If Tenant desires to assign the Lease or
------------------
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.5 with respect to any proposed transfer shall
continue to apply.
Section 9.5 Landlord's Consent.
------------------
(a) Tenant's request for consent to any transfer described in
Sections 9.1 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g.,the term of and the
rent and security deposit payable under any proposed assignment or sublease),
and any other information Landlord deems relevant. Landlord shall have the right
to withhold consent, if reasonable, or to grant consent, based on the following
factors: (i) the
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business of the proposed assignee or subtenant and the proposed use of the
Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee, Tenant may nonetheless sublease
(but not assign), all or a portion of the Property to the proposed transferee,
but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under
the Lease the Landlord's Share (stated in Section 1.14) of the Profit
(defined below) on such transaction as and when received by Tenant, unless
Landlord gives written notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
signed, and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt of Landlord's Share shall not be a consent to any
further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.5(b) shall be a material default of the Lease.
Section 9.6 No Merger. No merger shall result from Tenant's sublease of
---------
the Property under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all
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subtenancies or succeed to the interest of Tenant as sublandlord under any or
all subtenancies.
ARTICLE 10
DEFAULTS; REMEDIES
------------------
Section 10.1 Covenants and Conditions. Tenant's performance of each of
------------------------
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.2 Defaults. Tenant shall be in material default under this
--------
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of
the Property results in the cancellation of any insurance described in Section
4.4;
(b) If Tenant fails to pay rent or any other charge within three
(3) days after delivery of notice that such amounts are past due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against Tenant
and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is
appointed to take possession of substantially all of Tenant's assets located at
the Property or of Tenant's interest in this Lease and possession is not
restored to Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Property or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take
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possession (or if Tenant remains a debtor in possession) and such trustee or
Tenant transfers Tenant's interest hereunder, then Landlord shall receive, as
Additional Rent, the excess, if any, of the rent (or any other consideration)
paid in connection with such assignment or sublease over the rent payable by
Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise
terminates, or purports to revoke or otherwise terminate, any guaranty of all or
any portion of Tenant's obligations under the Lease. Unless otherwise expressly
provided, no guaranty of the Lease is revocable.
Section 10.3 Remedies. On the occurrence of any material default by
--------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (10%). If Tenant has abandoned the Property,
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Landlord shall have the option of (i) retaking possession of the Property and
recovering from Tenant the amount specified in this Paragraph 10.3(a), or (ii)
proceeding under Paragraph 10.3(b);
(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has abandoned the Property.
In such event, Landlord shall be entitled to enforce all of Landlord's rights
and remedies under this Lease, including the right to recover the rent as it
becomes due.
(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which the Property
is located.
Section 10.4 Intentionally Omitted.
---------------------
Section 10.5 Automatic Termination. Notwithstanding any other term or
---------------------
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.3 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to Landlord's
right to possession of the Property. All such damages suffered (apart from Base
Rent and other rent payable hereunder) shall constitute pecuniary damages which
must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.6 Cumulative Remedies. Landlord's exercise of any right or
-------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11
PROTECTION OF LENDERS
---------------------
Section 11.1 Subordination. Landlord shall have the right to subordinate
-------------
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall
22
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execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property during the Lease Term shall
not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, dead of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this Lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
Section 11.2 Attornment. If Landlord's interest in the Property is
----------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.3 Signing of Documents. Tenant shall sign and deliver any
--------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant falls to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.4 Estoppel Certificates.
---------------------
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not to Tenant's knowledge in default under this Lease (or, if
Landlord is claimed to be in default, stating why); and (v) such other
representations or information with respect to Tenant or the Lease as Landlord
may reasonably request or which any prospective purchaser or encumbrancer of the
Property may require. Tenant shall deliver such statement to Landlord within ten
(10) days after Landlord's request. Landlord
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may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within
such ten (10)-day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been cancelled
or terminated except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or other charges have been paid in advance: and (iv)
that Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.5 Tenant's Financial Condition. Within ten (10) days after
----------------------------
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE 12
LEGAL COSTS
-----------
Section 12.1 Legal Proceedings. (a) If Tenant or Landlord shall be in
-----------------
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach of
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the party in whose favor a judgment is
entered, shall receive a reasonable sum as attorneys' fees and casts. The losing
party in such action shall pay such attorneys' fees and costs. Tenant shall
also indemnify Landlord against and hold Landlord harmless from all costs,
expenses, demands and liability Landlord may incur if Landlord becomes or is
made a party to any claim or action (a) instituted by Tenant against any third
party, or by any third party against Tenant, or by or against any person holding
any interest
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under or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for Tenant or such
other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
(b) Notwithstanding anything to the contrary provided herein, if a
controversy, claim or dispute arises out of or relates to this Lease, or the
breach thereof, and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration as set forth below.
If the parties hereto cannot solve a dispute by mediation within 60 days of
the commencement thereof, any controversy or claim arising out of or relating to
this Lease, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The parties hereto further agree that the
above controversy be submitted to three arbitrators. The parties hereto further
agree to faithfully observe this agreement and the rules, and that the parties
will abide by and perform any award rendered by the arbitrators, and that a
judgment of the court having jurisdiction may be entered on the award.
Section 12.2 Landlord's Consent. Tenant shall pay Landlord's reasonable
------------------
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article 9 (Assignment and Subletting), or in connection with any
other act which Tenant proposes to do and which requires Landlord's consent
ARTICLE 13
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Non-Discrimination. Tenant promises, and it is a condition
------------------
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
25
<PAGE>
Section 13.2 Landlord's Liability; Certain Duties.
------------------------------------
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or the leasehold estate
under a ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord
to perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary,
the liability of Landlord for the performance of its duties and obligations
under this Lease is limited to Landlord's interest in the Property, and neither
the Landlord nor its partners, shareholders, officers or other principals shall
have any personal liability under this Lease.
Section 13.3 Severability. A determination by a court of competent
------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.4 Interpretation. The captions of the Articles or Sections of
--------------
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
26
<PAGE>
Section 13.5 Incorporation of Prior Agreements; Modifications. This
------------------------------------------------
Lease is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.6 Notices. All notices required or permitted under this Lease
-------
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.3 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.2 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.7 Waivers. All waivers must be in writing and signed by the
-------
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.8 No Recordation. Tenant shall not record this Lease without
--------------
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.9 Binding Effect; Choice of Law. This Lease binds any party
-----------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 Corporate Authority; Partnership Authority. If Tenant is a
------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the
27
<PAGE>
partnership, that he or it has full authority to sign for the partnership and
that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11 Joint and Several Liability. All parties signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12 Force Majeure. If Landlord cannot perform any of its
-------------
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control Include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13 Execution of Lease. This Lease may be executed in
------------------
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14 Survival. All representations and warranties of Landlord
--------
and Tenant shall survive the termination of this Lease.
Section 13.15 Right of First Refusal.
----------------------
(a) Subject and subordinate to the rights of Related Parties (hereinafter
defined) as set forth in paragraph (b) hereinbelow, Tenant, and its successors
-------------
and assigns, provided that Tenant is not in default of this Lease, shall have a
right of first refusal exercisable from the Commencement Date through the Term
including all extension terms and including the date upon which this Lease
expires with respect to the purchase of the Property. Such right of refusal
shall be exercisable upon and shall be subject to the following conditions:
(1) Upon receipt by Landlord of a bona fide offer (herein called the
"Bona Fide Offer") acceptable to Landlord to purchase the Property or to
---------------
purchase any vacant or undeveloped contiguous property except the frontage
property facing Interstate 20 (the "Frontage Property"), which is
-----------------
specifically excluded from this Right
28
<PAGE>
of First Refusal, Landlord shall notify Tenant of the existence and terms
and conditions of the Bona Fide Offer.
(2) Upon Tenant's receipt of notice of the Bona Fide Offer from
Landlord, Tenant shall have thirty (30) business days to notify Landlord in
writing that Tenant irrevocably elects to (a) purchase the Property or
contiguous property (except the Frontage Property) upon all of the terms
and conditions stated in the Bona Fide Offer, including the purchase price
stated in the Bona Fide Offer and (b) simultaneously with Tenant's election
in the preceding clause (a), at Tenant's option, purchase any vacant or
undeveloped contiguous property (except the Frontage Property) owned by
Landlord that is not subject to Bona Fide Offer at the fair market value
for such property as agreed by the parties. If the parties are unable to
agree upon the fair market value of the Property within ten (10) days after
delivery of Tenant's election to purchase the Property (the "Option
------
Exercise Notice"), then the fair market value shall be determined by an
---------------
appraiser selected by the parties who is a member of the American Institute
of Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the
selection of an appraiser, each party shall select a qualified appraiser
and the two selected appraisers shall select a qualified third appraiser
who will determine the fair market value of the Property. If Tenant does
not exercise its right of refusal under this paragraph (a), either by
-------------
notifying Landlord in writing of its election not to exercise such right or
by failing to notify Landlord in writing of Tenant's election within the
thirty (30) business day period following its receipt of notice of the Bona
Fide Offer to purchase the Property, then Tenant conclusively shall be
deemed to have elected not to purchase the Property and Landlord shall be
entitled to sell the Property to any third party at any time within 6
months of the Bona Fide Offer upon such terms of the Bona Fide Offer,
without any further notice to Tenant. If Tenant elects to purchase the
Property within said thirty (30) business day period, the Tenant promptly
shall enter into a purchase agreement with Landlord to buy the Property on
the terms and conditions set forth in such Bona Fide Offer with appropriate
adjustments as set forth in this paragraph (a). Notwithstanding anything
-------------
to the contrary set forth herein, the Tenants rights under this Section
shall not apply to any transfer, sale, or assignment from the Landlord to
Benjamin Doskocil, Mary Frances Doskocil, any child, family member or
relative of either Benjamin or Mary Frances Doskocil, any entity owned or
controlled by any of the foregoing or any charitable organization, any
trust created for the benefit of any of the foregoing (the "Related
-------
Parties").
29
<PAGE>
(b) Notwithstanding anything to the contrary provided herein, Landlord may
at any time transfer, sell or assign the Property in any manner to a Related
Party without the consent of Tenant, and paragraph (a) hereinabove hereof shall
-------------
be subject and subordinate to the rights of Related Parties with respect to the
Property provided that upon any transfer to a Related Party, the Related Party
shall be bound by the terms of paragraph (a).
Section 13.16 Purchase Option.
---------------
(a) Landlord hereby grants to Tenant the option to elect to purchase,
during the sixty-first (61st) through the sixty-fourth (64th) month of the Term
and during the one hundred and twentieth (120th) month of the Term and to close
the purchase within 60 days of the election, all of Landlord's right, title and
interest in the Property, including without limitation, the buildings, parking
lot, fixtures and improvements constructed on the land, all of Landlord's
equipment, machinery, furniture, inventory and other personal property located
upon and used in connection with the operation of the Property. At the same
time as the Tenant's delivery of the Option Exercise Notice (hereinafter
defined) to Landlord, Tenant may elect to purchase any or all vacant or
undeveloped land that is contiguous to the Property, other than the Frontage
Property which is specifically excluded from this Purchase Option, upon the same
terms and conditions set forth herein.
(b) The total base purchase price for the Property (the "Base Purchase
-------------
Price") shall be ninety-five percent (95%) of the fair market value of the
- -----
Property as such fair market value is agreed upon by the parties. If the
parties are unable to agree upon the fair market value of the Property within
ten (10) days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined by an
----------------------
appraiser selected by the parties who is a member of the American Institute of
Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the selection
of an appraiser, each party shall select a qualified appraiser and the two
selected appraisers shall select a qualified third appraiser who will determine
the fair market value of the Property. The Purchase Price shall be paid in cash
at the Closing.
(c) At the Closing (hereinafter defined), Landlord shall convey the
Property to Tenant by special warranty deed (the "Deed") in form and substance
----
reasonably acceptable to Tenant and Landlord.
(d) The closing of the transaction pursuant to the Option Exercise Notice
(the "Closing") shall be at the main office of Old Republic Title, 1501 Summit,
-------
Fort Worth,
30
<PAGE>
Texas (the "Title Company"), shall be held at 10:00 o'clock a.m., Arlington
-------------
time, on the closing date.
(e) At the Closing, Landlord shall cause the following items to be
furnished to Tenant:
(1) The Deed in the form required hereinabove, duly executed and
acknowledged by Landlord.
(2) A fully paid Owner's Policy of Title Insurance covering the
Property issued by the Title Company in accordance with the terms of this
Agreement insuring Tenant's title in the amount of the Base Purchase Price,
containing no liens against the Landlord's fee interest in the Property.
(3) A duly executed and acknowledged bill of sale conveying title to
all personalty and all intangible property to Tenant.
(4) A duly executed and acknowledged assignment in favor of Tenant of
all service, employment and management contracts as are then in force and
pertaining to the Property and designated by Tenant, and executed copies of
all such contracts.
(5) Evidence reasonably satisfactory to Tenant and the Title Company
of the Landlord's closing representatives' power and authority to
consummate the transactions.
(f) Subject to Landlord's full performance of the conditions precedent
listed in and required by paragraph (e) above, at the Closing, Tenant shall:
-------------
(1) Pay to Landlord the Base Purchase Price in cash.
(2) Furnish evidence reasonably satisfactory to Landlord and the Title
Company of the Tenant's and Tenant's closing representatives' power and
authority to consummate the transactions.
(g) On or before Closing, Landlord shall pay: (1) the cost of the Owner's
Policy of Title Insurance required hereby, excluding the additional charges for
modification or deletion of standard exceptions, as hereinabove provided; (b)
Landlord's own attorney's fees; and (c) one-half (1/2) of any escrow fee charged
by the Title Company. On or before Closing, Tenant shall pay: (1) Tenant's own
attorneys' fees; (b) one-half (1/2) of any
31
<PAGE>
escrow fee charged by the Title Company; (3) any charges for modification or
deletion of standard exceptions to the Owner's Policy of Title Insurance; (4)
the official fees for filing and recording Landlord's Deed; and (5) survey for
the Property..
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
32
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on July 1, 1997 /s/ Benjamin L. Doskocil Sr.
---------------------------------
Benjamin L. Doskocil
/s/ Mary Frances Doskocil
---------------------------------
Mary Frances Doskocil
"TENANT"
Signed on July 1, 1997 DOSKOCIL MANUFACTURING COMPANY, INC.
By:/s/ Larry E. Rembold
-------------------------------
Name: Larry E. Rembold
-------------------------------
Its: President
-------------------------------
33
<PAGE>
BUILDING E
EXHIBIT A
The following tract or tracts of land in Tarrant County, Texas:
Lot 17-R, Block 3, SOUTHLAND ACRES, an Addition to the City of
Arlington, Tarrant County, Texas, according to Plat recorded in
Volume 388-200, Page 16, Plat Records, Tarrant County, Texas.
<PAGE>
EXHIBIT 10.17
BUILDING F
INDUSTRIAL REAL ESTATE LEASE
ARTICLE 1
BASIC TERMS
-----------
This Article 1 contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article 1 explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.1 Date of Lease: July 1, 1997
-------------
Section 1.2 Landlord (include legal entity): Benjamin L. Doskocil and
-------------------------------
Mary Frances Doskocil
Address of Landlord: 5306 Mansfield Road, Arlington, Texas 76017
Section 1.3 Tenant (include legal entity): Doskocil Manufacturing
-----------------------------
Company, Inc.
Address of Tenant: 4209 Barnett, Arlington, Texas 76017
Section 1.4 Property: (include street address, approximate square footage
--------
and description) Building "F" located at 4207 Larry Lane, Arlington, Texas, as
more particularly described on Exhibit "A" attached hereto.
-----------
Section 1.5 Lease Term:
----------
(a) The initial term of this Lease shall be for five (5) years ("Term") and
----
shall commence on the date hereof ("Commencement Date") and shall terminate at
-----------------
5:00 P.M. local time on the fifth (5th) anniversary of the Commencement Date
(the "Expiration Date").
---------------
(b) Provided that Tenant is not in default of this Lease, Tenant shall have
the option to renew this Lease for four (4) renewal terms of five (5) years each
commencing upon the expiration of the initial ten (10) year Term or any previous
renewal term, as the case may be, and ending at 5:00 P.M. local time five (5)
years thereafter, unless any such renewal term shall sooner terminate in
accordance with this Lease or otherwise; provided that (i) Tenant shall have
notified Landlord in writing of Tenant's exercise of such renewal option not
later than six (6) months prior to the expiration of the initial Term hereof or
the then existing renewal term, as the case may be, (ii) at the time such notice
is given, this Lease shall be in full force and effect and Tenant shall not be
in default hereunder for such period
<PAGE>
of time as would entitle Landlord to terminate this Lease pursuant to the terms
hereof. Such renewal terms shall be upon all of the agreements, terms,
covenants and conditions hereof except that Tenant shall pay Base Rent
(hereinafter defined) to Landlord in monthly installments in an amount equal to
(a) for the first renewal term only, one hundred ten percent (110%) of the
existing Base Rent and (b) for every other renewal term, the greater of (i) the
fair market rate (the "Fair Market Rent") for the Real Property (as defined
----------------
herein) or (ii) one hundred and ten percent (110%) of the existing Base Rent on
an "AS IS, WHERE IS" basis as of the commencement of the renewal term, as
designated by Landlord within twenty (20) days after Landlord receives Tenant's
renewal notice, but in no event greater than the rate of Base Rent in effect at
the scheduled expiration of the Term or the applicable renewal term plus twenty-
five percent (25%) thereof. In addition, during each renewal term, Tenant shall
pay all other rent and other amounts due under the Lease. With respect to the
renewal terms other than the first renewal term, if Tenant does not approve of
Landlord's designation of the Base Rent for the renewal term, then Tenant, as
its sole remedy, may submit in writing to Landlord within ten (10) days after
the Landlord's delivery of its determination Fair Market Rent to Tenant (the
"Renewal Commencement Date"), its good faith determination of Fair Market Rent
- --------------------------
with appropriate back-up documentation. If the Tenant's determination of Fair
Market Rent is within ten percent (10%) of the Landlord's determination of the
same, the "Fair Market Rent" shall equal the median number between each of the
----------------
Tenant's and Landlord's determination (but in no event shall the Fair Market
Rent be less than the Base Rent existing on the last day of the Term plus ten
percent (10%)). If the Tenant's determination of Fair Market Rent is not within
---
ten percent (10%) of the Landlord's determination of the same, each of the
Landlord and the Tenant shall choose an appraiser on the eleventh (11th) day
after the Renewal Commencement Date to determine the "fair market rent" and the
initial determinations shall be disregarded for all purposes in determining the
Fair Market Rent. Each appraiser shall diligently attempt to agree on the Fair
Market Rent on or before the twenty-fourth (24th) day after the Renewal
Commencement Date. If such appraisers agree on the Fair Market Rent on or
before the twenty-fourth day after the Renewal Commencement Date, such agreed
sum shall constitute the "Fair Market Rent". If the appraisers have not agreed
on the Fair Market Rent by such day, (a) the appraisers shall select an
independent third appraiser (the "Final Appraiser"), and (b) each such original
---------------
appraiser shall deliver in writing to the Final Appraiser their last
determination of the sum (each such sum being hereinafter referred to as the
"Appraisal Price") that such appraiser believes is the Fair Market Rent. On or
- ----------------
before the twenty-ninth (29th) day after the Renewal Commencement Date, the
Final Appraiser shall choose one Appraisal Price or the other Appraisal Price as
the "Fair Market Rent". Notwithstanding anything to the contrary herein, in no
----------------
event shall the Fair Market Rent be less than the Base Rent in effect at the
last day of the Term plus ten percent (10%) thereof. Tenant shall have no
further renewal rights after the expiration of such renewal terms. Upon the
2
<PAGE>
commencement of each renewal term, (x) the renewal term shall be added to and
become part of the Term, (y) any reference in this Lease, to the "Term", the
----
"term of this Lease" or any similar expression shall be deemed to include the
renewal terms, and (z) the Expiration Date shall become the expiration of the
applicable renewal term.
Section 1.6 Permitted Uses: (See Article Five) Tenant may use the
--------------
Property for any lawful manufacturing or distribution purpose, including to
operate its business as operated on the day immediately preceding this Lease.
Section 1.7 Tenant's Guarantor: (If none, so state) None.
------------------
Section 1.8 Brokers: (See Article 14) (if none, so state) None.
-------
Landlord's Broker: None.
Tenant's Broker: None.
Section 1.9 Commission Payable to Landlord's Broker: (See Article 14) $
---------------------------------------
None
- ----
Section 1.10 Initial Security Deposit: (See Section 3.3) None.
------------------------
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: N/A
------------------------------------------
Section 1.12 Rent and Other Charges Payable by Tenant: See below.
----------------------------------------
(a) Base Rent. Tenant shall pay to Landlord, without notice or
---------
demand, in lawful money of the United States of America, at the office of
Landlord or at such other place as Landlord may designate, the following:
annual fixed rent ("Base Rent") of $248,709.96 per annum for the period
---------
commencing with the Commencement Date, payable in equal monthly installments in
advance on the first day of each and every month during the Term, of $20,725.83
except that the first installment of Base Rent shall be apportioned and shall be
payable on the Commencement Date if the Commencement Date shall occur on a date
other than the first day of a month and except that the installment of Base Rent
due in the month that the Expiration Date occurs shall be apportioned if the
Expiration Date shall occur on a date other than the last of a month.
(b) Other Periodic Payments. (i) Real Property Taxes above the
-----------------------
"Base Real Property Taxes" (See Section 4.2); (ii) Utilities (See Section 4.3);
(iii) Impounds for Tenant's Share of Insurance Premiums and Property Taxes (See
Section 4.7); (iv) Maintenance, Repairs and Alterations (See Article 6).
3
<PAGE>
Section 1.13 Costs and Charges Payable by Landlord. (a) Base Real
-------------------------------------
Property Taxes (See Section 4.2); (b) Insurance Premiums (See Section 4.4(c);
(c) Maintenance and Repair (See Article 6). Tenant, at its expense, shall take
good care of the Property. Tenant shall promptly make all repairs, interior or
exterior, ordinary or extraordinary, as and when needed to preserve the Property
and any Improvements, therein in good working order and condition other than (a)
repairs necessitated by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors, invitees or licensees, and (b)
maintenance and repairs to the Building's roof, foundation and structural
integrity except as a result of the negligence or willful acts of the Tenant or
its agents, employees, contractors, invitees or licensees. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be at least equal in quality and class to the original work
or installation.
Section 1.14 Landlord's Share of Profit on Assignment or Sublease: (See
----------------------------------------------------
Section 9.5) Landlord's share shall equal seventy percent (70%) of the Profit
(the "Landlord's Share").
Section 1.15 Riders: The following Riders are attached to and made a part
------
of this Lease: (If none, so state) None
ARTICLE 2
LEASE TERM
----------
Section 2.1 Lease of Property For Lease Term. Landlord leases the
--------------------------------
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.5 above and shall
begin and end on the dates specified in Section 1.5 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.5 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.2 Intentionally Omitted.
Section 2.3 Intentionally Omitted.
Section 2.4 Holding Over. Tenant shall vacate the Property upon the
------------
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the
4
<PAGE>
Property. If Tenant does not vacate the Property upon the expiration or earlier
termination of the Lease and Landlord thereafter accepts rent from Tenant,
Tenant's occupancy of the Property shall be a "month-to-month" tenancy, subject
to all of the terms of this Lease applicable to a month-to-month tenancy, except
that the Base Rent then in effect shall be increased by twenty-five percent
(25%).
ARTICLE 3
BASE RENT
---------
Section 3.1 Time and Manner of Payment. Upon execution of this Lease,
--------------------------
Tenant shall pay Landlord the Base Rent in the amount stated In Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
ARTICLE 4
OTHER CHARGES PAYABLE BY TENANT
-------------------------------
Section 4.1 Additional Rent. All charges payable by Tenant other than
---------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.2 Property Taxes.
--------------
(a) Real Property Taxes. Landlord shall pay the "Base Real
-------------------
Property Taxes" on the Property during the Lease Term. Base Real Property Taxes
are real property taxes applicable to the Property as shown on the tax bill for
the most recent tax fiscal year ending prior to the Commencement Date. As of the
first day of each of the sixty-first (61st), seventy-third (73rd), eighty-fifth
(85th), ninety-seventy (97th) and one hundred and ninth (109th) months of the
Term of this Lease, Tenant shall pay the Landlord, the amount, if any, by which
the real property taxes for the current calendar year are in excess of the real
property taxes attributable for calendar year 1996. Subject to Paragraph 4.2(c),
Tenant shall make such payments within fifteen (15) days after receipt of
Landlord's statement showing the amount and computation of such increase.
Landlord shall reimburse Tenant for any real property taxes paid by Tenant
covering any period of time prior to or after the Lease Term.
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(b) Definition of "Real Property Tax". "Real property tax" means:
---------------------------------
(i) any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalk's, road maintenance, refuse or other services provided to the Property
by any governmental agency; (iv) any tax imposed upon this transaction or based
upon a re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed,
----------------
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.2(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
-----------------------
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property belonging
to Tenant. Tenant shall try to have personal property taxed separately from
the Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from
Landlord for such personal property taxes.
Section 4.3 Utilities. Tenant shall pay, directly to the appropriate
---------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
6
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Section 4.4 Insurance Policies.
------------------
(a) Liability Insurance. During the Lease Term, Tenant shall
-------------------
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be Ten Million Dollars ($10,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.4(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.5, if the matters giving rise to the indemnity under
Section 5.5 result from the negligence of Tenant. The amount and coverage of
such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary Insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
------------------------------------
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain
insurance for Tenant's fixtures or equipment or building improvements installed
by Tenant on the Property.
(c) Payment of Premiums.
-------------------
(i) Landlord shall pay the "Premiums" for the insurance
policies maintained by Landlord under Paragraph 4.4(b). Notwithstanding
the previous sentence, Tenant shall be obligated to pay the Premiums for
the insurance to the extent such Premiums increase as a result of Tenant's
use of the Property. For example, if Tenant changes its use of the
Property to include an activity which is inherently more dangerous than its
use of the Property as of the Commencement
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Date, Tenant shall be obligated to pay for the increase in Premium
resulting from such activity on the Property.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain
under this Lease shall include a provision which requires the insurance
carrier to give Landlord not less than thirty (30) days' written notice
prior to any cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which
case Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant and Landlord shall maintain all insurance
required under this Lease with companies holding a "General Policy Rating"
of A-12 or better, as set forth In the most current issue of "Best Key
Rating Guide". Landlord and Tenant acknowledge the insurance markets are
rapidly changing and that insurance in the form and amounts described in
this Section 4.4 may not be available in the future. Tenant acknowledges
that the insurance described in this Section 4.4 is for the primary benefit
of Landlord, If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable
in the insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby waive any and all
rights of recovery against the other, or against the officers, employees,
agents or representatives of the other, for loss of or damage to its
property or the property of others under its control, if such loss or
damage is covered by any insurance policy in force (whether or not
described in this Lease) at the time of such loss or damage. Upon obtaining
the
8
<PAGE>
required policies of insurance, Landlord and Tenant shall give notice to
the insurance carriers of this mutual waiver of subrogation.
Section 4.5 Late Charges. Tenant's failure to pay rent promptly may cause
------------
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges end late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to ten percent (10%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
Section 4.6 Interest on Past Due Obligations. Any amount owed by Tenant
--------------------------------
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of Interest on such amounts shall not excuse or cure any
default by Tenant under this Lease, if the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.7 Impounds for Insurance Premiums and Real Property Taxes. If
-------------------------------------------------------
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant to Landlord under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-Interest bearing impound account, if unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the Impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under this
Lease.
ARTICLE 5
USE OF PROPERTY
---------------
Section 5.1 Permitted Uses. Tenant may use the Property only for the
--------------
Permitted Uses set forth in Section 1.6 above.
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Section 5.2 Manner of Use. Tenant shall not cause or permit the Property
-------------
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act provided that if any
capital improvements to the Property are required to be made for compliance and
the benefit or useful life of such capital improvements extends beyond the Lease
Term (as such term may be extended by exercise of any options), the useful life
of such capital improvements shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Section 5.3 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes" "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord provided that Landlord is
deemed to have consented to the use of the Hazardous Materials, and reasonable
replacements or substitution thereof, in use on the Property immediately prior
to the Commencement Date. Landlord shall be entitled to take into account such
other factors or facts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall Landlord be
required to consent to the installation or use of any storage tanks on the
Property.
Section 5.4 Signs and Auctions. Tenant shall not place any signs on the
------------------
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
10
<PAGE>
Section 5.5 Indemnity. Tenant shall indemnify Landlord against and hold
---------
Landlord harmless from any and all costs, claims or liability arising subsequent
to the Commencement Date from: (a) Tenant's use of the Property subsequent to
the Commencement Date; (b) the conduct of Tenant's business or anything else
done or permitted by Tenant to be done in or about the Property subsequent to
the Commencement Date, including any contamination of the Property or any other
property resulting from the presence or use of Hazardous Material caused or
permitted by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant subsequent to
the Commencement Date. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.6 Landlord's Access. Landlord or its agents may enter the
-----------------
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems reasonably necessary.
Landlord shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place customary "For Sale" or "For Lease" signs on the
Property.
Section 5.7 Quiet Possession. It Tenant pays the rent and complies with
----------------
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease,
ARTICLE 6
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
-----------------------------------------------------------
Section 6.1 Existing Conditions. Tenant accepts the Property in its
-------------------
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein or in the Recapitalization Agreement dated July 1, 1997 by and among
Enterprise Partners III, L.P., a Delaware
11
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limited partnership, Enterprise Partners III Associates, L.P., a Delaware
limited partnership, Enterprise Partners IV, L.P., a Delaware limited
partnership, Enterprise Partners IV Associates, L.P., a Delaware limited
partnership, Enterprise Management Partners Corporation, a California
corporation, EP Texas Company, LLC, a Texas limited liability company, Benjamin
L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock International, Inc., a Texas
corporation, Doskocil Manufacturing Company, Inc., a Texas corporation, and
Spectrum Polymers, Ltd., a Texas limited partnership, Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation as to the
condition of the Property or the suitability of the Property for Tenant's
intended use. Tenant represents and warrants that Tenant has made its own
inspection of and inquiry regarding the condition of the Property and is not
relying on any representations of Landlord or any Broker with respect thereto.
If Landlord or Landlord's Broker has provided a Property Information Sheet or
other Disclosure Statement regarding the Property, a copy is attached as an
exhibit to the Lease.
Section 6.2 Exemption of Landlord from Liability. Except for Landlord
------------------------------------
defaults under Section 6.3, Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or from other sources or places;
or (d) any act or omission of any other tenant of Landlord. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions of
this Section 6.2 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.3 Landlord's Obligations. Subject to the provisions of Article
----------------------
7 (Damage or Destruction) and Article 8 (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on the Property in good order,
condition and repair. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls. Landlord shall not
be obligated to make any repairs under this Section 6.3 until a reasonable time
after receipt of a written notice from Tenant of the need for such repairs.
Tenant waives the benefit of any present or future law which might give Tenant
the right to repair the Property at Landlord's expense or to terminate the Lease
because of the condition of the Property.
12
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Section 6.4 Tenant's Obligations.
--------------------
(a) Except as provided in Section 6.3, Article 7 (Damage or
Destruction) and Article 8 (Condemnation). Tenant shall keep all portions of
the Property (including nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. Landlord shall have the right, upon written notice to Tenant, to
undertake the responsibility for preventive maintenance of the heating and air
conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's
expense, repair any damage to the roof, foundation or structural portions of
walls caused by Tenant's acts or omissions. It is the intention of Landlord and
Tenant that, at all times during the Lease Term, Tenant shall maintain the
Property in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.4 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.4, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.5 Alterations, Additions, and Improvements.
----------------------------------------
(a) Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written consent, except
for non-structural alterations which do not exceed One Hundred Thousand Dollars
($100,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and
13
<PAGE>
completion bonds in form and amount satisfactory to Landlord. Tenant shall
promptly remove any alterations, additions, or improvements constructed in
violation of this Paragraph 6.5(a) upon Landlord's written request. All
alterations, additions, and improvements shall be done in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide Landlord with "as built" Plans, copies of all construction contracts,
and proof of payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
Section 6.6 Condition Upon Termination. Upon the termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article 7 (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations except to the extent installed by Tenant.
14
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ARTICLE 7
DAMAGE OR DESTRUCTION
---------------------
Section 7.1 Partial Damage to Property.
--------------------------
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.4(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not
sufficient to pay the entire cost of repair, or if the cause of the damage is
not covered by the insurance policies which Landlord maintains under Paragraph
4.4(b), Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, and, if the damage was due to an
act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance policies and the difference between the actual cost of
repair and any insurance proceeds received by Landlord. If Landlord elects to
terminate the Lease, Tenant may elect to continue this Lease in full force and
effect, in which case Tenant shall repair any damage to the Property and any
building in which the Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any Insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
15
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Section 7.2 Substantial or Total Destruction. If the Property is
--------------------------------
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.1), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months alter
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.3 Temporary Reduction of Rent. If the Property is destroyed or
---------------------------
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article 7, any rent payable during the period of such damage,
repair and/or restoration shall be reduced according to the degree, if any, to
which Tenant's use of the Property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.4 Waiver. Tenant waives the protection of any statute, code or
------
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.2 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8
CONDEMNATION
------------
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within
16
<PAGE>
ten (10) days after the condemning authority takes title or possession). If
neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the Base Rent
and Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or removable
personal property; and (c) third, to Landlord, the remainder of such award,
whether as compensation for reduction in the value of the leasehold, the taking
of the fee, or otherwise. If this Lease is not terminated, Landlord shall
repair any damage to the Property caused by the Condemnation, except that
Landlord shall not be obligated to repair any damage for which Tenant has been
reimbursed by the condemning authority. If the severance damages received by
Landlord are not sufficient to pay for such repair, Landlord shall have the
right to either terminate this Lease or make such repair at Landlord's expense.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
-------------------------
Section 9.1 Landlord's Consent Required. No portion of the Property or of
---------------------------
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by sale, assignment, sublease, transfer, operation of law, or act of
Tenant, without Landlord's prior written consent, except as provided in Section
9.2 below. Landlord has the right to grant or withhold its consent as provided
in Section 9.5 below. Any attempted transfer without consent shall be void and
shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than fifty percent (50%) of the
partnership interests shall require Landlord's consent, if Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation (except as set forth in 9.2) shall require Landlord's
consent. Notwithstanding the foregoing, Tenant may mortgage, assign or transfer
its interest in this Lease to any lender and such lender or an affiliate or
designee may subsequently acquire Tenant's interest in this Lease by foreclosure
or assignment in lieu thereof, without Landlord's consent.
Section 9.2 Tenant Affiliate. Tenant may assign this Lease or sublease
----------------
the Property, without Landlord's consent, (i) to any corporation which controls,
is controlled by or is under common control with Tenant, or to any corporation,
partnership, limited liability company or other legal entity resulting from a
reorganization or the merger of or consolidation with Tenant ("Tenant's
--------
Affiliate") or (ii) in the event of the public sale of stock
- ---------
17
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of Tenant or Tenant's Affiliate or for subsequent transfers of stock whether or
not such transfers result in a change in control, provided that any assignee of
the Lease shall assume in writing all of Tenant's obligations under this Lease,
or (iii) in connection with the acquisition of or a business combination with
another business principally engaged in supplying products to the pet industry
with annual revenues in excess of $25,000,000, provided that any assignee of the
Lease shall assume in writing all of Tenant's obligations under this Lease.
Section 9.3 No Release of Tenant. No transfer permitted by this Article
--------------------
9, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article 9. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee defaults under
this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.
Section 9.4 Offer to Terminate. If Tenant desires to assign the Lease or
------------------
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.5 with respect to any proposed transfer shall
continue to apply.
Section 9.5 Landlord's Consent.
------------------
(a) Tenant's request for consent to any transfer described in
Sections 9.1 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g.,the term of and the
rent and security deposit payable under any proposed assignment or sublease),
and any other information Landlord deems relevant. Landlord shall have the right
to withhold consent, if reasonable, or to grant consent, based on the following
factors: (i) the business of the proposed assignee or subtenant and the proposed
use of the Property; (ii) the net worth and financial reputation of the proposed
assignee or subtenant; (iii) Tenant's compliance with all of its obligations
under the Lease; and (iv) such other factors as Landlord may reasonably deem
relevant. If Landlord objects to a proposed assignment solely because of the net
worth and/or financial reputation of the proposed assignee, Tenant
18
<PAGE>
may nonetheless sublease (but not assign), all or a portion of the Property to
the proposed transferee, but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under
the Lease the Landlord's Share (stated in Section 1.14) of the Profit
(defined below) on such transaction as and when received by Tenant, unless
Landlord gives written notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
signed, and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt of Landlord's Share shall not be a consent to any
further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.5(b) shall be a material default of the Lease.
Section 9.6 No Merger. No merger shall result from Tenant's sublease of
---------
the Property under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
19
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ARTICLE 10
DEFAULTS; REMEDIES
------------------
Section 10.1 Covenants and Conditions. Tenant's performance of each of
------------------------
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.2 Defaults. Tenant shall be in material default under this
--------
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of
the Property results in the cancellation of any insurance described in Section
4.4;
(b) If Tenant fails to pay rent or any other charge within three
(3) days after delivery of notice that such amounts are past due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against Tenant
and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is
appointed to take possession of substantially all of Tenant's assets located at
the Property or of Tenant's interest in this Lease and possession is not
restored to Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Property or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant transfers
Tenant's interest hereunder, then Landlord shall receive, as Additional Rent,
the excess, if any, of the rent (or any other consideration) paid in connection
with such assignment or sublease over the rent payable by Tenant under this
Lease.
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(e) If any guarantor of the Lease revokes or otherwise
terminates, or purports to revoke or otherwise terminate, any guaranty of all or
any portion of Tenant's obligations under the Lease. Unless otherwise expressly
provided, no guaranty of the Lease is revocable.
Section 10.3 Remedies. On the occurrence of any material default by
--------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (10%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.3(a), or (ii) proceeding under Paragraph
10.3(b);
21
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(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has abandoned the Property.
In such event, Landlord shall be entitled to enforce all of Landlord's rights
and remedies under this Lease, including the right to recover the rent as it
becomes due.
(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which the Property
is located.
Section 10.4 Intentionally Omitted.
---------------------
Section 10.5 Automatic Termination. Notwithstanding any other term or
---------------------
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.3 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to Landlord's
right to possession of the Property. All such damages suffered (apart from Base
Rent and other rent payable hereunder) shall constitute pecuniary damages which
must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.6 Cumulative Remedies. Landlord's exercise of any right or
-------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11
PROTECTION OF LENDERS
---------------------
Section 11.1 Subordination. Landlord shall have the right to subordinate
-------------
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall
execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property
22
<PAGE>
during the Lease Term shall not be disturbed if Tenant pays the rent and
performs all of Tenant's obligations under this Lease and is not otherwise in
default. If any ground lessor beneficiary or mortgagee elects to have this
Lease prior to the lien of its ground lease, dead of trust or mortgage and gives
written notice thereof to Tenant, this Lease shall be deemed prior to such
ground lease, deed of trust or mortgage whether this Lease is dated prior or
subsequent to the date of said ground lease, deed of trust or mortgage or the
date of recording thereof.
Section 11.2 Attornment. If Landlord's interest in the Property is
----------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.3 Signing of Documents. Tenant shall sign and deliver any
--------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant falls to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.4 Estoppel Certificates.
---------------------
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not to Tenant's knowledge in default under this Lease (or, if
Landlord is claimed to be in default, stating why); and (v) such other
representations or information with respect to Tenant or the Lease as Landlord
may reasonably request or which any prospective purchaser or encumbrancer of the
Property may require. Tenant shall deliver such statement to Landlord within ten
(10) days after Landlord's request. Landlord may give any such statement by
Tenant to any prospective purchaser or encumbrancer of the Property. Such
purchaser or encumbrancer may rely conclusively upon such statement as true and
correct.
23
<PAGE>
(b) If Tenant does not deliver such statement to Landlord within
such ten (10)-day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been cancelled
or terminated except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or other charges have been paid in advance: and (iv)
that Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.5 Tenant's Financial Condition. Within ten (10) days after
----------------------------
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE 12
LEGAL COSTS
-----------
Section 12.1 Legal Proceedings. (a) If Tenant or Landlord shall be in
-----------------
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach of
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the party in whose favor a judgment is
entered, shall receive a reasonable sum as attorneys' fees and casts. The losing
party in such action shall pay such attorneys' fees and costs. Tenant shall
also indemnify Landlord against and hold Landlord harmless from all costs,
expenses, demands and liability Landlord may incur if Landlord becomes or is
made a party to any claim or action (a) instituted by Tenant against any third
party, or by any third party against Tenant, or by or against any person holding
any interest under or using the Property by license of or agreement with Tenant;
(b) for foreclosure of any lien for labor or material furnished to or for Tenant
or such other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
24
<PAGE>
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
(b) Notwithstanding anything to the contrary provided herein, if a
controversy, claim or dispute arises out of or relates to this Lease, or the
breach thereof, and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration as set forth below.
If the parties hereto cannot solve a dispute by mediation within 60 days of
the commencement thereof, any controversy or claim arising out of or relating to
this Lease, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The parties hereto further agree that the
above controversy be submitted to three arbitrators. The parties hereto further
agree to faithfully observe this agreement and the rules, and that the parties
will abide by and perform any award rendered by the arbitrators, and that a
judgment of the court having jurisdiction may be entered on the award.
Section 12.2 Landlord's Consent. Tenant shall pay Landlord's reasonable
------------------
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article 9 (Assignment and Subletting), or in connection with any
other act which Tenant proposes to do and which requires Landlord's consent
ARTICLE 13
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Non-Discrimination. Tenant promises, and it is a condition
------------------
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
25
<PAGE>
Section 13.2 Landlord's Liability; Certain Duties.
------------------------------------
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or the leasehold estate
under a ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord
to perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary,
the liability of Landlord for the performance of its duties and obligations
under this Lease is limited to Landlord's interest in the Property, and neither
the Landlord nor its partners, shareholders, officers or other principals shall
have any personal liability under this Lease.
Section 13.3 Severability. A determination by a court of competent
------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.4 Interpretation. The captions of the Articles or Sections of
--------------
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
26
<PAGE>
Section 13.5 Incorporation of Prior Agreements; Modifications. This
------------------------------------------------
Lease is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.6 Notices. All notices required or permitted under this Lease
-------
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.3 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.2 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.7 Waivers. All waivers must be in writing and signed by the
-------
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.8 No Recordation. Tenant shall not record this Lease without
--------------
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.9 Binding Effect; Choice of Law. This Lease binds any party
-----------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 Corporate Authority; Partnership Authority. If Tenant is a
------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the
27
<PAGE>
partnership, that he or it has full authority to sign for the partnership and
that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11 Joint and Several Liability. All parties signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12 Force Majeure. If Landlord cannot perform any of its
-------------
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control Include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13 Execution of Lease. This Lease may be executed in
------------------
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14 Survival. All representations and warranties of Landlord
--------
and Tenant shall survive the termination of this Lease.
Section 13.15 Right of First Refusal.
----------------------
(a) Subject and subordinate to the rights of Related Parties (hereinafter
defined) as set forth in paragraph (b) hereinbelow, Tenant, and its successors
-------------
and assigns, provided that Tenant is not in default of this Lease, shall have a
right of first refusal exercisable from the Commencement Date through the Term
including all extension terms and including the date upon which this Lease
expires with respect to the purchase of the Property. Such right of refusal
shall be exercisable upon and shall be subject to the following conditions:
(1) Upon receipt by Landlord of a bona fide offer acceptable to
Landlord to purchase the Property or to purchase any vacant or undeveloped
contiguous property (herein called the "Bona Fide Offer"), Landlord shall
---------------
notify Tenant of the existence and terms and conditions of the Bona Fide
Offer.
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(2) Upon Tenant's receipt of notice of the Bona Fide Offer from
Landlord, Tenant shall have thirty (30) business days to notify Landlord in
writing that Tenant irrevocably elects to (a) purchase the Property or
contiguous property upon all of the terms and conditions stated in the Bona
Fide Offer, including the purchase price stated in the Bona Fide Offer and
(b) simultaneously with Tenant's election in the preceding clause (a), at
Tenant's option, purchase any vacant or undeveloped contiguous property
owned by Landlord that is not subject to Bona Fide Offer at the fair market
value for such property as agreed by the parties. If the parties are
unable to agree upon the fair market value of the Property within ten (10)
days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined
-----------------------
by an appraiser selected by the parties who is a member of the American
Institute of Real Estate Appraisers with at least five years of experience
appraising property comparable to and in the geographic area of the
Property. Such appraiser's determination of the fair market value of the
Property shall be binding on the parties. If the parties are unable to
agree upon the selection of an appraiser, each party shall select a
qualified appraiser and the two selected appraisers shall select a
qualified third appraiser who will determine the fair market value of the
Property. If Tenant does not exercise its right of refusal under this
paragraph (a), either by notifying Landlord in writing of its election not
-------------
to exercise such right or by failing to notify Landlord in writing of
Tenant's election within the thirty (30) business day period following its
receipt of notice of the Bona Fide Offer to purchase the Property, then
Tenant conclusively shall be deemed to have elected not to purchase the
Property and Landlord shall be entitled to sell the Property to any third
party at any time within 6 months of the Bona Fide Offer upon such terms of
the Bona Fide Offer, without any further notice to Tenant. If Tenant
elects to purchase the Property within said thirty (30) business day
period, the Tenant promptly shall enter into a purchase agreement with
Landlord to buy the Property on the terms and conditions set forth in such
Bona Fide Offer with appropriate adjustments as set forth in this paragraph
---------
(a). Notwithstanding anything to the contrary set forth herein, the
---
Tenants rights under this Section shall not apply to any transfer, sale, or
assignment from the Landlord to Benjamin Doskocil, Mary Frances Doskocil,
any child, family member or relative of either Benjamin or Mary Frances
Doskocil, any entity owned or controlled by any of the foregoing or any
charitable organization, any trust created for the benefit of any of the
foregoing (the "Related Parties").
---------------
(b) Notwithstanding anything to the contrary provided herein, Landlord may
at any time transfer, sell or assign the Property in any manner to a Related
Party without the consent of Tenant, and paragraph (a) hereinabove hereof shall
-------------
be subject and subordinate to
29
<PAGE>
the rights of Related Parties with respect to the Property provided that upon
any transfer to a Related Party, the Related Party shall be bound by the terms
of paragraph (a).
Section 13.16 Purchase Option.
---------------
(a) Landlord hereby grants to Tenant the option to elect to purchase,
during the sixty-first (61st) through the sixty-fourth (64th) month of the Term
and during the one hundred and twentieth (120th) month of the Term and to close
the purchase within 60 days of the election, all of Landlord's right, title and
interest in the Property, including without limitation, the buildings, parking
lot, fixtures and improvements constructed on the land, all of Landlord's
equipment, machinery, furniture, inventory and other personal property located
upon and used in connection with the operation of the Property. At the same
time as the Tenant's delivery of the Option Exercise Notice (hereinafter
defined) to Landlord, Tenant may elect to purchase any or all vacant or
undeveloped land that is contiguous to the Property upon the same terms and
conditions set forth herein.
(b) The total base purchase price for the Property (the "Base Purchase
-------------
Price") shall be ninety-five percent (95%) of the fair market value of the
- -----
Property as such fair market value is agreed upon by the parties. If the
parties are unable to agree upon the fair market value of the Property within
ten (10) days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined by an
----------------------
appraiser selected by the parties who is a member of the American Institute of
Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the selection
of an appraiser, each party shall select a qualified appraiser and the two
selected appraisers shall select a qualified third appraiser who will determine
the fair market value of the Property. The Purchase Price shall be paid in cash
at the Closing.
(c) At the Closing (hereinafter defined), Landlord shall convey the
Property to Tenant by special warranty deed (the "Deed") in form and substance
----
reasonably acceptable to Tenant and Landlord.
(d) The closing of the transaction pursuant to the Option Exercise Notice
(the "Closing") shall be at the main office of Old Republic Title, 1501 Summit,
-------
Fort Worth, Texas (the "Title Company"), shall be held at 10:00 o'clock a.m.,
-------------
Arlington time, on the closing date.
30
<PAGE>
(e) At the Closing, Landlord shall cause the following items to be
furnished to Tenant:
(1) The Deed in the form required hereinabove, duly executed and
acknowledged by Landlord.
(2) A fully paid Owner's Policy of Title Insurance covering the
Property issued by the Title Company in accordance with the terms of this
Agreement insuring Tenant's title in the amount of the Base Purchase Price,
containing no liens against the Landlord's fee interest in the Property.
(3) A duly executed and acknowledged bill of sale conveying title to
all personalty and all intangible property to Tenant.
(4) A duly executed and acknowledged assignment in favor of Tenant of
all service, employment and management contracts as are then in force and
pertaining to the Property and designated by Tenant, and executed copies of
all such contracts.
(5) Evidence reasonably satisfactory to Tenant and the Title Company
of the Landlord's closing representatives' power and authority to
consummate the transactions.
(f) Subject to Landlord's full performance of the conditions precedent
listed in and required by paragraph (e) above, at the Closing, Tenant shall:
-------------
(1) Pay to Landlord the Base Purchase Price in cash.
(2) Furnish evidence reasonably satisfactory to Landlord and the Title
Company of the Tenant's and Tenant's closing representatives' power and
authority to consummate the transactions.
(g) On or before Closing, Landlord shall pay: (1) the cost of the Owner's
Policy of Title Insurance required hereby, excluding the additional charges for
modification or deletion of standard exceptions, as hereinabove provided; (b)
Landlord's own attorney's fees; and (c) one-half (1/2) of any escrow fee charged
by the Title Company. On or before Closing, Tenant shall pay: (1) Tenant's own
attorneys' fees; (b) one-half (1/2) of any escrow fee charged by the Title
Company; (3) any charges for modification or deletion of standard exceptions to
the Owner's Policy of Title Insurance; (4) the official fees for filing and
recording Landlord's Deed; and (5) survey for the Property.
31
<PAGE>
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
32
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on July 1, 1997 /s/ BENJAMIN L. DOSKOCIL, SR.
------------------------------------
Benjamin L. Doskocil, Sr.
/s/ MARY FRANCES DOSKOCIL
------------------------------------
Mary Frances Doskocil
"TENANT"
Signed on July 1, 1997 DOSKOCIL MANUFACTURING COMPANY, INC.
By:/s/ LARRY E. REMBOLD
---------------------------------
Name: Larry E. Rembold
---------------------------------
Its: President
---------------------------------
33
<PAGE>
BUILDING F
EXHIBIT A
The following tract or tracts of land in Tarrant County, Texas:
Lot 5-R, Block 1, SOUTHLAND ACRES, an Addition to the City of
Arlington, Tarrant County, Texas, according to Plat recorded in
Volume 388-211, Page 18, Plat Records, Tarrant County, Texas.
<PAGE>
EXHIBIT 10.18
BUILDING F PARKING
INDUSTRIAL REAL ESTATE LEASE
ARTICLE 1
BASIC TERMS
-----------
This Article 1 contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article 1 explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.1 Date of Lease: July 1, 1997
-------------
Section 1.2 Landlord (include legal entity): Benjamin L. Doskocil and
-------------------------------
Mary Frances Doskocil. Address of Landlord: 5306 Mansfield Road, Arlington,
Texas 76017.
Section 1.3 Tenant (include legal entity): Doskocil Manufacturing
------------------------------
Company, Inc. Address of Tenant: 4209 Barnett, Arlington, Texas 76017
Section 1.4 Property: (include street address, approximate square footage
---------
and description) Building "F" Parking Lot located at 4209 Larry Lane, Arlington,
Texas, as more particularly described on Exhibit "A" attached hereto.
Section 1.5 Lease Term:
----------
(a) The initial term of this Lease shall be for ten (10) years ("Term")
----
and shall commence on the date hereof ("Commencement Date") and shall terminate
-----------------
at 5:00 P.M. local time on the tenth (10th) anniversary of the Commencement Date
(the "Expiration Date").
---------------
(b) Provided that Tenant is not in default of this Lease, Tenant shall
have the option to renew this Lease for three (3) renewal terms of five (5)
years each commencing upon the expiration of the initial ten (10) year Term or
any previous renewal term, as the case may be, and ending at 5:00 P.M. local
time five (5) years thereafter, unless any such renewal term shall sooner
terminate in accordance with this Lease or otherwise; provided that (i) Tenant
shall have notified Landlord in writing of Tenant's exercise of such renewal
option not later than six (6) months prior to the expiration of the initial Term
hereof or the then existing renewal term, as the case may be, (ii) at the time
such notice is given, this Lease
<PAGE>
shall be in full force and effect and Tenant shall not be in default hereunder
for such period of time as would entitle Landlord to terminate this Lease
pursuant to the terms hereof. Such renewal terms shall be upon all of the
agreements, terms, covenants and conditions hereof except that Tenant shall pay
Base Rent (hereinafter defined) to Landlord in monthly installments in an amount
equal to the greater of (i) the fair market rate (the "Fair Market Rent") for
----------------
the Real Property (as defined herein) or (ii) one hundred and ten percent (110%)
of the existing Base Rent on an "AS IS, WHERE IS" basis as of the commencement
of the renewal term, as designated by Landlord within twenty (20) days after
Landlord receives Tenant's renewal notice, but in no event greater than the rate
of Base Rent in effect at the scheduled expiration of the Term or the applicable
renewal term plus twenty-five percent (25%) thereof. In addition, during the
renewal term, Tenant shall pay all other rent and other amounts due under the
Lease. If Tenant does not approve of Landlord's designation of the Base Rent for
the renewal term, then Tenant, as its sole remedy, may submit in writing to
Landlord within ten (10) days after the Landlord's delivery of its determination
Fair Market Rent to Tenant (the "Renewal Commencement Date"), its good faith
-------------------------
determination of Fair Market Rent with appropriate back-up documentation. If the
Tenant's determination of Fair Market Rent is within ten percent (10%) of the
Landlord's determination of the same, the "Fair Market Rent" shall equal the
----------------
median number between each of the Tenant's and Landlord's determination (but in
no event shall the Fair Market Rent be less than the Base Rent existing on the
last day of the Term plus ten percent (10%)). If the Tenant's determination of
Fair Market Rent is not within ten percent (10%) of the Landlord's determination
---
of the same, each of the Landlord and the Tenant shall choose an appraiser on
the eleventh (11th) day after the Renewal Commencement Date to determine the
"fair market rent" and the initial determinations shall be disregarded for all
purposes in determining the Fair Market Rent. Each appraiser shall diligently
attempt to agree on the Fair Market Rent on or before the twenty-fourth (24th)
day after the Renewal Commencement Date. If such appraisers agree on the Fair
Market Rent on or before the twenty-fourth day after the Renewal Commencement
Date, such agreed sum shall constitute the "Fair Market Rent". If the appraisers
have not agreed on the Fair Market Rent by such day, (a) the appraisers shall
select an independent third appraiser (the "Final Appraiser"), and (b) each such
---------------
original appraiser shall deliver in writing to the Final Appraiser their last
determination of the sum (each such sum being hereinafter referred to as the
"Appraisal Price") that such appraiser believes is the Fair Market Rent. On or
---------------
before the twenty-ninth (29th) day after the Renewal Commencement Date, the
Final Appraiser shall choose one Appraisal Price or the other Appraisal Price as
the "Fair Market Rent". Notwithstanding anything to the contrary herein, in no
----------------
event shall the Fair Market Rent be less than the Base Rent in effect at the
last day of the Term plus ten percent (10%) thereof. Tenant shall have no
further renewal rights after the expiration of such renewal terms. Upon the
commencement of each renewal term, (x) the renewal term shall be added to and
become part of the Term, (y) any reference in this
2
<PAGE>
Lease, to the "Term", the "term of this Lease" or any similar expression shall
----
be deemed to include the renewal terms, and (z) the Expiration Date shall become
the expiration of the applicable renewal term .
Section 1.6 Permitted Uses: (See Article Five) Tenant may use the
--------------
Property for any lawful manufacturing or distribution purpose, including to
operate its business as operated on the day immediately preceding this Lease.
Section 1.7 Tenant's Guarantor: (If none, so state) None.
------------------
Section 1.8 Brokers: (See Article 14) (if none, so state) None.
-------
Landlord's Broker: None.
Tenant's Broker: None.
Section 1.9 Commission Payable to Landlord's Broker: (See Article 14) $
---------------------------------------
None
- ----
Section 1.10 Initial Security Deposit: (See Section 3.3) None.
------------------------
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: N/A
------------------------------------------
Section 1.12 Rent and Other Charges Payable by Tenant: See below.
----------------------------------------
(a) Base Rent. Tenant shall pay to Landlord, without notice or
---------
demand, in lawful money of the United States of America, at the office of
Landlord or at such other place as Landlord may designate, the following: annual
fixed rent ("Base Rent") of $44,000.04 per annum for the period commencing with
---------
the Commencement Date, payable in equal monthly installments in advance on the
first day of each and every month during the Term, of $3,666.67 except that the
first installment of Base Rent shall be apportioned and shall be payable on the
Commencement Date if the Commencement Date shall occur on a date other than the
first day of a month and except that the installment of Base Rent due in the
month that the Expiration Date occurs shall be apportioned if the Expiration
Date shall occur on a date other than the last of a month. Commencing upon the
first day of the 61st month of the Lease, the Base Rent shall be increased by
ten percent (10%) more than the Base Rent that existed on the preceding day.
(b) Other Periodic Payments. (i) Real Property Taxes above the
-----------------------
"Base Real Property Taxes" (See Section 4.2); (ii) Utilities (See Section 4.3);
(iii) Impounds for
3
<PAGE>
Tenant's Share of Insurance Premiums and Property Taxes (See Section 4.7); (iv)
Maintenance, Repairs and Alterations (See Article 6).
Section 1.13 Costs and Charges Payable by Landlord. (a) Base Real
-------------------------------------
Property Taxes (See Section 4.2); (b) Insurance Premiums (See Section 4.4(c);
(c) Maintenance and Repair (See Article 6). Tenant, at its expense, shall take
good care of the Property. Tenant shall promptly make all repairs, interior or
exterior, ordinary or extraordinary, as and when needed to preserve the Property
and any Improvements, therein in good working order and condition other than (a)
repairs necessitated by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors, invitees or licensees, and (b)
maintenance and repairs to the Building's roof, foundation and structural
integrity except as a result of the negligence or willful acts of the Tenant or
its agents, employees, contractors, invitees or licensees. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be at least equal in quality and class to the original work
or installation.
Section 1.14 Landlord's Share of Profit on Assignment or Sublease: (See
----------------------------------------------------
Section 9.5) Landlord's share shall equal seventy percent (70%) of the Profit
(the "Landlord's Share").
Section 1.15 Riders: The following Riders are attached to and made a part
------
of this Lease: (If none, so state) None.
ARTICLE 2
LEASE TERM
----------
Section 2.1 Lease of Property For Lease Term. Landlord leases the
--------------------------------
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.5 above and shall
begin and end on the dates specified in Section 1.5 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.5 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.2 Intentionally Omitted.
Section 2.3 Intentionally Omitted.
4
<PAGE>
Section 2.4 Holding Over. Tenant shall vacate the Property upon the
------------
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall be
a "month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by twenty-five percent (25%).
ARTICLE 3
BASE RENT
---------
Section 3.1 Time and Manner of Payment. Upon execution of this Lease,
--------------------------
Tenant shall pay Landlord the Base Rent in the amount stated In Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
ARTICLE 4
OTHER CHARGES PAYABLE BY TENANT
-------------------------------
Section 4.1 Additional Rent. All charges payable by Tenant other than
---------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.2 Property Taxes.
--------------
(a) Real Property Taxes. Landlord shall pay the "Base Real
-------------------
Property Taxes" on the Property during the Lease Term. Base Real Property Taxes
are real property taxes applicable to the Property as shown on the tax bill for
the most recent tax fiscal year ending prior to the Commencement Date. As of the
first day of each of the sixty-first (61st), seventy-third (73rd), eighty-fifth
(85th), ninety-seventy (97th) and one hundred and ninth (109th) months of the
Term of this Lease, Tenant shall pay the Landlord, the amount, if any, by which
the real property taxes for the current calendar year are in excess of the real
property taxes attributable for calendar year 1996. Subject to Paragraph 4.2(c),
Tenant shall
5
<PAGE>
make such payments within fifteen (15) days after receipt of Landlord's
statement showing the amount and computation of such increase. Landlord shall
reimburse Tenant for any real property taxes paid by Tenant covering any period
of time prior to or after the Lease Term.
(b) Definition of "Real Property Tax". "Real property tax" means:
--------------------------------
(i) any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalk's, road maintenance, refuse or other services provided to the Property
by any governmental agency; (iv ) any tax imposed upon this transaction or based
upon a re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed,
----------------
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.2(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord within
fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
-----------------------
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property belonging
to Tenant. Tenant shall try to have personal property taxed separately from
the Property.
(ii) If any of Tenant's personal property is taxed with
the Property, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from
Landlord for such personal property taxes.
Section 4.3 Utilities. Tenant shall pay, directly to the appropriate
---------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of
6
<PAGE>
Tenant's proportionate share of the cost of such utilities and services and
Tenant shall pay such share to Landlord within fifteen (15) days after receipt
of Landlord's written statement.
Section 4.4 Insurance Policies.
------------------
(a) Liability Insurance. During the Lease Term, Tenant shall
-------------------
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be Ten Million Dollars ($10,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.4(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.5, if the matters giving rise to the indemnity under
Section 5.5 result from the negligence of Tenant. The amount and coverage of
such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary Insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
------------------------------------
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant
on the Property.
(c) Payment of Premiums.
-------------------
(i) Landlord shall pay the "Premiums" for the insurance
policies maintained by Landlord under Paragraph 4.4(b). Notwithstanding
the previous sentence, Tenant shall be obligated to pay the Premiums for
the insurance to the
7
<PAGE>
extent such Premiums increase as a result of Tenant's use of the Property.
For example, if Tenant changes its use of the Property to include an
activity which is inherently more dangerous than its use of the Property as
of the Commencement Date, Tenant shall be obligated to pay for the increase
in Premium resulting from such activity on the Property.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain
under this Lease shall include a provision which requires the insurance
carrier to give Landlord not less than thirty (30) days' written notice
prior to any cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which
case Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant and Landlord shall maintain all insurance
required under this Lease with companies holding a "General Policy Rating"
of A-12 or better, as set forth In the most current issue of "Best Key
Rating Guide". Landlord and Tenant acknowledge the insurance markets are
rapidly changing and that insurance in the form and amounts described in
this Section 4.4 may not be available in the future. Tenant acknowledges
that the insurance described in this Section 4.4 is for the primary benefit
of Landlord, If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable
in the insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby waive any and all
rights of recovery against the other, or against the officers, employees,
agents or representatives of the other, for loss of or damage to its
property or the property of others under its control,
8
<PAGE>
if such loss or damage is covered by any insurance policy in force (whether
or not described in this Lease) at the time of such loss or damage. Upon
obtaining the required policies of insurance, Landlord and Tenant shall
give notice to the insurance carriers of this mutual waiver of subrogation.
Section 4.5 Late Charges. Tenant's failure to pay rent promptly may cause
------------
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges end late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment within ten
(10) days after it becomes due, Tenant shall pay Landlord a late charge equal to
ten percent (10%) of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment.
Section 4.6 Interest on Past Due Obligations. Any amount owed by Tenant
--------------------------------
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of Interest on such amounts shall not excuse or cure any
default by Tenant under this Lease, if the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.7 Impounds for Insurance Premiums and Real Property Taxes. If
-------------------------------------------------------
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant to Landlord under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-Interest bearing impound account, if unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the Impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under this
Lease.
9
<PAGE>
ARTICLE 5
USE OF PROPERTY
---------------
Section 5.1 Permitted Uses. Tenant may use the Property only for the
--------------
Permitted Uses set forth in Section 1.6 above.
Section 5.2 Manner of Use. Tenant shall not cause or permit the Property
-------------
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act provided that if any
capital improvements to the Property are required to be made for compliance and
the benefit or useful life of such capital improvements extends beyond the Lease
Term (as such term may be extended by exercise of any options), the useful life
of such capital improvements shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Section 5.3 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes" "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord provided that Landlord is
deemed to have consented to the use of the Hazardous Materials, and reasonable
replacements or substitution thereof, in use on the Property immediately prior
to the Commencement Date. Landlord shall be entitled to take into account such
other factors or facts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall
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Landlord be required to consent to the installation or use of any storage tanks
on the Property.
Section 5.4 Signs and Auctions. Tenant shall not place any signs on the
------------------
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.5 Indemnity. Tenant shall indemnify Landlord against and hold
---------
Landlord harmless from any and all costs, claims or liability arising subsequent
to the Commencement Date from: (a) Tenant's use of the Property subsequent to
the Commencement Date; (b) the conduct of Tenant's business or anything else
done or permitted by Tenant to be done in or about the Property subsequent to
the Commencement Date, including any contamination of the Property or any other
property resulting from the presence or use of Hazardous Material caused or
permitted by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant subsequent to
the Commencement Date. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence
or willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.6 Landlord's Access. Landlord or its agents may enter the
-----------------
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems reasonably necessary.
Landlord shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place customary "For Sale" or "For Lease" signs on the
Property.
Section 5.7 Quiet Possession. It Tenant pays the rent and complies with
----------------
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease,
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ARTICLE 6
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
-----------------------------------------------------------
Section 6.1 Existing Conditions. Tenant accepts the Property in its
-------------------
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein or in the Recapitalization Agreement dated July 1, 1997 by and among
Enterprise Partners III, L.P., a Delaware limited partnership, Enterprise
Partners III Associates, L.P., a Delaware limited partnership, Enterprise
Partners IV, L.P., a Delaware limited partnership, Enterprise Partners IV
Associates, L.P., a Delaware limited partnership, Enterprise Management Partners
Corporation, a California corporation, EP Texas Company, LLC, a Texas limited
liability company, Benjamin L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock
International, Inc., a Texas corporation, Doskocil Manufacturing Company, Inc.,
a Texas corporation, and Spectrum Polymers, Ltd., a Texas limited partnership,
Tenant acknowledges that neither Landlord nor any agent of Landlord has made any
representation as to the condition of the Property or the suitability of the
Property for Tenant's intended use. Tenant represents and warrants that Tenant
has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease.
Section 6.2 Exemption of Landlord from Liability. Except for Landlord
------------------------------------
defaults under Section 6.3, Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or from other sources or places;
or (d) any act or omission of any other tenant of Landlord. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions of
this Section 6.2 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.3 Landlord's Obligations. Subject to the provisions of Article
----------------------
7 (Damage or Destruction) and Article 8 (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on
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the Property in good order, condition and repair. However, Landlord shall not be
obligated to maintain or repair windows, doors, plate glass or the surfaces of
walls. Landlord shall not be obligated to make any repairs under this Section
6.3 until a reasonable time after receipt of a written notice from Tenant of the
need for such repairs. Tenant waives the benefit of any present or future law
which might give Tenant the right to repair the Property at Landlord's expense
or to terminate the Lease because of the condition of the Property.
Section 6.4 Tenant's Obligations.
--------------------
(a) Except as provided in Section 6.3, Article 7 (Damage or Destruction)
and Article 8 (Condemnation). Tenant shall keep all portions of the Property
(including nonstructural, interior, exterior, and landscaped areas, portions,
systems and equipment) in good order, condition and repair (including interior
repainting and refinishing, as needed). If any portion of the Property or any
system or equipment in the Property which Tenant is obligated to repair cannot
be fully repaired or restored, Tenant shall promptly replace such portion of the
Property or system or equipment in the Property, regardless of whether the
benefit of such replacement extends beyond the Lease Term; but if the benefit or
useful life of such replacement extends beyond the Lease Term (as such term may
be extended by exercise of any options), the useful life of such replacement
shall be prorated over the remaining portion of the Lease Term (as extended),
and Tenant shall be liable only for that portion of the cost which is applicable
to the Lease Term (as extended). Tenant shall maintain a preventive maintenance
contract providing for the regular inspection and maintenance of the heating and
air conditioning system by a licensed heating and air conditioning contractor.
Landlord shall have the right, upon written notice to Tenant, to undertake the
responsibility for preventive maintenance of the heating and air conditioning
system at Tenant's expense. In addition, Tenant shall, at Tenant's expense,
repair any damage to the roof, foundation or structural portions of walls caused
by Tenant's acts or omissions. It is the intention of Landlord and Tenant that,
at all times during the Lease Term, Tenant shall maintain the Property in an
attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.4 at Tenant's sole expense. If Tenant fails to maintain, repair or replace the
Property as required by this Section 6.4, Landlord may, upon ten (10) days'
prior notice to Tenant (except that no notice shall be required in the case of
an emergency), enter the Property and perform such maintenance or repair
(including replacement, as needed) on behalf of Tenant. In such case, Tenant
shall reimburse Landlord for all costs incurred in performing such maintenance
or repair immediately upon demand.
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Section 6.5 Alterations, Additions, and Improvements.
----------------------------------------
(a) Tenant shall not make any alterations, additions, or improvements to
the Property without Landlord's prior written consent, except for non-structural
alterations which do not exceed One Hundred Thousand Dollars ($100,000) in cost
cumulatively over the Lease Term and which are not visible from the outside of
any building of which the Property is part. Landlord may require Tenant to
provide demolition and/or lien and completion bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 6.5(a)
upon Landlord's written request. All alterations, additions, and improvements
shall be done in a good and workmanlike manner, in conformity with all
applicable laws and regulations, and by a contractor approved by Landlord. Upon
completion of any such work, Tenant shall provide Landlord with "as built"
Plans, copies of all construction contracts, and proof of payment for all labor
and materials.
(b) Tenant shall pay when due all claims for labor and material furnished
to the Property. Tenant shall give Landlord at least twenty (20) days' prior
written notice of the commencement of any work on the Property, regardless of
whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
Section 6.6 Condition Upon Termination. Upon the termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article 7 (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment;
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fencing or security gates; or other similar building operating equipment and
decorations except to the extent installed by Tenant.
ARTICLE 7
DAMAGE OR DESTRUCTION
---------------------
Section 7.1 Partial Damage to Property.
--------------------------
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.4(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient to
pay the entire cost of repair, or if the cause of the damage is not covered by
the insurance policies which Landlord maintains under Paragraph 4.4(b), Landlord
may elect either to (i) repair the damage as soon as reasonably possible, in
which case this Lease shall remain in full force and effect, or (ii) terminate
this Lease as of the date the damage occurred. Landlord shall notify Tenant
within thirty (30) days after receipt of notice of the occurrence of the damage
whether Landlord elects to repair the damage or terminate the Lease. If
Landlord elects to repair the damage, and, if the damage was due to an act or
omission of Tenant, or Tenant's employees, agents, contractors or invitees,
Tenant shall pay Landlord the "deductible amount" (if any) under Landlord's
insurance policies and the difference between the actual cost of repair and any
insurance proceeds received by Landlord. If Landlord elects to terminate the
Lease, Tenant may elect to continue this Lease in full force and effect, in
which case Tenant shall repair any damage to the Property and any building in
which the Property is located. Tenant shall pay the cost of such repairs, except
that upon satisfactory completion of such repairs, Landlord shall deliver to
Tenant any insurance proceeds received by Landlord for the damage repaired by
Tenant. Tenant shall give Landlord written notice of such election within ten
(10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6) months of
the Lease Term and such damage will require more than thirty (30) days to
repair, either
15
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Landlord or Tenant may elect to terminate this Lease as of the date the damage
occurred, regardless of the sufficiency of any Insurance proceeds. The party
electing to terminate this Lease shall give written notification to the other
party of such election within thirty (30) days after Tenant's notice to Landlord
of the occurrence of the damage.
Section 7.2 Substantial or Total Destruction. If the Property is
--------------------------------
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.1), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months alter
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.3 Temporary Reduction of Rent. If the Property is destroyed or
---------------------------
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article 7, any rent payable during the period of such damage,
repair and/or restoration shall be reduced according to the degree, if any, to
which Tenant's use of the Property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.4 Waiver. Tenant waives the protection of any statute, code or
------
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.2 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8
CONDEMNATION
------------
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes
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title or possession, whichever occurs first. If more than twenty percent (20%)
of the floor area of the building in which the Property is located, or which is
located on the Property, is taken, either Landlord or Tenant may terminate this
Lease as of the date the condemning authority takes title or possession, by
delivering written notice to the other within ten (10) days after receipt of
written notice of such taking (or in the absence of such notice, within ten (10)
days after the condemning authority takes title or possession). If neither
Landlord nor Tenant terminates this Lease, this Lease shall remain in effect as
to the portion of the Property not taken, except that the Base Rent and
Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or removable
personal property; and (c) third, to Landlord, the remainder of such award,
whether as compensation for reduction in the value of the leasehold, the taking
of the fee, or otherwise. If this Lease is not terminated, Landlord shall repair
any damage to the Property caused by the Condemnation, except that Landlord
shall not be obligated to repair any damage for which Tenant has been reimbursed
by the condemning authority. If the severance damages received by Landlord are
not sufficient to pay for such repair, Landlord shall have the right to either
terminate this Lease or make such repair at Landlord's expense.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
-------------------------
Section 9.1 Landlord's Consent Required. No portion of the Property or
---------------------------
of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, sublease, transfer, operation of law, or
act of Tenant, without Landlord's prior written consent, except as provided in
Section 9.2 below. Landlord has the right to grant or withhold its consent as
provided in Section 9.5 below. Any attempted transfer without consent shall be
void and shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than fifty percent (50%) of the
partnership interests shall require Landlord's consent, if Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation (except as set forth in 9.2) shall require Landlord's
consent. Notwithstanding the foregoing, Tenant may mortgage, assign or transfer
its interest in this Lease to any lender and such lender or an affiliate or
designee may subsequently acquire Tenant's interest in this Lease by foreclosure
or assignment in lieu thereof, without Landlord's consent.
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Section 9.2 Tenant Affiliate. Tenant may assign this Lease or sublease
----------------
the Property, without Landlord's consent, (i) to any corporation which controls,
is controlled by or is under common control with Tenant, or to any corporation,
partnership, limited liability company or other legal entity resulting from a
reorganization or the merger of or consolidation with Tenant ("Tenant's
--------
Affiliate") or (ii) in the event of the public sale of stock of Tenant or
- ---------
Tenant's Affiliate or for subsequent transfers of stock whether or not such
transfers result in a change in control, provided that any assignee of the Lease
shall assume in writing all of Tenant's obligations under this Lease, or (iii)
in connection with the acquisition of or a business combination with another
business principally engaged in supplying products to the pet industry with
annual revenues in excess of $25,000,000, provided that any assignee of the
Lease shall assume in writing all of Tenant's obligations under this Lease.
Section 9.3 No Release of Tenant. No transfer permitted by this Article
--------------------
9, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article 9. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee defaults under
this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.
Section 9.4 Offer to Terminate. If Tenant desires to assign the Lease or
------------------
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.5 with respect to any proposed transfer shall
continue to apply.
Section 9.5 Landlord's Consent.
------------------
(a) Tenant's request for consent to any transfer described in Sections 9.1
shall set forth in writing the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g.,the term of and the rent and security
deposit payable under any proposed assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent, based on the following factors: (i)
the
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<PAGE>
business of the proposed assignee or subtenant and the proposed use of the
Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee, Tenant may nonetheless sublease
(but not assign), all or a portion of the Property to the proposed transferee,
but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the
Lease the Landlord's Share (stated in Section 1.14) of the Profit (defined
below) on such transaction as and when received by Tenant, unless Landlord
gives written notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
signed, and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt of Landlord's Share shall not be a consent to any
further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.5(b) shall be a material default of the Lease.
Section 9.6 No Merger. No merger shall result from Tenant's sublease of
---------
the Property under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all
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subtenancies or succeed to the interest of Tenant as sublandlord under any or
all subtenancies.
ARTICLE 10
DEFAULTS; REMEDIES
------------------
Section 10.1 Covenants and Conditions. Tenant's performance of each of
------------------------
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.2 Defaults. Tenant shall be in material default under this
--------
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.4;
(b) If Tenant fails to pay rent or any other charge within three (3) days
after delivery of notice that such amounts are past due;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within the thirty (30)-day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Paragraph is intended to satisfy any and all notice
requirements imposed by law on Landlord and is not in addition to any such
requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or
for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take
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possession (or if Tenant remains a debtor in possession) and such trustee or
Tenant transfers Tenant's interest hereunder, then Landlord shall receive, as
Additional Rent, the excess, if any, of the rent (or any other consideration)
paid in connection with such assignment or sublease over the rent payable by
Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.3 Remedies. On the occurrence of any material default by
--------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which Landlord had earned at the
time of the termination; (ii) the worth at the time of the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Landlord
would have earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which Tenant would have paid
for the balance of the Lease Term after the time of award exceeds the amount of
such rental loss that Tenant proves Landlord could have reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under the
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, any costs or expenses Landlord incurs
in maintaining or preserving the Property after such default, the cost of
recovering possession of the Property, expenses of reletting, including
necessary renovation or alteration of the Property, Landlord's reasonable
attorneys' fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (ii) above, the "worth at the time
of the award" is computed by allowing interest on unpaid amounts at the rate of
fifteen percent (15%) per annum, or such lesser amount as may then be the
maximum lawful rate. As used in subpart (iii) above, the "worth at the time of
the award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one percent
(10%). If Tenant has abandoned the Property,
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Landlord shall have the option of (i) retaking possession of the Property and
recovering from Tenant the amount specified in this Paragraph 10.3(a), or (ii)
proceeding under Paragraph 10.3(b);
(b) Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due.
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the state in which the Property is located.
Section 10.4 Intentionally Omitted.
---------------------
Section 10.5 Automatic Termination. Notwithstanding any other term or
---------------------
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.3 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to Landlord's
right to possession of the Property. All such damages suffered (apart from Base
Rent and other rent payable hereunder) shall constitute pecuniary damages which
must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.6 Cumulative Remedies. Landlord's exercise of any right or
-------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11
PROTECTION OF LENDERS
---------------------
Section 11.1 Subordination. Landlord shall have the right to subordinate
-------------
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall
22
<PAGE>
execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property during the Lease Term shall
not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, dead of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this Lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
Section 11.2 Attornment. If Landlord's interest in the Property is
----------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.3 Signing of Documents. Tenant shall sign and deliver any
--------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant falls to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.4 Estoppel Certificates.
---------------------
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been cancelled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not to
Tenant's knowledge in default under this Lease (or, if Landlord is claimed to be
in default, stating why); and (v) such other representations or information with
respect to Tenant or the Lease as Landlord may reasonably request or which any
prospective purchaser or encumbrancer of the Property may require. Tenant shall
deliver such statement to Landlord within ten (10) days after Landlord's
request. Landlord
23
<PAGE>
may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such ten
(10)-day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance: and (iv) that Landlord is not
in default under the Lease. In such event, Tenant shall be estopped from
denying the truth of such facts.
Section 11.5 Tenant's Financial Condition. Within ten (10) days after
----------------------------
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE 12
LEGAL COSTS
-----------
Section 12.1 Legal Proceedings. (a) If Tenant or Landlord shall be in
-----------------
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach of
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the party in whose favor a judgment is entered,
shall receive a reasonable sum as attorneys' fees and casts. The losing party in
such action shall pay such attorneys' fees and costs. Tenant shall also
indemnify Landlord against and hold Landlord harmless from all costs, expenses,
demands and liability Landlord may incur if Landlord becomes or is made a party
to any claim or action (a) instituted by Tenant against any third party, or by
any third party against Tenant, or by or against any person holding any interest
24
<PAGE>
under or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for Tenant or such
other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
(b) Notwithstanding anything to the contrary provided herein, if a
controversy, claim or dispute arises out of or relates to this Lease, or the
breach thereof, and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration as set forth below.
If the parties hereto cannot solve a dispute by mediation within 60 days of
the commencement thereof, any controversy or claim arising out of or relating to
this Lease, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The parties hereto further agree that the
above controversy be submitted to three arbitrators. The parties hereto further
agree to faithfully observe this agreement and the rules, and that the parties
will abide by and perform any award rendered by the arbitrators, and that a
judgment of the court having jurisdiction may be entered on the award.
Section 12.2 Landlord's Consent. Tenant shall pay Landlord's reasonable
------------------
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article 9 (Assignment and Subletting), or in connection with any
other act which Tenant proposes to do and which requires Landlord's consent
ARTICLE 13
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Non-Discrimination. Tenant promises, and it is a condition
------------------
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
25
<PAGE>
Section 13.2 Landlord's Liability; Certain Duties.
------------------------------------
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is obligated
to perform the obligations of Landlord under this Lease only during the time
such Landlord owns such interest or title. Any Landlord who transfers its title
or interest is relieved of all liability with respect to the obligations of
Landlord under this Lease to be performed on or after the date of transfer.
However each Landlord shall deliver to its transferee all funds that Tenant
previously paid if such funds have not yet been applied under the terms of this
Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall have
any personal liability under this Lease.
Section 13.3 Severability. A determination by a court of competent
------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.4 Interpretation. The captions of the Articles or Sections of
--------------
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
26
<PAGE>
Section 13.5 Incorporation of Prior Agreements; Modifications. This Lease
------------------------------------------------
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.6 Notices. All notices required or permitted under this Lease
-------
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.3 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.2 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.7 Waivers. All waivers must be in writing and signed by the
-------
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.8 No Recordation. Tenant shall not record this Lease without
--------------
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.9 Binding Effect; Choice of Law. This Lease binds any party
-----------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 Corporate Authority; Partnership Authority. If Tenant is a
------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the
27
<PAGE>
partnership, that he or it has full authority to sign for the partnership and
that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11 Joint and Several Liability. All parties signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12 Force Majeure. If Landlord cannot perform any of its
-------------
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control Include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13 Execution of Lease. This Lease may be executed in
------------------
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14 Survival. All representations and warranties of Landlord
--------
and Tenant shall survive the termination of this Lease.
Section 13.15 Right of First Refusal.
----------------------
(a) Subject and subordinate to the rights of Related Parties (hereinafter
defined) as set forth in paragraph (b) hereinbelow, Tenant, and its successors
-------------
and assigns, provided that Tenant is not in default of this Lease, shall have a
right of first refusal exercisable from the Commencement Date through the Term
including all extension terms and including the date upon which this Lease
expires with respect to the purchase of the Property. Such right of refusal
shall be exercisable upon and shall be subject to the following conditions:
(1) Upon receipt by Landlord of a bona fide offer acceptable to
Landlord to purchase the Property or to purchase any vacant or undeveloped
contiguous property (herein called the "Bona Fide Offer"), Landlord shall
---------------
notify Tenant of the existence and terms and conditions of the Bona Fide
Offer.
28
<PAGE>
(2) Upon Tenant's receipt of notice of the Bona Fide Offer from
Landlord, Tenant shall have thirty (30) business days to notify Landlord in
writing that Tenant irrevocably elects to (a) purchase the Property or
contiguous property upon all of the terms and conditions stated in the Bona
Fide Offer, including the purchase price stated in the Bona Fide Offer and
(b) simultaneously with Tenant's election in the preceding clause (a), at
Tenant's option, purchase any vacant or undeveloped contiguous property
owned by Landlord that is not subject to Bona Fide Offer at the fair market
value for such property as agreed by the parties. If the parties are unable
to agree upon the fair market value of the Property within ten (10) days
after delivery of Tenant's election to purchase the Property (the "Option
------
Exercise Notice"), then the fair market value shall be determined by an
---------------
appraiser selected by the parties who is a member of the American Institute
of Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the
selection of an appraiser, each party shall select a qualified appraiser
and the two selected appraisers shall select a qualified third appraiser
who will determine the fair market value of the Property. If Tenant does
not exercise its right of refusal under this paragraph (a), either by
-------------
notifying Landlord in writing of its election not to exercise such right or
by failing to notify Landlord in writing of Tenant's election within the
thirty (30) business day period following its receipt of notice of the Bona
Fide Offer to purchase the Property, then Tenant conclusively shall be
deemed to have elected not to purchase the Property and Landlord shall be
entitled to sell the Property to any third party at any time within 6
months of the Bona Fide Offer upon such terms of the Bona Fide Offer,
without any further notice to Tenant. If Tenant elects to purchase the
Property within said thirty (30) business day period, the Tenant promptly
shall enter into a purchase agreement with Landlord to buy the Property on
the terms and conditions set forth in such Bona Fide Offer with appropriate
adjustments as set forth in this paragraph (a). Notwithstanding anything
-------------
to the contrary set forth herein, the Tenants rights under this Section
shall not apply to any transfer, sale, or assignment from the Landlord to
Benjamin Doskocil, Mary Frances Doskocil, any child, family member or
relative of either Benjamin or Mary Frances Doskocil, any entity owned or
controlled by any of the foregoing or any charitable organization, any
trust created for the benefit of any of the foregoing (the "Related
-------
Parties").
-------
(b) Notwithstanding anything to the contrary provided herein, Landlord may
at any time transfer, sell or assign the Property in any manner to a Related
Party without the consent of Tenant, and paragraph (a) hereinabove hereof shall
-------------
be subject and subordinate to
29
<PAGE>
the rights of Related Parties with respect to the Property provided that upon
any transfer to a Related Party, the Related Party shall be bound by the terms
of paragraph (a).
Section 13.16 Purchase Option.
---------------
(a) Landlord hereby grants to Tenant the option to elect to purchase,
during the sixty-first (61st) through the sixty-fourth (64th) month of the Term
and during the one hundred and twentieth (120th) month of the Term and to close
the purchase within 60 days of the election, all of Landlord's right, title and
interest in the Property, including without limitation, the buildings, parking
lot, fixtures and improvements constructed on the land, all of Landlord's
equipment, machinery, furniture, inventory and other personal property located
upon and used in connection with the operation of the Property. At the same
time as the Tenant's delivery of the Option Exercise Notice (hereinafter
defined) to Landlord, Tenant may elect to purchase any or all vacant or
undeveloped land that is contiguous to the Property upon the same terms and
conditions set forth herein.
(b) The total base purchase price for the Property (the "Base Purchase
-------------
Price") shall be ninety-five percent (95%) of the fair market value of the
- -----
Property as such fair market value is agreed upon by the parties. If the
parties are unable to agree upon the fair market value of the Property within
ten (10) days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined by an
----------------------
appraiser selected by the parties who is a member of the American Institute of
Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the selection
of an appraiser, each party shall select a qualified appraiser and the two
selected appraisers shall select a qualified third appraiser who will determine
the fair market value of the Property. The Purchase Price shall be paid in cash
at the Closing.
(c) At the Closing (hereinafter defined), Landlord shall convey the
Property to Tenant by special warranty deed (the "Deed") in form and substance
----
reasonably acceptable to Tenant and Landlord.
(d) The closing of the transaction pursuant to the Option Exercise Notice
(the "Closing") shall be at the main office of Old Republic Title, 1501 Summit,
-------
Fort Worth, Texas (the "Title Company"), shall be held at 10:00 o'clock a.m.,
-------------
Arlington time, on the closing date.
30
<PAGE>
(e) At the Closing, Landlord shall cause the following items to be
furnished to Tenant:
(1) The Deed in the form required hereinabove, duly executed and
acknowledged by Landlord.
(2) A fully paid Owner's Policy of Title Insurance covering the
Property issued by the Title Company in accordance with the terms of this
Agreement insuring Tenant's title in the amount of the Base Purchase Price,
containing no liens against the Landlord's fee interest in the Property.
(3) A duly executed and acknowledged bill of sale conveying title to
all personalty and all intangible property to Tenant.
(4) A duly executed and acknowledged assignment in favor of Tenant of
all service, employment and management contracts as are then in force and
pertaining to the Property and designated by Tenant, and executed copies of
all such contracts.
(5) Evidence reasonably satisfactory to Tenant and the Title Company
of the Landlord's closing representatives' power and authority to
consummate the transactions.
(f) Subject to Landlord's full performance of the conditions precedent
listed in and required by paragraph (e) above, at the Closing, Tenant shall:
-------------
(1) Pay to Landlord the Base Purchase Price in cash.
(2) Furnish evidence reasonably satisfactory to Landlord and the Title
Company of the Tenant's and Tenant's closing representatives' power and
authority to consummate the transactions.
(g) On or before Closing, Landlord shall pay: (1) the cost of the Owner's
Policy of Title Insurance required hereby, excluding the additional charges for
modification or deletion of standard exceptions, as hereinabove provided; (b)
Landlord's own attorney's fees; and (c) one-half (1/2) of any escrow fee charged
by the Title Company. On or before Closing, Tenant shall pay: (1) Tenant's own
attorneys' fees; (b) one-half (1/2) of any escrow fee charged by the Title
Company; (3) any charges for modification or deletion of standard exceptions to
the Owner's Policy of Title Insurance; (4) the official fees for filing and
recording Landlord's Deed; and (5) survey for the Property.
31
<PAGE>
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
32
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on July 1, 1997 /s/ Benjamin L. Doskocil, Sr.
--------------------------------
Benjamin L. Doskocil, Sr.
/s/ Mary Frances Doskocil
--------------------------------
Mary Frances Doskocil
"TENANT"
Signed on July 1, 1997 DOSKOCIL MANUFACTURING COMPANY,
INC.
By: /s/ Larry E. Rembold
-----------------------------
Name: Larry E. Rembold
---------------------------
Its: President
----------------------------
33
<PAGE>
F PARKING
EXHIBIT A
The following tract or tracts of land in Tarrant County, Texas:
LOT 3-R, BLOCK 2, SOUTHLAND ACRES, AN ADDITION TO THE CITY OF
ARLINGTON, TARRANT COUNTY, TEXAS, ACCORDING TO PLAT RECORDED
IN VOLUME 388-200, PAGE 16, PLAT RECORDS, TARRANT COUNTY,
TEXAS.
<PAGE>
EXHIBIT 10.19
Building G
INDUSTRIAL REAL ESTATE LEASE
ARTICLE 1
BASIC TERMS
-----------
This Article 1 contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article 1 explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.1 Date of Lease: July 1, 1997
-------------
Section 1.2 Landlord (include legal entity): Marybe Investments, Ltd.
-------------------------------
Address of Landlord: 5306 Mansfield Road, Arlington, Texas 76017
Section 1.3 Tenant (include legal entity): Doskocil Manufacturing
-----------------------------
Company, Inc. Address of Tenant: 4209 Barnett, Arlington, Texas 76017
Section 1.4 Property: (include street address, approximate square footage
--------
and description) Building "G" located at 800 Stephens, Arlington, Texas, as
more particularly described as Exhibit "A" attached hereto.
-----------
Section 1.5 Lease Term:
----------
(a) The initial term of this Lease shall be for ten (10) years ("Term")
----
and shall commence on the date hereof ("Commencement Date") and shall
-----------------
terminate at 5:00 P.M. local time on the tenth (10th) anniversary of the
Commencement Date (the "Expiration Date").
---------------
(b) Provided that Tenant is not in default of this Lease, Tenant shall
have the option to renew this Lease for three (3) renewal terms of five (5)
years each commencing upon the expiration of the initial ten (10) year Term or
any previous renewal term, as the case may be, and ending at 5:00 P.M. local
time five (5) years thereafter, unless any such renewal term shall sooner
terminate in accordance with this Lease or otherwise; provided that (i) Tenant
shall have notified Landlord in writing of Tenant's exercise of such renewal
option not later than six (6) months prior to the expiration of the initial Term
hereof or the then existing renewal term, as the case may be, (ii) at the time
such notice is given, this Lease shall be in full force and effect and Tenant
shall not be in default hereunder for such period
<PAGE>
of time as would entitle Landlord to terminate this Lease pursuant to the terms
hereof. Such renewal terms shall be upon all of the agreements, terms,
covenants and conditions hereof except that Tenant shall pay Base Rent
(hereinafter defined) to Landlord in monthly installments in an amount equal to
the greater of (i) the fair market rate (the "Fair Market Rent") for the Real
----------------
Property (as defined herein) or (ii) one hundred and ten percent (110%) of the
existing Base Rent on an "AS IS, WHERE IS" basis as of the commencement of the
renewal term, as designated by Landlord within twenty (20) days after Landlord
receives Tenant's renewal notice, but in no event greater than the rate of Base
Rent in effect at the scheduled expiration of the Term or the applicable renewal
term plus twenty-five percent (25%) thereof. In addition, during the renewal
term, Tenant shall pay all other rent and other amounts due under the Lease. If
Tenant does not approve of Landlord's designation of the Base Rent for the
renewal term, then Tenant, as its sole remedy, may submit in writing to Landlord
within ten (10) days after the Landlord's delivery of its determination Fair
Market Rent to Tenant (the "Renewal Commencement Date"), its good faith
-------------------------
determination of Fair Market Rent with appropriate back-up documentation. If
the Tenant's determination of Fair Market Rent is within ten percent (10%) of
the Landlord's determination of the same, the "Fair Market Rent" shall equal the
----------------
median number between each of the Tenant's and Landlord's determination (but in
no event shall the Fair Market Rent be less than the Base Rent existing on the
last day of the Term plus ten percent (10%)). If the Tenant's determination of
Fair Market Rent is not within ten percent (10%) of the Landlord's determination
---
of the same, each of the Landlord and the Tenant shall choose an appraiser on
the eleventh (11th) day after the Renewal Commencement Date to determine the
"fair market rent" and the initial determinations shall be disregarded for all
purposes in determining the Fair Market Rent. Each appraiser shall diligently
attempt to agree on the Fair Market Rent on or before the twenty-fourth (24th)
day after the Renewal Commencement Date. If such appraisers agree on the Fair
Market Rent on or before the twenty-fourth day after the Renewal Commencement
Date, such agreed sum shall constitute the "Fair Market Rent". If the
appraisers have not agreed on the Fair Market Rent by such day, (a) the
appraisers shall select an independent third appraiser (the "Final Appraiser"),
---------------
and (b) each such original appraiser shall deliver in writing to the Final
Appraiser their last determination of the sum (each such sum being hereinafter
referred to as the "Appraisal Price") that such appraiser believes is the Fair
---------------
Market Rent. On or before the twenty-ninth (29th) day after the Renewal
Commencement Date, the Final Appraiser shall choose one Appraisal Price or the
other Appraisal Price as the "Fair Market Rent". Notwithstanding anything to
----------------
the contrary herein, in no event shall the Fair Market Rent be less than the
Base Rent in effect at the last day of the Term plus ten percent (10%) thereof.
Tenant shall have no further renewal rights after the expiration of such renewal
terms. Upon the commencement of each renewal term, (x) the renewal term shall
be added to and become part of the Term, (y) any reference in this Lease, to the
"Term", the "term of this Lease" or any similar expression shall be deemed to
----
2
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include the renewal terms, and (z) the Expiration Date shall become the
expiration of the applicable renewal term.
Section 1.6 Permitted Uses: (See Article Five) Tenant may use the
--------------
Property for any lawful manufacturing or distribution purpose, including to
operate its business as operated on the day immediately preceding this Lease.
Section 1.7 Tenant's Guarantor: (If none, so state) None.
------------------
Section 1.8 Brokers: (See Article 14) (if none, so state) None.
-------
Landlord's Broker: None.
Tenant's Broker: None.
Section 1.9 Commission Payable to Landlord's Broker: (See Article 14) $
---------------------------------------
None
- ----
Section 1.10 Initial Security Deposit: (See Section 3.3) None.
------------------------
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: N/A
------------------------------------------
Section 1.12 Rent and Other Charges Payable by Tenant: See below.
----------------------------------------
(a) Base Rent. Tenant shall pay to Landlord, without notice or
---------
demand, in lawful money of the United States of America, at the office of
Landlord or at such other place as Landlord may designate, the following:
annual fixed rent ("Base Rent") of $1,080,000.00 per annum for the period
---------
commencing with the Commencement Date, payable in equal monthly installments in
advance on the first day of each and every month during the Term, of $90,000.00
except that the first installment of Base Rent shall be apportioned and shall be
payable on the Commencement Date if the Commencement Date shall occur on a date
other than the first day of a month and except that the installment of Base Rent
due in the month that the Expiration Date occurs shall be apportioned if the
Expiration Date shall occur on a date other than the last of a month.
Commencing upon the first day of the 61st month of the Lease, the Base Rent
shall be increased by ten percent (10%) more than the Base Rent that existed on
the preceding day.
(b) Other Periodic Payments. (i) Real Property Taxes above the "Base
-----------------------
Real Property Taxes" (See Section 4.2); (ii) Utilities (See Section 4.3); (iii)
Impounds for Tenant's Share of Insurance Premiums and Property Taxes (See
Section 4.7); (iv) Maintenance, Repairs and Alterations (See Article 6).
3
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Section 1.13 Costs and Charges Payable by Landlord. (a) Base Real
-------------------------------------
Property Taxes (See Section 4.2); (b) Insurance Premiums (See Section 4.4(c);
(c) Maintenance and Repair (See Article 6). Tenant, at its expense, shall take
good care of the Property. Tenant shall promptly make all repairs, interior or
exterior, ordinary or extraordinary, as and when needed to preserve the Property
and any Improvements, therein in good working order and condition other than (a)
repairs necessitated by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors, invitees or licensees, and (b)
maintenance and repairs to the Building's roof, foundation and structural
integrity except as a result of the negligence or willful acts of the Tenant or
its agents, employees, contractors, invitees or licensees. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be at least equal in quality and class to the original work
or installation.
Section 1.14 Landlord's Share of Profit on Assignment or Sublease: (See
----------------------------------------------------
Section 9.5) Landlord's share shall equal seventy percent (70%) of the Profit
(the "Landlord's Share").
Section 1.15 Riders: The following Riders are attached to and made a part
------
of this Lease: (If none, so state) None
ARTICLE 2
LEASE TERM
----------
Section 2.1 Lease of Property For Lease Term. Landlord leases the
--------------------------------
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.5 above and shall
begin and end on the dates specified in Section 1.5 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.5 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.2 Intentionally Omitted.
Section 2.3 Intentionally Omitted.
Section 2.4 Holding Over. Tenant shall vacate the Property upon the
------------
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the
4
<PAGE>
Property. If Tenant does not vacate the Property upon the expiration or earlier
termination of the Lease and Landlord thereafter accepts rent from Tenant,
Tenant's occupancy of the Property shall be a "month-to-month" tenancy, subject
to all of the terms of this Lease applicable to a month-to-month tenancy, except
that the Base Rent then in effect shall be increased by twenty-five percent
(25%).
ARTICLE 3
BASE RENT
---------
Section 3.1 Time and Manner of Payment. Upon execution of this Lease,
--------------------------
Tenant shall pay Landlord the Base Rent in the amount stated In Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
ARTICLE 4
OTHER CHARGES PAYABLE BY TENANT
-------------------------------
Section 4.1 Additional Rent. All charges payable by Tenant other than
---------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.2 Property Taxes.
--------------
(a) Real Property Taxes. Landlord shall pay the "Base Real Property
-------------------
Taxes" on the Property during the Lease Term. Base Real Property Taxes are real
property taxes applicable to the Property as shown on the tax bill for the most
recent tax fiscal year ending prior to the Commencement Date. As of the first
day of each of the sixty-first (61st), seventy-third (73rd), eighty-fifth
(85th), ninety-seventy (97th) and one hundred and ninth (109th) months of the
Term of this Lease, Tenant shall pay the Landlord, the amount, if any, by which
the real property taxes for the current calendar year are in excess of the real
property taxes attributable for calendar year 1996. Subject to Paragraph
4.2(c), Tenant shall make such payments within fifteen (15) days after receipt
of Landlord's statement showing the amount and computation of such increase.
Landlord shall reimburse Tenant for any real property taxes paid by Tenant
covering any period of time prior to or after the Lease Term.
5
<PAGE>
(b) Definition of "Real Property Tax". "Real property tax" means:
---------------------------------
(i) any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalk's, road maintenance, refuse or other services provided to the Property
by any governmental agency; (iv) any tax imposed upon this transaction or based
upon a re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed,
----------------
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.2(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
-----------------------
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the
Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from
Landlord for such personal property taxes.
Section 4.3 Utilities. Tenant shall pay, directly to the appropriate
---------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
6
<PAGE>
Section 4.4 Insurance Policies.
------------------
(a) Liability Insurance. During the Lease Term, Tenant shall
-------------------
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be Ten Million Dollars ($10,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.4(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.5, if the matters giving rise to the indemnity under
Section 5.5 result from the negligence of Tenant. The amount and coverage of
such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary Insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
------------------------------------
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain
insurance for Tenant's fixtures or equipment or building improvements installed
by Tenant on the Property.
(c) Payment of Premiums.
-------------------
(i) Landlord shall pay the "Premiums" for the insurance
policies maintained by Landlord under Paragraph 4.4(b). Notwithstanding
the previous sentence, Tenant shall be obligated to pay the Premiums for
the insurance to the extent such Premiums increase as a result of Tenant's
use of the Property. For example, if Tenant changes its use of the
Property to include an activity which is inherently more dangerous than its
use of the Property as of the Commencement
7
<PAGE>
Date, Tenant shall be obligated to pay for the increase in Premium
resulting from such activity on the Property.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the insurance carrier
to give Landlord not less than thirty (30) days' written notice prior to
any cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which
case Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant and Landlord shall maintain all insurance required
under this Lease with companies holding a "General Policy Rating" of A-12
or better, as set forth In the most current issue of "Best Key Rating
Guide". Landlord and Tenant acknowledge the insurance markets are rapidly
changing and that insurance in the form and amounts described in this
Section 4.4 may not be available in the future. Tenant acknowledges that
the insurance described in this Section 4.4 is for the primary benefit of
Landlord, If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable
in the insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at
the time of such loss or damage. Upon obtaining the
8
<PAGE>
required policies of insurance, Landlord and Tenant shall give notice to
the insurance carriers of this mutual waiver of subrogation.
Section 4.5 Late Charges. Tenant's failure to pay rent promptly may cause
------------
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges end late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to ten percent (10%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
Section 4.6 Interest on Past Due Obligations. Any amount owed by Tenant
--------------------------------
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of Interest on such amounts shall not excuse or cure any
default by Tenant under this Lease, if the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.7 Impounds for Insurance Premiums and Real Property Taxes. If
-------------------------------------------------------
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant to Landlord under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-Interest bearing impound account, if unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the Impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under this
Lease.
ARTICLE 5
USE OF PROPERTY
---------------
Section 5.1 Permitted Uses. Tenant may use the Property only for the
--------------
Permitted Uses set forth in Section 1.6 above.
9
<PAGE>
Section 5.2 Manner of Use. Tenant shall not cause or permit the Property
-------------
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act provided that if any
capital improvements to the Property are required to be made for compliance and
the benefit or useful life of such capital improvements extends beyond the Lease
Term (as such term may be extended by exercise of any options), the useful life
of such capital improvements shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Section 5.3 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes" "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord provided that Landlord is
deemed to have consented to the use of the Hazardous Materials, and reasonable
replacements or substitution thereof, in use on the Property immediately prior
to the Commencement Date. Landlord shall be entitled to take into account such
other factors or facts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall Landlord be
required to consent to the installation or use of any storage tanks on the
Property.
Section 5.4 Signs and Auctions. Tenant shall not place any signs on the
------------------
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
10
<PAGE>
Section 5.5 Indemnity. Tenant shall indemnify Landlord against and hold
---------
Landlord harmless from any and all costs, claims or liability arising subsequent
to the Commencement Date from: (a) Tenant's use of the Property subsequent to
the Commencement Date; (b) the conduct of Tenant's business or anything else
done or permitted by Tenant to be done in or about the Property subsequent to
the Commencement Date, including any contamination of the Property or any other
property resulting from the presence or use of Hazardous Material caused or
permitted by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant subsequent to
the Commencement Date. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.6 Landlord's Access. Landlord or its agents may enter the
-----------------
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems reasonably necessary.
Landlord shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place customary "For Sale" or "For Lease" signs on the
Property.
Section 5.7 Quiet Possession. It Tenant pays the rent and complies with
----------------
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease,
ARTICLE 6
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
-----------------------------------------------------------
Section 6.1 Existing Conditions. Tenant accepts the Property in its
-------------------
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein or in the Recapitalization Agreement dated July 1, 1997 by and among
Enterprise Partners III, L.P., a Delaware
11
<PAGE>
limited partnership, Enterprise Partners III Associates, L.P., a Delaware
limited partnership, Enterprise Partners IV, L.P., a Delaware limited
partnership, Enterprise Partners IV Associates, L.P., a Delaware limited
partnership, Enterprise Management Partners Corporation, a California
corporation, EP Texas Company, LLC, a Texas limited liability company, Benjamin
L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock International, Inc., a Texas
corporation, Doskocil Manufacturing Company, Inc., a Texas corporation, and
Spectrum Polymers, Ltd., a Texas limited partnership, Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation as to the
condition of the Property or the suitability of the Property for Tenant's
intended use. Tenant represents and warrants that Tenant has made its own
inspection of and inquiry regarding the condition of the Property and is not
relying on any representations of Landlord or any Broker with respect thereto.
If Landlord or Landlord's Broker has provided a Property Information Sheet or
other Disclosure Statement regarding the Property, a copy is attached as an
exhibit to the Lease.
Section 6.2 Exemption of Landlord from Liability. Except for Landlord
------------------------------------
defaults under Section 6.3, Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or from other sources or places;
or (d) any act or omission of any other tenant of Landlord. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions of
this Section 6.2 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.3 Landlord's Obligations. Subject to the provisions of Article
----------------------
7 (Damage or Destruction) and Article 8 (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on the Property in good order,
condition and repair. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls. Landlord shall not
be obligated to make any repairs under this Section 6.3 until a reasonable time
after receipt of a written notice from Tenant of the need for such repairs.
Tenant waives the benefit of any present or future law which might give Tenant
the right to repair the Property at Landlord's expense or to terminate the Lease
because of the condition of the Property.
12
<PAGE>
Section 6.4 Tenant's Obligations.
--------------------
(a) Except as provided in Section 6.3, Article 7 (Damage or
Destruction) and Article 8 (Condemnation). Tenant shall keep all portions of
the Property (including nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. Landlord shall have the right, upon written notice to Tenant, to
undertake the responsibility for preventive maintenance of the heating and air
conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's
expense, repair any damage to the roof, foundation or structural portions of
walls caused by Tenant's acts or omissions. It is the intention of Landlord and
Tenant that, at all times during the Lease Term, Tenant shall maintain the
Property in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.4 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.4, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.5 Alterations, Additions, and Improvements.
----------------------------------------
(a) Tenant shall not make any alterations, additions, or improvements
to the Property without Landlord's prior written consent, except for non-
structural alterations which do not exceed One Hundred Thousand Dollars
($100,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and
13
<PAGE>
completion bonds in form and amount satisfactory to Landlord. Tenant shall
promptly remove any alterations, additions, or improvements constructed in
violation of this Paragraph 6.5(a) upon Landlord's written request. All
alterations, additions, and improvements shall be done in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide Landlord with "as built" Plans, copies of all construction contracts,
and proof of payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
Section 6.6 Condition Upon Termination. Upon the termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article 7 (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations except to the extent installed by Tenant.
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ARTICLE 7
DAMAGE OR DESTRUCTION
---------------------
Section 7.1 Partial Damage to Property.
--------------------------
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.4(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, or if the cause of the damage is not covered
by the insurance policies which Landlord maintains under Paragraph 4.4(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, and, if the damage was due to
an act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance policies and the difference between the actual cost of
repair and any insurance proceeds received by Landlord. If Landlord elects to
terminate the Lease, Tenant may elect to continue this Lease in full force and
effect, in which case Tenant shall repair any damage to the Property and any
building in which the Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any Insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
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Section 7.2 Substantial or Total Destruction. If the Property is
--------------------------------
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.1), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months alter
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.3 Temporary Reduction of Rent. If the Property is destroyed or
---------------------------
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article 7, any rent payable during the period of such damage,
repair and/or restoration shall be reduced according to the degree, if any, to
which Tenant's use of the Property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.4 Waiver. Tenant waives the protection of any statute, code or
------
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.2 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8
CONDEMNATION
------------
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within
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ten (10) days after the condemning authority takes title or possession). If
neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the Base Rent
and Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or removable
personal property; and (c) third, to Landlord, the remainder of such award,
whether as compensation for reduction in the value of the leasehold, the taking
of the fee, or otherwise. If this Lease is not terminated, Landlord shall
repair any damage to the Property caused by the Condemnation, except that
Landlord shall not be obligated to repair any damage for which Tenant has been
reimbursed by the condemning authority. If the severance damages received by
Landlord are not sufficient to pay for such repair, Landlord shall have the
right to either terminate this Lease or make such repair at Landlord's expense.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
-------------------------
Section 9.1 Landlord's Consent Required. No portion of the Property or of
---------------------------
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by sale, assignment, sublease, transfer, operation of law, or act of
Tenant, without Landlord's prior written consent, except as provided in Section
9.2 below. Landlord has the right to grant or withhold its consent as provided
in Section 9.5 below. Any attempted transfer without consent shall be void and
shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than fifty percent (50%) of the
partnership interests shall require Landlord's consent, if Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation (except as set forth in 9.2) shall require Landlord's
consent. Notwithstanding the foregoing, Tenant may mortgage, assign or transfer
its interest in this Lease to any lender and such lender or an affiliate or
designee may subsequently acquire Tenant's interest in this Lease by foreclosure
or assignment in lieu thereof, without Landlord's consent.
Section 9.2 Tenant Affiliate. Tenant may assign this Lease or sublease
----------------
the Property, without Landlord's consent, (i) to any corporation which controls,
is controlled by or is under common control with Tenant, or to any corporation,
partnership, limited liability company or other legal entity resulting from a
reorganization or the merger of or consolidation with Tenant ("Tenant's
--------
Affiliate") or (ii) in the event of the public sale of stock
- ---------
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of Tenant or Tenant's Affiliate or for subsequent transfers of stock whether or
not such transfers result in a change in control, provided that any assignee of
the Lease shall assume in writing all of Tenant's obligations under this Lease,
or (iii) in connection with the acquisition of or a business combination with
another business principally engaged in supplying products to the pet industry
with annual revenues in excess of $25,000,000, provided that any assignee of the
Lease shall assume in writing all of Tenant's obligations under this Lease.
Section 9.3 No Release of Tenant. No transfer permitted by this Article
--------------------
9, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article 9. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee defaults under
this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.
Section 9.4 Offer to Terminate. If Tenant desires to assign the Lease or
------------------
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.5 with respect to any proposed transfer shall
continue to apply.
Section 9.5 Landlord's Consent.
------------------
(a) Tenant's request for consent to any transfer described in
Sections 9.1 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g.,the term of and the
rent and security deposit payable under any proposed assignment or sublease),
and any other information Landlord deems relevant. Landlord shall have the right
to withhold consent, if reasonable, or to grant consent, based on the following
factors: (i) the business of the proposed assignee or subtenant and the proposed
use of the Property; (ii) the net worth and financial reputation of the proposed
assignee or subtenant; (iii) Tenant's compliance with all of its obligations
under the Lease; and (iv) such other factors as Landlord may reasonably deem
relevant. If Landlord objects to a proposed assignment solely because of the net
worth and/or financial reputation of the proposed assignee, Tenant
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may nonetheless sublease (but not assign), all or a portion of the Property to
the proposed transferee, but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the
Lease the Landlord's Share (stated in Section 1.14) of the Profit (defined
below) on such transaction as and when received by Tenant, unless Landlord
gives written notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
signed, and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt of Landlord's Share shall not be a consent to any
further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.5(b) shall be a material default of the Lease.
Section 9.6 No Merger. No merger shall result from Tenant's sublease of
---------
the Property under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
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ARTICLE 10
DEFAULTS; REMEDIES
------------------
Section 10.1 Covenants and Conditions. Tenant's performance of each of
------------------------
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.2 Defaults. Tenant shall be in material default under this
--------
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.4;
(b) If Tenant fails to pay rent or any other charge within three (3)
days after delivery of notice that such amounts are past due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against Tenant
and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is
appointed to take possession of substantially all of Tenant's assets located at
the Property or of Tenant's interest in this Lease and possession is not
restored to Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Property or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant transfers
Tenant's interest hereunder, then Landlord shall receive, as Additional Rent,
the excess, if any, of the rent (or any other consideration) paid in connection
with such assignment or sublease over the rent payable by Tenant under this
Lease.
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(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.3 Remedies. On the occurrence of any material default by
--------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (10%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.3(a), or (ii) proceeding under Paragraph
10.3(b);
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(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Property. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due.
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
Section 10.4 Intentionally Omitted.
---------------------
Section 10.5 Automatic Termination. Notwithstanding any other term or
---------------------
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.3 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to Landlord's
right to possession of the Property. All such damages suffered (apart from Base
Rent and other rent payable hereunder) shall constitute pecuniary damages which
must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.6 Cumulative Remedies. Landlord's exercise of any right or
-------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11
PROTECTION OF LENDERS
---------------------
Section 11.1 Subordination. Landlord shall have the right to subordinate
-------------
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall
execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property
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during the Lease Term shall not be disturbed if Tenant pays the rent and
performs all of Tenant's obligations under this Lease and is not otherwise in
default. If any ground lessor beneficiary or mortgagee elects to have this
Lease prior to the lien of its ground lease, dead of trust or mortgage and gives
written notice thereof to Tenant, this Lease shall be deemed prior to such
ground lease, deed of trust or mortgage whether this Lease is dated prior or
subsequent to the date of said ground lease, deed of trust or mortgage or the
date of recording thereof.
Section 11.2 Attornment. If Landlord's interest in the Property is
----------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.3 Signing of Documents. Tenant shall sign and deliver any
--------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant falls to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.4 Estoppel Certificates.
---------------------
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not to Tenant's knowledge in default under this Lease (or, if
Landlord is claimed to be in default, stating why); and (v) such other
representations or information with respect to Tenant or the Lease as Landlord
may reasonably request or which any prospective purchaser or encumbrancer of the
Property may require. Tenant shall deliver such statement to Landlord within ten
(10) days after Landlord's request. Landlord may give any such statement by
Tenant to any prospective purchaser or encumbrancer of the Property. Such
purchaser or encumbrancer may rely conclusively upon such statement as true and
correct.
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(b) If Tenant does not deliver such statement to Landlord within such
ten (10)-day period, Landlord, and any prospective purchaser or encumbrancer,
may conclusively presume and rely upon the following facts: (i) that the terms
and provisions of this Lease have not been changed except as otherwise
represented by Landlord; (ii) that this Lease has not been cancelled or
terminated except as otherwise represented by Landlord; (iii) that not more than
one month's Base Rent or other charges have been paid in advance: and (iv) that
Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.5 Tenant's Financial Condition. Within ten (10) days after
----------------------------
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE 12
LEGAL COSTS
-----------
Section 12.1 Legal Proceedings. (a) If Tenant or Landlord shall be in
-----------------
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach of
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the party in whose favor a judgment is
entered, shall receive a reasonable sum as attorneys' fees and casts. The losing
party in such action shall pay such attorneys' fees and costs. Tenant shall
also indemnify Landlord against and hold Landlord harmless from all costs,
expenses, demands and liability Landlord may incur if Landlord becomes or is
made a party to any claim or action (a) instituted by Tenant against any third
party, or by any third party against Tenant, or by or against any person holding
any interest under or using the Property by license of or agreement with Tenant;
(b) for foreclosure of any lien for labor or material furnished to or for Tenant
or such other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
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proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
(b) Notwithstanding anything to the contrary provided herein, if a
controversy, claim or dispute arises out of or relates to this Lease, or the
breach thereof, and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration as set forth below.
If the parties hereto cannot solve a dispute by mediation within 60 days of
the commencement thereof, any controversy or claim arising out of or relating to
this Lease, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The parties hereto further agree that the
above controversy be submitted to three arbitrators. The parties hereto further
agree to faithfully observe this agreement and the rules, and that the parties
will abide by and perform any award rendered by the arbitrators, and that a
judgment of the court having jurisdiction may be entered on the award.
Section 12.2 Landlord's Consent. Tenant shall pay Landlord's reasonable
------------------
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article 9 (Assignment and Subletting), or in connection with any
other act which Tenant proposes to do and which requires Landlord's consent
ARTICLE 13
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Non-Discrimination. Tenant promises, and it is a condition
------------------
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
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Section 13.2 Landlord's Liability; Certain Duties.
------------------------------------
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall have
any personal liability under this Lease.
Section 13.3 Severability. A determination by a court of competent
------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.4 Interpretation. The captions of the Articles or Sections of
--------------
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
26
<PAGE>
Section 13.5 Incorporation of Prior Agreements; Modifications. This
------------------------------------------------
Lease is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.6 Notices. All notices required or permitted under this Lease
-------
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.3 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.2 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.7 Waivers. All waivers must be in writing and signed by the
-------
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.8 No Recordation. Tenant shall not record this Lease without
--------------
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.9 Binding Effect; Choice of Law. This Lease binds any party
-----------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 Corporate Authority; Partnership Authority. If Tenant is a
------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the
27
<PAGE>
partnership, that he or it has full authority to sign for the partnership and
that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11 Joint and Several Liability. All parties signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12 Force Majeure. If Landlord cannot perform any of its
-------------
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control Include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13 Execution of Lease. This Lease may be executed in
------------------
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14 Survival. All representations and warranties of Landlord
--------
and Tenant shall survive the termination of this Lease.
Section 13.15 Right of First Refusal.
----------------------
(a) Subject and subordinate to the rights of Related Parties (hereinafter
defined) as set forth in paragraph (b) hereinbelow, Tenant, and its successors
-------------
and assigns, provided that Tenant is not in default of this Lease, shall have a
right of first refusal exercisable from the Commencement Date through the Term
including all extension terms and including the date upon which this Lease
expires with respect to the purchase of the Property. Such right of refusal
shall be exercisable upon and shall be subject to the following conditions:
(1) Upon receipt by Landlord of a bona fide offer (herein called the
"Bona Fide Offer") acceptable to Landlord to purchase the Property or to
----------------
purchase any vacant or undeveloped contiguous property except the frontage
property facing Matlock (the "Frontage Property"), which is specifically
-----------------
excluded from this Right of
28
<PAGE>
First Refusal, Landlord shall notify Tenant of the existence and terms and
conditions of the Bona Fide Offer.
(2) Upon Tenant's receipt of notice of the Bona Fide Offer from
Landlord, Tenant shall have thirty (30) business days to notify Landlord in
writing that Tenant irrevocably elects to (a) purchase the Property or
contiguous property (other than the Frontage Property) upon all of the
terms and conditions stated in the Bona Fide Offer, including the purchase
price stated in the Bona Fide Offer and (b) simultaneously with Tenant's
election in the preceding clause (a), at Tenant's option, purchase any
vacant or undeveloped contiguous property (other than the Frontage
Property) owned by Landlord that is not subject to Bona Fide Offer at the
fair market value for such property as agreed by the parties. If the
parties are unable to agree upon the fair market value of the Property
within ten (10) days after delivery of Tenant's election to purchase the
Property (the "Option Exercise Notice"), then the fair market value shall
----------------------
be determined by an appraiser selected by the parties who is a member of
the American Institute of Real Estate Appraisers with at least five years
of experience appraising property comparable to and in the geographic area
of the Property. Such appraiser's determination of the fair market value
of the Property shall be binding on the parties. If the parties are unable
to agree upon the selection of an appraiser, each party shall select a
qualified appraiser and the two selected appraisers shall select a
qualified third appraiser who will determine the fair market value of the
Property. If Tenant does not exercise its right of refusal under this
paragraph (a), either by notifying Landlord in writing of its election not
-------------
to exercise such right or by failing to notify Landlord in writing of
Tenant's election within the thirty (30) business day period following its
receipt of notice of the Bona Fide Offer to purchase the Property, then
Tenant conclusively shall be deemed to have elected not to purchase the
Property and Landlord shall be entitled to sell the Property to any third
party at any time within 6 months of the Bona Fide Offer upon such terms of
the Bona Fide Offer, without any further notice to Tenant. If Tenant
elects to purchase the Property within said thirty (30) business day
period, the Tenant promptly shall enter into a purchase agreement with
Landlord to buy the Property on the terms and conditions set forth in such
Bona Fide Offer with appropriate adjustments as set forth in this paragraph
---------
(a). Notwithstanding anything to the contrary set forth herein, the
---
Tenants rights under this Section shall not apply to any transfer, sale, or
assignment from the Landlord to Benjamin Doskocil, Mary Frances Doskocil,
any child, family member or relative of either Benjamin or Mary Frances
Doskocil, any entity owned or controlled by any of the foregoing or any
charitable organization, any trust created for the benefit of any of the
foregoing (the "Related Parties").
---------------
29
<PAGE>
(b) Notwithstanding anything to the contrary provided herein, Landlord may
at any time transfer, sell or assign the Property in any manner to a Related
Party without the consent of Tenant, and paragraph (a) hereinabove hereof shall
-------------
be subject and subordinate to the rights of Related Parties with respect to the
Property provided that upon any transfer to a Related Party, the Related Party
shall be bound by the terms of paragraph (a).
Section 13.16 Purchase Option.
---------------
(a) Landlord hereby grants to Tenant the option to elect to purchase,
during the sixty-first (61st) through the sixty-fourth (64th) month of the Term
and during the one hundred and twentieth (120th) month of the Term and to close
the purchase within 60 days of the election, all of Landlord's right, title and
interest in the Property, including without limitation, the buildings, parking
lot, fixtures and improvements constructed on the land, all of Landlord's
equipment, machinery, furniture, inventory and other personal property located
upon and used in connection with the operation of the Property. At the same
time as the Tenant's delivery of the Option Exercise Notice (hereinafter
defined) to Landlord, Tenant may elect to purchase any or all vacant or
undeveloped land that is contiguous to the Property, except the Frontage
Property which is specifically excluded from this Purchase Option, upon the same
terms and conditions set forth herein.
(b) The total base purchase price for the Property (the "Base Purchase
-------------
Price") shall be ninety-five percent (95%) of the fair market value of the
- -----
Property as such fair market value is agreed upon by the parties. If the
parties are unable to agree upon the fair market value of the Property within
ten (10) days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined by an
----------------------
appraiser selected by the parties who is a member of the American Institute of
Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the selection
of an appraiser, each party shall select a qualified appraiser and the two
selected appraisers shall select a qualified third appraiser who will determine
the fair market value of the Property. The Purchase Price shall be paid in cash
at the Closing.
(c) At the Closing (hereinafter defined), Landlord shall convey the
Property to Tenant by special warranty deed (the "Deed") in form and substance
----
reasonably acceptable to Tenant and Landlord.
(d) The closing of the transaction pursuant to the Option Exercise Notice
(the "Closing") shall be at the main office of Old Republic Title, 1501 Summit,
-------
Fort Worth,
30
<PAGE>
Texas (the "Title Company"), shall be held at 10:00 o'clock a.m., Arlington
-------------
time, on the closing date.
(e) At the Closing, Landlord shall cause the following items to be
furnished to Tenant:
(1) The Deed in the form required hereinabove, duly executed and
acknowledged by Landlord.
(2) A fully paid Owner's Policy of Title Insurance covering the
Property issued by the Title Company in accordance with the terms of this
Agreement insuring Tenant's title in the amount of the Base Purchase Price,
containing no liens against the Landlord's fee interest in the Property.
(3) A duly executed and acknowledged bill of sale conveying title to
all personalty and all intangible property to Tenant.
(4) A duly executed and acknowledged assignment in favor of Tenant of
all service, employment and management contracts as are then in force and
pertaining to the Property and designated by Tenant, and executed copies of
all such contracts.
(5) Evidence reasonably satisfactory to Tenant and the Title Company
of the Landlord's closing representatives' power and authority to
consummate the transactions.
(f) Subject to Landlord's full performance of the conditions precedent
listed in and required by paragraph (e) above, at the Closing, Tenant shall:
-------------
(1) Pay to Landlord the Base Purchase Price in cash.
(2) Furnish evidence reasonably satisfactory to Landlord and the
Title Company of the Tenant's and Tenant's closing representatives' power
and authority to consummate the transactions.
(g) On or before Closing, Landlord shall pay: (1) the cost of the Owner's
Policy of Title Insurance required hereby, excluding the additional charges for
modification or deletion of standard exceptions, as hereinabove provided; (b)
Landlord's own attorney's fees; and (c) one-half (1/2) of any escrow fee charged
by the Title Company. On or before Closing, Tenant shall pay: (1) Tenant's own
attorneys' fees; (b) one-half (1/2) of any
31
<PAGE>
escrow fee charged by the Title Company; (3) any charges for modification or
deletion of standard exceptions to the Owner's Policy of Title Insurance; (4)
the official fees for filing and recording Landlord's Deed; and (5) survey for
the Property..
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
32
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on July 1, 1997 MARYBE INVESTMENTS, LTD.
By: Bed Rock International, Inc.,
General Partner
By: /s/ Garland Stong
--------------------------------
Name: Garland Stong
------------------------------
Its: President
-------------------------------
"TENANT"
Signed on July 1, 1997 DOSKOCIL MANUFACTURING COMPANY,
INC.
By: /s/ Larry E. Rembold
--------------------------------
Name: Larry E. Rembold
------------------------------
Its: President
------------------------------
33
<PAGE>
BUILDING G
EXHIBIT A
BEING a portion of Lot 7-R, J. L. Newton Addition, an addition to the City of
Arlington, Tarrant County, Texas, according to the plat recorded in Cabinet A,
Slide No. 2082, Plat Records of Tarrant County, Texas, in the J. L. Newton
Survey, A-1163, and described by metes and bounds as follows:
BEGINNING at an iron rod set at the southeast corner of Lot 13, Block 5,
Southland Acres Addition, an addition to the City of Arlington, Tarrant County,
Texas County, Texas, according to the plat recorded in Volume 388-Z, Page 137,
Plat Records of Tarrant County, Texas, and being at the intersection of the west
line of Kathey Drive and the north line of Stephens Street;
THENCE S 0(degrees) 39' 13" E 60.00 feet with the west line of Kathey Dive to
an "x" set in concrete in the south line of Stephens Street, for corner;
THENCE N 89(degrees) 18' 37" E with the south line of Stephens Street, 357.94
feet to an iron rod set for corner;
THENCE S 1(degree) 06' 29" E 474.60 feet to an iron rod set in the north line of
Lot 1-R-1, J. L. Newton Addition, an addition, an addition to the City of
Arlington, Tarrant County, Texas, according to the plat recorded in Cabinet B,
Slide No. 1346, Plat Records, Tarrant County, Texas for corner;
THENCE S 88(degrees) 54' 34" W with the north line of Lot 1-R-1, 334.74 feet to
an iron rod set at the beginning of a curve to the left having a radius of 30.00
feet, a central angle of 90(degrees) 01' 20" and a chord that bears S
43(degrees) 54" W;
THENCE southwesterly along said curve to the left with the north line of Lot
1-R-1, 47.14 feet to an iron rod set at the end of said curve;
THENCE S 1(degree) 06' 46" E with the west line of Lot 1-R-1, 713.09 feet to an
iron rod set in the north line of Bardin Road for corner;
THENCE S 88(degrees) 32' 04" W 37.00 feet with the north line of Bardin Road to
an iron rod set for corner;
THENCE N 1(degree) 06' 46" W parallel to and 37.00 feet west of the west line of
Lot 1-R-1, 565.51 feet to an iron rod set for corner;
THENCE S 88(degrees) 54' 34" W 682.29 feet to an iron rod set for corner;
THENCE N 1(degree) 05' 57" W 661.42 feet to an iron rod set in the north line of
Lot 7-R for corner;
THENCE easterly with the north line of Lot 7-R as follows:
34
<PAGE>
BUILDING G
N 89(degrees) 39' 23" E 324.64 feet to an iron rod set for corner;
N 0(degrees) 52' 13" W 60.00 feet to an iron rod set for corner;
N 89(degrees) 13' 47" E 401.61 feet to the Place of Beginning, containing 15.879
acres (691,700) square feet) of land.
35
<PAGE>
EXHIBIT 10.20
BUILDING J
INDUSTRIAL REAL ESTATE LEASE
ARTICLE 1
BASIC TERMS
-----------
This Article 1 contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article 1 explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.1 Date of Lease: July 1, 1997
-------------
Section 1.2 Landlord (include legal entity): Benjamin L. Doskocil
-------------------------------
Address of Landlord: 5306 Mansfield Road, Arlington, Texas 76017
Section 1.3 Tenant (include legal entity): Doskocil Manufacturing
-----------------------------
Company, Inc. Address of Tenant: 4209 Barnett, Arlington, Texas 76017
Section 1.4 Property: (include street address, approximate square
footage and description) Building "J" located at 4205 Barnett, Arlington, Texas,
as more particularly described on Exhibit "A" attached hereto.
-----------
Section 1.5 Lease Term:
----------
(a) The initial term of this Lease shall be for ten (10) years ("Term")
----
and shall commence on the date hereof ("Commencement Date") and shall terminate
-----------------
at 5:00 P.M. local time on the tenth (10th) anniversary of the Commencement Date
(the "Expiration Date").
---------------
(b) Provided that Tenant is not in default of this Lease, Tenant shall
have the option to renew this Lease for three (3) renewal terms of five (5)
years each commencing upon the expiration of the initial ten (10) year Term or
any previous renewal term, as the case may be, and ending at 5:00 P.M. local
time five (5) years thereafter, unless any such renewal term shall sooner
terminate in accordance with this Lease or otherwise; provided that (i) Tenant
shall have notified Landlord in writing of Tenant's exercise of such renewal
option not later than six (6) months prior to the expiration of the initial Term
hereof or the then existing renewal term, as the case may be, (ii) at the time
such notice is given, this Lease shall be in full force and effect and Tenant
shall not be in default hereunder for such period
<PAGE>
of time as would entitle Landlord to terminate this Lease pursuant to the terms
hereof. Such renewal terms shall be upon all of the agreements, terms, covenants
and conditions hereof except that Tenant shall pay Base Rent (hereinafter
defined) to Landlord in monthly installments in an amount equal to the greater
of (i) the fair market rate (the "Fair Market Rent") for the Real Property (as
----------------
defined herein) or (ii) one hundred and ten percent (110%) of the existing Base
Rent on an "AS IS, WHERE IS" basis as of the commencement of the renewal term,
as designated by Landlord within twenty (20) days after Landlord receives
Tenant's renewal notice, but in no event greater than the rate of Base Rent in
effect at the scheduled expiration of the Term or the applicable renewal term
plus twenty-five percent (25%) thereof. In addition, during the renewal term,
Tenant shall pay all other rent and other amounts due under the Lease. If Tenant
does not approve of Landlord's designation of the Base Rent for the renewal
term, then Tenant, as its sole remedy, may submit in writing to Landlord within
ten (10) days after the Landlord's delivery of its determination Fair Market
Rent to Tenant (the "Renewal Commencement Date"), its good faith determination
-------------------------
of Fair Market Rent with appropriate back-up documentation. If the Tenant's
determination of Fair Market Rent is within ten percent (10%) of the Landlord's
determination of the same, the "Fair Market Rent" shall equal the median number
----------------
between each of the Tenant's and Landlord's determination (but in no event shall
the Fair Market Rent be less than the Base Rent existing on the last day of the
Term plus ten percent (10%)). If the Tenant's determination of Fair Market Rent
is not within ten percent (10%) of the Landlord's determination of the same,
---
each of the Landlord and the Tenant shall choose an appraiser on the eleventh
(11th) day after the Renewal Commencement Date to determine the "fair market
rent" and the initial determinations shall be disregarded for all purposes in
determining the Fair Market Rent. Each appraiser shall diligently attempt to
agree on the Fair Market Rent on or before the twenty-fourth (24th) day after
the Renewal Commencement Date. If such appraisers agree on the Fair Market Rent
on or before the twenty-fourth day after the Renewal Commencement Date, such
agreed sum shall constitute the "Fair Market Rent". If the appraisers have not
agreed on the Fair Market Rent by such day, (a) the appraisers shall select an
independent third appraiser (the "Final Appraiser"), and (b) each such original
---------------
appraiser shall deliver in writing to the Final Appraiser their last
determination of the sum (each such sum being hereinafter referred to as the
"Appraisal Price") that such appraiser believes is the Fair Market Rent. On or
- ----------------
before the twenty-ninth (29th) day after the Renewal Commencement Date, the
Final Appraiser shall choose one Appraisal Price or the other Appraisal Price as
the "Fair Market Rent". Notwithstanding anything to the contrary herein, in no
----------------
event shall the Fair Market Rent be less than the Base Rent in effect at the
last day of the Term plus ten percent (10%) thereof. Tenant shall have no
further renewal rights after the expiration of such renewal terms. Upon the
commencement of each renewal term, (x) the renewal term shall be added to and
become part of the Term, (y) any reference in this Lease, to the "Term", the
----
"term of this Lease" or any similar expression shall be deemed to
2
<PAGE>
include the renewal terms, and (z) the Expiration Date shall become the
expiration of the applicable renewal term.
Section 1.6 Permitted Uses: (See Article Five) Tenant may use the
--------------
Property for any lawful manufacturing or distribution purpose, including to
operate its business as operated on the day immediately preceding this Lease.
Section 1.7 Tenant's Guarantor: (If none, so state) None.
------------------
Section 1.8 Brokers: (See Article 14) (if none, so state) None.
-------
Landlord's Broker: None.
Tenant's Broker: None.
Section 1.9 Commission Payable to Landlord's Broker: (See Article 14) $
---------------------------------------
None
- ----
Section 1.10 Initial Security Deposit: (See Section 3.3) None.
------------------------
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: N/A
------------------------------------------
Section 1.12 Rent and Other Charges Payable by Tenant: See below.
----------------------------------------
(a) Base Rent. Tenant shall pay to Landlord, without notice or
---------
demand, in lawful money of the United States of America, at the office of
Landlord or at such other place as Landlord may designate, the following: annual
fixed rent ("Base Rent") of $4,800.00 per annum for the period commencing with
---------
the Commencement Date, payable in equal monthly installments in advance on the
first day of each and every month during the Term, of $400.00 except that the
first installment of Base Rent shall be apportioned and shall be payable on the
Commencement Date if the Commencement Date shall occur on a date other than the
first day of a month and except that the installment of Base Rent due in the
month that the Expiration Date occurs shall be apportioned if the Expiration
Date shall occur on a date other than the last of a month. Commencing upon the
first day of the 61st month of the Lease, the Base Rent shall be increased by
ten percent (10%) more than the Base Rent that existed on the preceding day.
(b) Other Periodic Payments. (i) Real Property Taxes above the
-----------------------
"Base Real Property Taxes" (See Section 4.2); (ii) Utilities (See Section 4.3);
(iii) Impounds for Tenant's Share of Insurance Premiums and Property Taxes (See
Section 4.7); (iv) Maintenance, Repairs and Alterations (See Article 6).
3
<PAGE>
Section 1.13 Costs and Charges Payable by Landlord. (a) Base Real
-------------------------------------
Property Taxes (See Section 4.2); (b) Insurance Premiums (See Section 4.4(c);
(c) Maintenance and Repair (See Article 6). Tenant, at its expense, shall take
good care of the Property. Tenant shall promptly make all repairs, interior or
exterior, ordinary or extraordinary, as and when needed to preserve the Property
and any Improvements, therein in good working order and condition other than (a)
repairs necessitated by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors, invitees or licensees, and (b)
maintenance and repairs to the Building's roof, foundation and structural
integrity except as a result of the negligence or willful acts of the Tenant or
its agents, employees, contractors, invitees or licensees. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be at least equal in quality and class to the original work
or installation.
Section 1.14 Landlord's Share of Profit on Assignment or Sublease: (See
----------------------------------------------------
Section 9.5) Landlord's share shall equal seventy percent (70%) of the Profit
(the "Landlord's Share").
Section 1.15 Riders: The following Riders are attached to and made a
------
part of this Lease: (If none, so state) None
ARTICLE 2
LEASE TERM
----------
Section 2.1 Lease of Property For Lease Term. Landlord leases the
--------------------------------
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.5 above and shall
begin and end on the dates specified in Section 1.5 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.5 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.2 Intentionally Omitted.
Section 2.3 Intentionally Omitted.
Section 2.4 Holding Over. Tenant shall vacate the Property upon the
------------
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the
4
<PAGE>
Property. If Tenant does not vacate the Property upon the expiration or earlier
termination of the Lease and Landlord thereafter accepts rent from Tenant,
Tenant's occupancy of the Property shall be a "month-to-month" tenancy, subject
to all of the terms of this Lease applicable to a month-to-month tenancy, except
that the Base Rent then in effect shall be increased by twenty-five percent
(25%).
ARTICLE 3
BASE RENT
---------
Section 3.1 Time and Manner of Payment. Upon execution of this Lease,
--------------------------
Tenant shall pay Landlord the Base Rent in the amount stated In Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
ARTICLE 4
OTHER CHARGES PAYABLE BY TENANT
-------------------------------
Section 4.1 Additional Rent. All charges payable by Tenant other than
---------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.2 Property Taxes.
--------------
(a) Real Property Taxes. Landlord shall pay the "Base Real Property
-------------------
Taxes" on the Property during the Lease Term. Base Real Property Taxes are real
property taxes applicable to the Property as shown on the tax bill for the most
recent tax fiscal year ending prior to the Commencement Date. As of the first
day of each of the sixty-first (61st), seventy-third (73rd), eighty-fifth
(85th), ninety-seventy (97th) and one hundred and ninth (109th) months of the
Term of this Lease, Tenant shall pay the Landlord, the amount, if any, by which
the real property taxes for the current calendar year are in excess of the real
property taxes attributable for calendar year 1996. Subject to Paragraph 4.2(c),
Tenant shall make such payments within fifteen (15) days after receipt of
Landlord's statement showing the amount and computation of such increase.
Landlord shall reimburse Tenant for any real property taxes paid by Tenant
covering any period of time prior to or after the Lease Term.
5
<PAGE>
(b) Definition of "Real Property Tax". "Real property tax" means:
---------------------------------
(i) any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalk's, road maintenance, refuse or other services provided to the Property
by any governmental agency; (iv) any tax imposed upon this transaction or based
upon a re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed,
----------------
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.2(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
-----------------------
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the
Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from
Landlord for such personal property taxes.
Section 4.3 Utilities. Tenant shall pay, directly to the appropriate
---------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
6
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Section 4.4 Insurance Policies.
------------------
(a) Liability Insurance. During the Lease Term, Tenant shall
-------------------
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be Ten Million Dollars ($10,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.4(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.5, if the matters giving rise to the indemnity under
Section 5.5 result from the negligence of Tenant. The amount and coverage of
such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary Insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
------------------------------------
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant
on the Property.
(c) Payment of Premiums.
-------------------
(i) Landlord shall pay the "Premiums" for the insurance
policies maintained by Landlord under Paragraph 4.4(b). Notwithstanding the
previous sentence, Tenant shall be obligated to pay the Premiums for the
insurance to the extent such Premiums increase as a result of Tenant's use
of the Property. For example, if Tenant changes its use of the Property to
include an activity which is inherently more dangerous than its use of the
Property as of the Commencement
7
<PAGE>
Date, Tenant shall be obligated to pay for the increase in Premium
resulting from such activity on the Property.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain
under this Lease shall include a provision which requires the insurance
carrier to give Landlord not less than thirty (30) days' written notice
prior to any cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which
case Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant and Landlord shall maintain all insurance
required under this Lease with companies holding a "General Policy Rating"
of A-12 or better, as set forth In the most current issue of "Best Key
Rating Guide". Landlord and Tenant acknowledge the insurance markets are
rapidly changing and that insurance in the form and amounts described in
this Section 4.4 may not be available in the future. Tenant acknowledges
that the insurance described in this Section 4.4 is for the primary benefit
of Landlord, If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable
in the insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby waive any and all
rights of recovery against the other, or against the officers, employees,
agents or representatives of the other, for loss of or damage to its
property or the property of others under its control, if such loss or
damage is covered by any insurance policy in force (whether or not
described in this Lease) at the time of such loss or damage. Upon obtaining
the
8
<PAGE>
required policies of insurance, Landlord and Tenant shall give notice to
the insurance carriers of this mutual waiver of subrogation.
Section 4.5 Late Charges. Tenant's failure to pay rent promptly may
------------
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges end late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment within ten
(10) days after it becomes due, Tenant shall pay Landlord a late charge equal to
ten percent (10%) of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment.
Section 4.6 Interest on Past Due Obligations. Any amount owed by
--------------------------------
Tenant to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of Interest on such amounts shall not excuse or cure any
default by Tenant under this Lease, if the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.7 Impounds for Insurance Premiums and Real Property Taxes. If
-------------------------------------------------------
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant to Landlord under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-Interest bearing impound account, if unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the Impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under this
Lease.
ARTICLE 5
USE OF PROPERTY
---------------
Section 5.1 Permitted Uses. Tenant may use the Property only for the
--------------
Permitted Uses set forth in Section 1.6 above.
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Section 5.2 Manner of Use. Tenant shall not cause or permit the
-------------
Property to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes with
the rights of other tenants of Landlord, or which constitutes a nuisance or
waste. Tenant shall obtain and pay for all permits, including a Certificate of
Occupancy, required for Tenant's occupancy of the Property and shall promptly
take all actions necessary to comply with all applicable statutes, ordinances,
rules, regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act provided that if any
capital improvements to the Property are required to be made for compliance and
the benefit or useful life of such capital improvements extends beyond the Lease
Term (as such term may be extended by exercise of any options), the useful life
of such capital improvements shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Section 5.3 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes" "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to be
generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord provided that Landlord is
deemed to have consented to the use of the Hazardous Materials, and reasonable
replacements or substitution thereof, in use on the Property immediately prior
to the Commencement Date. Landlord shall be entitled to take into account such
other factors or facts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall Landlord be
required to consent to the installation or use of any storage tanks on the
Property.
Section 5.4 Signs and Auctions. Tenant shall not place any signs on the
------------------
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
10
<PAGE>
Section 5.5 Indemnity. Tenant shall indemnify Landlord against and hold
---------
Landlord harmless from any and all costs, claims or liability arising subsequent
to the Commencement Date from: (a) Tenant's use of the Property subsequent to
the Commencement Date; (b) the conduct of Tenant's business or anything else
done or permitted by Tenant to be done in or about the Property subsequent to
the Commencement Date, including any contamination of the Property or any other
property resulting from the presence or use of Hazardous Material caused or
permitted by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant subsequent to
the Commencement Date. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.6 Landlord's Access. Landlord or its agents may enter the
-----------------
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems reasonably necessary. Landlord
shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place customary "For Sale" or "For Lease" signs on the
Property.
Section 5.7 Quiet Possession. It Tenant pays the rent and complies with
----------------
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease,
ARTICLE 6
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
-----------------------------------------------------------
Section 6.1 Existing Conditions. Tenant accepts the Property in its
-------------------
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein or in the Recapitalization Agreement dated July 1, 1997 by and among
Enterprise Partners III, L.P., a Delaware
11
<PAGE>
limited partnership, Enterprise Partners III Associates, L.P., a Delaware
limited partnership, Enterprise Partners IV, L.P., a Delaware limited
partnership, Enterprise Partners IV Associates, L.P., a Delaware limited
partnership, Enterprise Management Partners Corporation, a California
corporation, EP Texas Company, LLC, a Texas limited liability company, Benjamin
L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock International, Inc., a Texas
corporation, Doskocil Manufacturing Company, Inc., a Texas corporation, and
Spectrum Polymers, Ltd., a Texas limited partnership, Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation as to the
condition of the Property or the suitability of the Property for Tenant's
intended use. Tenant represents and warrants that Tenant has made its own
inspection of and inquiry regarding the condition of the Property and is not
relying on any representations of Landlord or any Broker with respect thereto.
If Landlord or Landlord's Broker has provided a Property Information Sheet or
other Disclosure Statement regarding the Property, a copy is attached as an
exhibit to the Lease.
Section 6.2 Exemption of Landlord from Liability. Except for Landlord
------------------------------------
defaults under Section 6.3, Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or from other sources or places;
or (d) any act or omission of any other tenant of Landlord. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions of
this Section 6.2 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.3 Landlord's Obligations. Subject to the provisions of Article
----------------------
7 (Damage or Destruction) and Article 8 (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on the Property in good order,
condition and repair. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls. Landlord shall not
be obligated to make any repairs under this Section 6.3 until a reasonable time
after receipt of a written notice from Tenant of the need for such repairs.
Tenant waives the benefit of any present or future law which might give Tenant
the right to repair the Property at Landlord's expense or to terminate the Lease
because of the condition of the Property.
12
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Section 6.4 Tenant's Obligations.
--------------------
(a) Except as provided in Section 6.3, Article 7 (Damage or
Destruction) and Article 8 (Condemnation). Tenant shall keep all portions of the
Property (including nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. Landlord shall have the right, upon written notice to Tenant, to
undertake the responsibility for preventive maintenance of the heating and air
conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's
expense, repair any damage to the roof, foundation or structural portions of
walls caused by Tenant's acts or omissions. It is the intention of Landlord and
Tenant that, at all times during the Lease Term, Tenant shall maintain the
Property in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.4 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.4, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.5 Alterations, Additions, and Improvements.
----------------------------------------
(a) Tenant shall not make any alterations, additions, or improvements
to the Property without Landlord's prior written consent, except for non-
structural alterations which do not exceed One Hundred Thousand Dollars
($100,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and
13
<PAGE>
completion bonds in form and amount satisfactory to Landlord. Tenant shall
promptly remove any alterations, additions, or improvements constructed in
violation of this Paragraph 6.5(a) upon Landlord's written request. All
alterations, additions, and improvements shall be done in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide Landlord with "as built" Plans, copies of all construction contracts,
and proof of payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20) days'
prior written notice of the commencement of any work on the Property, regardless
of whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
Section 6.6 Condition Upon Termination. Upon the termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article 7 (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations except to the extent installed by Tenant.
14
<PAGE>
ARTICLE 7
DAMAGE OR DESTRUCTION
---------------------
Section 7.1 Partial Damage to Property.
--------------------------
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.4(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, or if the cause of the damage is not covered
by the insurance policies which Landlord maintains under Paragraph 4.4(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, and, if the damage was due to an
act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance policies and the difference between the actual cost of
repair and any insurance proceeds received by Landlord. If Landlord elects to
terminate the Lease, Tenant may elect to continue this Lease in full force and
effect, in which case Tenant shall repair any damage to the Property and any
building in which the Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any Insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
15
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Section 7.2 Substantial or Total Destruction. If the Property is
--------------------------------
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.1), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months alter
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.3 Temporary Reduction of Rent. If the Property is destroyed
---------------------------
or damaged and Landlord or Tenant repairs or restores the Property pursuant to
the provisions of this Article 7, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.4 Waiver. Tenant waives the protection of any statute, code
------
or judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.2 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8
CONDEMNATION
------------
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within
16
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ten (10) days after the condemning authority takes title or possession). If
neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the Base Rent
and Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or removable
personal property; and (c) third, to Landlord, the remainder of such award,
whether as compensation for reduction in the value of the leasehold, the taking
of the fee, or otherwise. If this Lease is not terminated, Landlord shall repair
any damage to the Property caused by the Condemnation, except that Landlord
shall not be obligated to repair any damage for which Tenant has been reimbursed
by the condemning authority. If the severance damages received by Landlord are
not sufficient to pay for such repair, Landlord shall have the right to either
terminate this Lease or make such repair at Landlord's expense.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
-------------------------
Section 9.1 Landlord's Consent Required. No portion of the Property or
---------------------------
of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, sublease, transfer, operation of law, or
act of Tenant, without Landlord's prior written consent, except as provided in
Section 9.2 below. Landlord has the right to grant or withhold its consent as
provided in Section 9.5 below. Any attempted transfer without consent shall be
void and shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than fifty percent (50%) of the
partnership interests shall require Landlord's consent, if Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation (except as set forth in 9.2) shall require Landlord's
consent. Notwithstanding the foregoing, Tenant may mortgage, assign or transfer
its interest in this Lease to any lender and such lender or an affiliate or
designee may subsequently acquire Tenant's interest in this Lease by foreclosure
or assignment in lieu thereof, without Landlord's consent.
Section 9.2 Tenant Affiliate. Tenant may assign this Lease or sublease
----------------
the Property, without Landlord's consent, (i) to any corporation which controls,
is controlled by or is under common control with Tenant, or to any corporation,
partnership, limited liability company or other legal entity resulting from a
reorganization or the merger of or consolidation with Tenant ("Tenant's
--------
Affiliate") or (ii) in the event of the public sale of stock
- ---------
17
<PAGE>
of Tenant or Tenant's Affiliate or for subsequent transfers of stock whether or
not such transfers result in a change in control, provided that any assignee of
the Lease shall assume in writing all of Tenant's obligations under this Lease,
or (iii) in connection with the acquisition of or a business combination with
another business principally engaged in supplying products to the pet industry
with annual revenues in excess of $25,000,000, provided that any assignee of the
Lease shall assume in writing all of Tenant's obligations under this Lease.
Section 9.3 No Release of Tenant. No transfer permitted by this Article
--------------------
9, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article 9. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee defaults under
this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability under
this Lease.
Section 9.4 Offer to Terminate. If Tenant desires to assign the Lease
------------------
or sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.5 with respect to any proposed transfer shall
continue to apply.
Section 9.5 Landlord's Consent.
------------------
(a) Tenant's request for consent to any transfer described in
Sections 9.1 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g.,the term of and the
rent and security deposit payable under any proposed assignment or sublease),
and any other information Landlord deems relevant. Landlord shall have the right
to withhold consent, if reasonable, or to grant consent, based on the following
factors: (i) the business of the proposed assignee or subtenant and the proposed
use of the Property; (ii) the net worth and financial reputation of the proposed
assignee or subtenant; (iii) Tenant's compliance with all of its obligations
under the Lease; and (iv) such other factors as Landlord may reasonably deem
relevant. If Landlord objects to a proposed assignment solely because of the net
worth and/or financial reputation of the proposed assignee, Tenant
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may nonetheless sublease (but not assign), all or a portion of the Property to
the proposed transferee, but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under
the Lease the Landlord's Share (stated in Section 1.14) of the Profit
(defined below) on such transaction as and when received by Tenant, unless
Landlord gives written notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
signed, and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt of Landlord's Share shall not be a consent to any
further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.5(b) shall be a material default of the Lease.
Section 9.6 No Merger. No merger shall result from Tenant's sublease of
---------
the Property under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
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ARTICLE 10
DEFAULTS; REMEDIES
------------------
Section 10.1 Covenants and Conditions. Tenant's performance of each of
------------------------
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.2 Defaults. Tenant shall be in material default under this
--------
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.4;
(b) If Tenant fails to pay rent or any other charge within three (3)
days after delivery of notice that such amounts are past due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against Tenant
and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is
appointed to take possession of substantially all of Tenant's assets located at
the Property or of Tenant's interest in this Lease and possession is not
restored to Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Property or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant transfers
Tenant's interest hereunder, then Landlord shall receive, as Additional Rent,
the excess, if any, of the rent (or any other consideration) paid in connection
with such assignment or sublease over the rent payable by Tenant under this
Lease.
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(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.3 Remedies. On the occurrence of any material default by
--------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (10%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.3(a), or (ii) proceeding under Paragraph
10.3(b);
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(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Property. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due.
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
Section 10.4 Intentionally Omitted.
---------------------
Section 10.5 Automatic Termination. Notwithstanding any other term or
---------------------
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.3 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to Landlord's
right to possession of the Property. All such damages suffered (apart from Base
Rent and other rent payable hereunder) shall constitute pecuniary damages which
must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.6 Cumulative Remedies. Landlord's exercise of any right or
-------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11
PROTECTION OF LENDERS
---------------------
Section 11.1 Subordination. Landlord shall have the right to subordinate
-------------
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall execute
such further documents and assurances as such lender may require, provided that
Tenant's obligations under this Lease shall not be increased in any material way
(the performance of ministerial acts shall not be deemed material), and Tenant
shall not be deprived of its rights under this Lease. Tenant's right to quiet
possession of the Property
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during the Lease Term shall not be disturbed if Tenant pays the rent and
performs all of Tenant's obligations under this Lease and is not otherwise in
default. If any ground lessor beneficiary or mortgagee elects to have this Lease
prior to the lien of its ground lease, dead of trust or mortgage and gives
written notice thereof to Tenant, this Lease shall be deemed prior to such
ground lease, deed of trust or mortgage whether this Lease is dated prior or
subsequent to the date of said ground lease, deed of trust or mortgage or the
date of recording thereof.
Section 11.2 Attornment. If Landlord's interest in the Property is
----------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.3 Signing of Documents. Tenant shall sign and deliver any
--------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant falls to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.4 Estoppel Certificates.
---------------------
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not to Tenant's knowledge in default under this Lease (or, if
Landlord is claimed to be in default, stating why); and (v) such other
representations or information with respect to Tenant or the Lease as Landlord
may reasonably request or which any prospective purchaser or encumbrancer of the
Property may require. Tenant shall deliver such statement to Landlord within ten
(10) days after Landlord's request. Landlord may give any such statement by
Tenant to any prospective purchaser or encumbrancer of the Property. Such
purchaser or encumbrancer may rely conclusively upon such statement as true and
correct.
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(b) If Tenant does not deliver such statement to Landlord within such
ten (10)-day period, Landlord, and any prospective purchaser or encumbrancer,
may conclusively presume and rely upon the following facts: (i) that the terms
and provisions of this Lease have not been changed except as otherwise
represented by Landlord; (ii) that this Lease has not been cancelled or
terminated except as otherwise represented by Landlord; (iii) that not more than
one month's Base Rent or other charges have been paid in advance: and (iv) that
Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.5 Tenant's Financial Condition. Within ten (10) days after
----------------------------
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE 12
LEGAL COSTS
-----------
Section 12.1 Legal Proceedings. (a) If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach of
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the party in whose favor a judgment is entered,
shall receive a reasonable sum as attorneys' fees and casts. The losing party in
such action shall pay such attorneys' fees and costs. Tenant shall also
indemnify Landlord against and hold Landlord harmless from all costs, expenses,
demands and liability Landlord may incur if Landlord becomes or is made a party
to any claim or action (a) instituted by Tenant against any third party, or by
any third party against Tenant, or by or against any person holding any interest
under or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for Tenant or such
other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
24
<PAGE>
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
(b) Notwithstanding anything to the contrary provided herein, if a
controversy, claim or dispute arises out of or relates to this Lease, or the
breach thereof, and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration as set forth below.
If the parties hereto cannot solve a dispute by mediation within 60 days of
the commencement thereof, any controversy or claim arising out of or relating to
this Lease, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The parties hereto further agree that the
above controversy be submitted to three arbitrators. The parties hereto further
agree to faithfully observe this agreement and the rules, and that the parties
will abide by and perform any award rendered by the arbitrators, and that a
judgment of the court having jurisdiction may be entered on the award.
Section 12.2 Landlord's Consent. Tenant shall pay Landlord's reasonable
------------------
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article 9 (Assignment and Subletting), or in connection with any
other act which Tenant proposes to do and which requires Landlord's consent
ARTICLE 13
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Non-Discrimination. Tenant promises, and it is a condition
------------------
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
25
<PAGE>
Section 13.2 Landlord's Liability; Certain Duties.
------------------------------------
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall have
any personal liability under this Lease.
Section 13.3 Severability. A determination by a court of competent
------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.4 Interpretation. The captions of the Articles or Sections of
--------------
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
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<PAGE>
Section 13.5 Incorporation of Prior Agreements; Modifications. This
------------------------------------------------
Lease is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.6 Notices. All notices required or permitted under this Lease
-------
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.3 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.2 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.7 Waivers. All waivers must be in writing and signed by the
-------
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.8 No Recordation. Tenant shall not record this Lease without
--------------
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.9 Binding Effect; Choice of Law. This Lease binds any party
-----------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 Corporate Authority; Partnership Authority. If Tenant is a
------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the
27
<PAGE>
partnership, that he or it has full authority to sign for the partnership and
that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11 Joint and Several Liability. All parties signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12 Force Majeure. If Landlord cannot perform any of its
-------------
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control Include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13 Execution of Lease. This Lease may be executed in
------------------
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14 Survival. All representations and warranties of Landlord
--------
and Tenant shall survive the termination of this Lease.
Section 13.15 Right of First Refusal.
----------------------
(a) Subject and subordinate to the rights of Related Parties (hereinafter
defined) as set forth in paragraph (b) hereinbelow, Tenant, and its successors
-------------
and assigns, provided that Tenant is not in default of this Lease, shall have a
right of first refusal exercisable from the Commencement Date through the Term
including all extension terms and including the date upon which this Lease
expires with respect to the purchase of the Property. Such right of refusal
shall be exercisable upon and shall be subject to the following conditions:
(1) Upon receipt by Landlord of a bona fide offer acceptable to
Landlord to purchase the Property or to purchase any vacant or undeveloped
contiguous property (herein called the "Bona Fide Offer"), Landlord shall
---------------
notify Tenant of the existence and terms and conditions of the Bona Fide
Offer.
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(2) Upon Tenant's receipt of notice of the Bona Fide Offer from
Landlord, Tenant shall have thirty (30) business days to notify Landlord in
writing that Tenant irrevocably elects to (a) purchase the Property or
contiguous property upon all of the terms and conditions stated in the Bona
Fide Offer, including the purchase price stated in the Bona Fide Offer and
(b) simultaneously with Tenant's election in the preceding clause (a), at
Tenant's option, purchase any vacant or undeveloped contiguous property
owned by Landlord that is not subject to Bona Fide Offer at the fair market
value for such property as agreed by the parties. If the parties are
unable to agree upon the fair market value of the Property within ten (10)
days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined
----------------------
by an appraiser selected by the parties who is a member of the American
Institute of Real Estate Appraisers with at least five years of experience
appraising property comparable to and in the geographic area of the
Property. Such appraiser's determination of the fair market value of the
Property shall be binding on the parties. If the parties are unable to
agree upon the selection of an appraiser, each party shall select a
qualified appraiser and the two selected appraisers shall select a
qualified third appraiser who will determine the fair market value of the
Property. If Tenant does not exercise its right of refusal under this
paragraph (a), either by notifying Landlord in writing of its election not
-------------
to exercise such right or by failing to notify Landlord in writing of
Tenant's election within the thirty (30) business day period following its
receipt of notice of the Bona Fide Offer to purchase the Property, then
Tenant conclusively shall be deemed to have elected not to purchase the
Property and Landlord shall be entitled to sell the Property to any third
party at any time within 6 months of the Bona Fide Offer upon such terms of
the Bona Fide Offer, without any further notice to Tenant. If Tenant
elects to purchase the Property within said thirty (30) business day
period, the Tenant promptly shall enter into a purchase agreement with
Landlord to buy the Property on the terms and conditions set forth in such
Bona Fide Offer with appropriate adjustments as set forth in this paragraph
---------
(a). Notwithstanding anything to the contrary set forth herein, the
---
Tenants rights under this Section shall not apply to any transfer, sale, or
assignment from the Landlord to Benjamin Doskocil, Mary Frances Doskocil,
any child, family member or relative of either Benjamin or Mary Frances
Doskocil, any entity owned or controlled by any of the foregoing or any
charitable organization, any trust created for the benefit of any of the
foregoing (the "Related Parties").
---------------
(b) Notwithstanding anything to the contrary provided herein, Landlord may
at any time transfer, sell or assign the Property in any manner to a Related
Party without the consent of Tenant, and paragraph (a) hereinabove hereof shall
-------------
be subject and subordinate to
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the rights of Related Parties with respect to the Property provided that upon
any transfer to a Related Party, the Related Party shall be bound by the terms
of paragraph (a).
Section 13.16 Purchase Option.
---------------
(a) Landlord hereby grants to Tenant the option to elect to purchase,
during the sixty-first (61st) through the sixty-fourth (64th) month of the Term
and during the one hundred and twentieth (120th) month of the Term and to close
the purchase within 60 days of the election, all of Landlord's right, title and
interest in the Property, including without limitation, the buildings, parking
lot, fixtures and improvements constructed on the land, all of Landlord's
equipment, machinery, furniture, inventory and other personal property located
upon and used in connection with the operation of the Property. At the same
time as the Tenant's delivery of the Option Exercise Notice (hereinafter
defined) to Landlord, Tenant may elect to purchase any or all vacant or
undeveloped land that is contiguous to the Property upon the same terms and
conditions set forth herein.
(b) The total base purchase price for the Property (the "Base Purchase
-------------
Price") shall be ninety-five percent (95%) of the fair market value of the
- -----
Property as such fair market value is agreed upon by the parties. If the
parties are unable to agree upon the fair market value of the Property within
ten (10) days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined by an
----------------------
appraiser selected by the parties who is a member of the American Institute of
Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the selection
of an appraiser, each party shall select a qualified appraiser and the two
selected appraisers shall select a qualified third appraiser who will determine
the fair market value of the Property. The Purchase Price shall be paid in cash
at the Closing.
(c) At the Closing (hereinafter defined), Landlord shall convey the
Property to Tenant by special warranty deed (the "Deed") in form and substance
----
reasonably acceptable to Tenant and Landlord.
(d) The closing of the transaction pursuant to the Option Exercise Notice
(the "Closing") shall be at the main office of Old Republic Title, 1501 Summit,
-------
Fort Worth, Texas (the "Title Company"), shall be held at 10:00 o'clock a.m.,
-------------
Arlington time, on the closing date.
30
<PAGE>
(e) At the Closing, Landlord shall cause the following items to be
furnished to Tenant:
(1) The Deed in the form required hereinabove, duly executed and
acknowledged by Landlord.
(2) A fully paid Owner's Policy of Title Insurance covering the
Property issued by the Title Company in accordance with the terms of this
Agreement insuring Tenant's title in the amount of the Base Purchase Price,
containing no liens against the Landlord's fee interest in the Property.
(3) A duly executed and acknowledged bill of sale conveying title to
all personalty and all intangible property to Tenant.
(4) A duly executed and acknowledged assignment in favor of Tenant of
all service, employment and management contracts as are then in force and
pertaining to the Property and designated by Tenant, and executed copies of
all such contracts.
(5) Evidence reasonably satisfactory to Tenant and the Title Company
of the Landlord's closing representatives' power and authority to
consummate the transactions.
(f) Subject to Landlord's full performance of the conditions precedent
listed in and required by paragraph (e) above, at the Closing, Tenant shall:
-------------
(1) Pay to Landlord the Base Purchase Price in cash.
(2) Furnish evidence reasonably satisfactory to Landlord and the
Title Company of the Tenant's and Tenant's closing representatives' power
and authority to consummate the transactions.
(g) On or before Closing, Landlord shall pay: (1) the cost of the Owner's
Policy of Title Insurance required hereby, excluding the additional charges for
modification or deletion of standard exceptions, as hereinabove provided; (b)
Landlord's own attorney's fees; and (c) one-half (1/2) of any escrow fee charged
by the Title Company. On or before Closing, Tenant shall pay: (1) Tenant's own
attorneys' fees; (b) one-half (1/2) of any escrow fee charged by the Title
Company; (3) any charges for modification or deletion of standard exceptions to
the Owner's Policy of Title Insurance; (4) the official fees for filing and
recording Landlord's Deed; and (5) survey for the Property..
31
<PAGE>
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
32
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on July 1, 1997 /s/ Benjamin L. Doskocil, Sr.
-------------------------------------
Benjamin L. Doskocil, Sr.
"TENANT"
Signed on July 1, 1997 DOSKOCIL MANUFACTURING COMPANY, INC.
By: /s/ Larry E. Rembold
----------------------------------
Name: Larry E. Rembold
--------------------------------
Its: President
--------------------------------
33
<PAGE>
BUILDING J
EXHIBIT A
The following tract or tracts of land in Tarrant County, Texas:
Lot 3, Block 3, SOUTHLAND ACRES, an Addition to the City of Arlington,
Tarrant County, Texas, according to the Plat recorded in Volume 388-Z, Page
137, Plat Records, Tarrant County, Texas.
<PAGE>
EXHIBIT 10.21
PARKING
INDUSTRIAL REAL ESTATE LEASE
ARTICLE 1
BASIC TERMS
-----------
This Article 1 contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article 1 explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.1 Date of Lease: July 1, 1997
-------------
Section 1.2 Landlord (include legal entity): Benjamin L. Doskocil
-------------------------------
Address of Landlord: 5306 Mansfield Road, Arlington, Texas 76017
Section 1.3 Tenant (include legal entity): Doskocil Manufacturing
-----------------------------
Company, Inc. Address of Tenant: 4209 Barnett, Arlington, Texas 76017
Section 1.4 Property: (include street address, approximate square footage
--------
and description) the parking facilities located at 720 and 722 West Interstate
20, Arlington, Texas, as more particularly described on Exhibit "A".
-----------
Section 1.5 Lease Term:
----------
(a) The initial term of this Lease shall be for ten (10) years ("Term") and
----
shall commence on the date hereof ("Commencement Date") and shall terminate at
-----------------
5:00 P.M. local time on the tenth (10th) anniversary of the Commencement Date
(the "Expiration Date").
---------------
(b) Provided that Tenant is not in default of this Lease, Tenant shall have
the option to renew this Lease for three (3) renewal terms of five (5) years
each commencing upon the expiration of the initial ten (10) year Term or any
previous renewal term, as the case may be, and ending at 5:00 P.M. local time
five (5) years thereafter, unless any such renewal term shall sooner terminate
in accordance with this Lease or otherwise; provided that (i) Tenant shall have
notified Landlord in writing of Tenant's exercise of such renewal option not
later than six (6) months prior to the expiration of the initial Term hereof or
the then existing renewal term, as the case may be, (ii) at the time such notice
is given, this Lease shall be in full force and effect and Tenant shall not be
in default hereunder for such period
<PAGE>
of time as would entitle Landlord to terminate this Lease pursuant to the terms
hereof. Such renewal terms shall be upon all of the agreements, terms,
covenants and conditions hereof except that Tenant shall pay Base Rent
(hereinafter defined) to Landlord in monthly installments in an amount equal to
the greater of (i) the fair market rate (the "Fair Market Rent") for the Real
----------------
Property (as defined herein) or (ii) one hundred and ten percent (110%) of the
existing Base Rent on an "AS IS, WHERE IS" basis as of the commencement of the
renewal term, as designated by Landlord within twenty (20) days after Landlord
receives Tenant's renewal notice, but in no event greater than the rate of Base
Rent in effect at the scheduled expiration of the Term or the applicable renewal
term plus twenty-five percent (25%) thereof. In addition, during the renewal
term, Tenant shall pay all other rent and other amounts due under the Lease. If
Tenant does not approve of Landlord's designation of the Base Rent for the
renewal term, then Tenant, as its sole remedy, may submit in writing to Landlord
within ten (10) days after the Landlord's delivery of its determination Fair
Market Rent to Tenant (the "Renewal Commencement Date"), its good faith
-------------------------
determination of Fair Market Rent with appropriate back-up documentation. If
the Tenant's determination of Fair Market Rent is within ten percent (10%) of
the Landlord's determination of the same, the "Fair Market Rent" shall equal the
----------------
median number between each of the Tenant's and Landlord's determination (but in
no event shall the Fair Market Rent be less than the Base Rent existing on the
last day of the Term plus ten percent (10%)). If the Tenant's determination of
Fair Market Rent is not within ten percent (10%) of the Landlord's determination
---
of the same, each of the Landlord and the Tenant shall choose an appraiser on
the eleventh (11th) day after the Renewal Commencement Date to determine the
"fair market rent" and the initial determinations shall be disregarded for all
purposes in determining the Fair Market Rent. Each appraiser shall diligently
attempt to agree on the Fair Market Rent on or before the twenty-fourth (24th)
day after the Renewal Commencement Date. If such appraisers agree on the Fair
Market Rent on or before the twenty-fourth day after the Renewal Commencement
Date, such agreed sum shall constitute the "Fair Market Rent". If the
appraisers have not agreed on the Fair Market Rent by such day, (a) the
appraisers shall select an independent third appraiser (the "Final Appraiser"),
---------------
and (b) each such original appraiser shall deliver in writing to the Final
Appraiser their last determination of the sum (each such sum being hereinafter
referred to as the "Appraisal Price") that such appraiser believes is the Fair
---------------
Market Rent. On or before the twenty-ninth (29th) day after the Renewal
Commencement Date, the Final Appraiser shall choose one Appraisal Price or the
other Appraisal Price as the "Fair Market Rent". Notwithstanding anything to
----------------
the contrary herein, in no event shall the Fair Market Rent be less than the
Base Rent in effect at the last day of the Term plus ten percent (10%) thereof.
Tenant shall have no further renewal rights after the expiration of such renewal
terms. Upon the commencement of each renewal term, (x) the renewal term shall
be added to and become part of the Term, (y) any reference in this Lease, to the
"Term", the "term of this Lease" or any similar expression shall be deemed to
----
2
<PAGE>
include the renewal terms, and (z) the Expiration Date shall become the
expiration of the applicable renewal term.
Section 1.6 Permitted Uses: (See Article Five) Tenant may use the
--------------
Property for any lawful manufacturing or distribution purpose, including to
operate its business as operated on the day immediately preceding this Lease.
Section 1.7 Tenant's Guarantor: (If none, so state) None.
------------------
Section 1.8 Brokers: (See Article 14) (if none, so state) None.
-------
Landlord's Broker: None.
Tenant's Broker: None.
Section 1.9 Commission Payable to Landlord's Broker: (See Article 14) $
---------------------------------------
None
- ----
Section 1.10 Initial Security Deposit: (See Section 3.3) None.
------------------------
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: N/A
------------------------------------------
Section 1.12 Rent and Other Charges Payable by Tenant: See below.
----------------------------------------
(a) Base Rent. Tenant shall pay to Landlord, without notice or
---------
demand, in lawful money of the United States of America, at the office of
Landlord or at such other place as Landlord may designate, the following:
annual fixed rent ("Base Rent") of $4,800.00 per annum for the period commencing
---------
with the Commencement Date, payable in equal monthly installments in advance on
the first day of each and every month during the Term, of $400.00 except that
the first installment of Base Rent shall be apportioned and shall be payable on
the Commencement Date if the Commencement Date shall occur on a date other than
the first day of a month and except that the installment of Base Rent due in the
month that the Expiration Date occurs shall be apportioned if the Expiration
Date shall occur on a date other than the last of a month. Commencing upon the
first day of the 61st month of the Lease, the Base Rent shall be increased by
ten percent (10%) more than the Base Rent that existed on the preceding day.
(b) Other Periodic Payments. (i) Real Property Taxes above the "Base
-----------------------
Real Property Taxes" (See Section 4.2); (ii) Utilities (See Section 4.3); (iii)
Impounds for Tenant's Share of Insurance Premiums and Property Taxes (See
Section 4.7); (iv) Maintenance, Repairs and Alterations (See Article 6).
3
<PAGE>
Section 1.13 Costs and Charges Payable by Landlord. (a) Base Real
-------------------------------------
Property Taxes (See Section 4.2); (b) Insurance Premiums (See Section 4.4(c);
(c) Maintenance and Repair (See Article 6). Tenant, at its expense, shall take
good care of the Property. Tenant shall promptly make all repairs, interior or
exterior, ordinary or extraordinary, as and when needed to preserve the Property
and any Improvements, therein in good working order and condition other than (a)
repairs necessitated by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors, invitees or licensees, and (b)
maintenance and repairs to the Building's roof, foundation and structural
integrity except as a result of the negligence or willful acts of the Tenant or
its agents, employees, contractors, invitees or licensees. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be at least equal in quality and class to the original work
or installation.
Section 1.14 Landlord's Share of Profit on Assignment or Sublease: (See
----------------------------------------------------
Section 9.5) Landlord's share shall equal seventy percent (70%) of the Profit
(the "Landlord's Share").
Section 1.15 Riders: The following Riders are attached to and made a part
------
of this Lease: (If none, so state) None
ARTICLE 2
LEASE TERM
----------
Section 2.1 Lease of Property For Lease Term. Landlord leases the
--------------------------------
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.5 above and shall
begin and end on the dates specified in Section 1.5 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.5 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.2 Intentionally Omitted.
Section 2.3 Intentionally Omitted.
Section 2.4 Holding Over. Tenant shall vacate the Property upon the
------------
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the
4
<PAGE>
Property. If Tenant does not vacate the Property upon the expiration or earlier
termination of the Lease and Landlord thereafter accepts rent from Tenant,
Tenant's occupancy of the Property shall be a "month-to-month" tenancy, subject
to all of the terms of this Lease applicable to a month-to-month tenancy, except
that the Base Rent then in effect shall be increased by twenty-five percent
(25%).
ARTICLE 3
BASE RENT
---------
Section 3.1 Time and Manner of Payment. Upon execution of this Lease,
--------------------------
Tenant shall pay Landlord the Base Rent in the amount stated In Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
ARTICLE 4
OTHER CHARGES PAYABLE BY TENANT
-------------------------------
Section 4.1 Additional Rent. All charges payable by Tenant other than
---------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.2 Property Taxes.
--------------
(a) Real Property Taxes. Landlord shall pay the "Base Real Property
-------------------
Taxes" on the Property during the Lease Term. Base Real Property Taxes are real
property taxes applicable to the Property as shown on the tax bill for the most
recent tax fiscal year ending prior to the Commencement Date. As of the first
day of each of the sixty-first (61st), seventy-third (73rd), eighty-fifth
(85th), ninety-seventy (97th) and one hundred and ninth (109th) months of the
Term of this Lease, Tenant shall pay the Landlord, the amount, if any, by which
the real property taxes for the current calendar year are in excess of the real
property taxes attributable for calendar year 1996. Subject to Paragraph
4.2(c), Tenant shall make such payments within fifteen (15) days after receipt
of Landlord's statement showing the amount and computation of such increase.
Landlord shall reimburse Tenant for any real property taxes paid by Tenant
covering any period of time prior to or after the Lease Term.
5
<PAGE>
(b) Definition of "Real Property Tax". "Real property tax" means: (i)
---------------------------------
any fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalk's,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed,
----------------
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.2(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
-----------------------
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the
Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from
Landlord for such personal property taxes.
Section 4.3 Utilities. Tenant shall pay, directly to the appropriate
---------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
6
<PAGE>
Section 4.4 Insurance Policies.
------------------
(a) Liability Insurance. During the Lease Term, Tenant shall maintain
-------------------
a policy of commercial general liability insurance (sometimes known as broad
form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such
policy. The initial amount of such insurance shall be Ten Million Dollars
($10,000,000) per occurrence and shall be subject to periodic increase based
upon inflation, increased liability awards, recommendation of Landlord's
professional insurance advisers and other relevant factors. The liability
insurance obtained by Tenant under this Paragraph 4.4(a) shall (i) be primary
and non-contributing; (ii) contain cross-liability endorsements; and (iii)
insure Landlord against Tenant's performance under Section 5.5, if the matters
giving rise to the indemnity under Section 5.5 result from the negligence of
Tenant. The amount and coverage of such insurance shall not limit Tenant's
liability nor relieve Tenant of any other obligation under this Lease. Landlord
may also obtain comprehensive public liability insurance in an amount and with
coverage determined by Landlord insuring Landlord against liability arising out
of ownership, operation, use or occupancy of the Property. The policy obtained
by Landlord shall not be contributory and shall not provide primary Insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
------------------------------------
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain
insurance for Tenant's fixtures or equipment or building improvements installed
by Tenant on the Property.
(c) Payment of Premiums.
-------------------
(i) Landlord shall pay the "Premiums" for the insurance
policies maintained by Landlord under Paragraph 4.4(b). Notwithstanding
the previous sentence, Tenant shall be obligated to pay the Premiums for
the insurance to the extent such Premiums increase as a result of Tenant's
use of the Property. For example, if Tenant changes its use of the
Property to include an activity which is inherently more dangerous than its
use of the Property as of the Commencement
7
<PAGE>
Date, Tenant shall be obligated to pay for the increase in Premium
resulting from such activity on the Property.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the insurance carrier
to give Landlord not less than thirty (30) days' written notice prior to
any cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which
case Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant and Landlord shall maintain all insurance required
under this Lease with companies holding a "General Policy Rating" of A-12
or better, as set forth In the most current issue of "Best Key Rating
Guide". Landlord and Tenant acknowledge the insurance markets are rapidly
changing and that insurance in the form and amounts described in this
Section 4.4 may not be available in the future. Tenant acknowledges that
the insurance described in this Section 4.4 is for the primary benefit of
Landlord, If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable
in the insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at
the time of such loss or damage. Upon obtaining the
8
<PAGE>
required policies of insurance, Landlord and Tenant shall give notice to
the insurance carriers of this mutual waiver of subrogation.
Section 4.5 Late Charges. Tenant's failure to pay rent promptly may cause
------------
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges end late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to ten percent (10%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
Section 4.6 Interest on Past Due Obligations. Any amount owed by Tenant
--------------------------------
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of Interest on such amounts shall not excuse or cure any
default by Tenant under this Lease, if the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.7 Impounds for Insurance Premiums and Real Property Taxes. If
-------------------------------------------------------
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant to Landlord under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-Interest bearing impound account, if unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the Impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under this
Lease.
ARTICLE 5
USE OF PROPERTY
---------------
Section 5.1 Permitted Uses. Tenant may use the Property only for the
--------------
Permitted Uses set forth in Section 1.6 above.
9
<PAGE>
Section 5.2 Manner of Use. Tenant shall not cause or permit the Property
-------------
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act provided that if any
capital improvements to the Property are required to be made for compliance and
the benefit or useful life of such capital improvements extends beyond the Lease
Term (as such term may be extended by exercise of any options), the useful life
of such capital improvements shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Section 5.3 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes" "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord provided that Landlord is
deemed to have consented to the use of the Hazardous Materials, and reasonable
replacements or substitution thereof, in use on the Property immediately prior
to the Commencement Date. Landlord shall be entitled to take into account such
other factors or facts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall Landlord be
required to consent to the installation or use of any storage tanks on the
Property.
Section 5.4 Signs and Auctions. Tenant shall not place any signs on the
------------------
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
10
<PAGE>
Section 5.5 Indemnity. Tenant shall indemnify Landlord against and hold
---------
Landlord harmless from any and all costs, claims or liability arising subsequent
to the Commencement Date from: (a) Tenant's use of the Property subsequent to
the Commencement Date; (b) the conduct of Tenant's business or anything else
done or permitted by Tenant to be done in or about the Property subsequent to
the Commencement Date, including any contamination of the Property or any other
property resulting from the presence or use of Hazardous Material caused or
permitted by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant subsequent to
the Commencement Date. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.6 Landlord's Access. Landlord or its agents may enter the
-----------------
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems reasonably necessary.
Landlord shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place customary "For Sale" or "For Lease" signs on the
Property.
Section 5.7 Quiet Possession. It Tenant pays the rent and complies with
----------------
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease,
ARTICLE 6
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
-----------------------------------------------------------
Section 6.1 Existing Conditions. Tenant accepts the Property in its
-------------------
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein or in the Recapitalization Agreement dated July 1, 1997 by and among
Enterprise Partners III, L.P., a Delaware
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limited partnership, Enterprise Partners III Associates, L.P., a Delaware
limited partnership, Enterprise Partners IV, L.P., a Delaware limited
partnership, Enterprise Partners IV Associates, L.P., a Delaware limited
partnership, Enterprise Management Partners Corporation, a California
corporation, EP Texas Company, LLC, a Texas limited liability company, Benjamin
L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock International, Inc., a Texas
corporation, Doskocil Manufacturing Company, Inc., a Texas corporation, and
Spectrum Polymers, Ltd., a Texas limited partnership, Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation as to the
condition of the Property or the suitability of the Property for Tenant's
intended use. Tenant represents and warrants that Tenant has made its own
inspection of and inquiry regarding the condition of the Property and is not
relying on any representations of Landlord or any Broker with respect thereto.
If Landlord or Landlord's Broker has provided a Property Information Sheet or
other Disclosure Statement regarding the Property, a copy is attached as an
exhibit to the Lease.
Section 6.2 Exemption of Landlord from Liability. Except for Landlord
------------------------------------
defaults under Section 6.3, Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or from other sources or places;
or (d) any act or omission of any other tenant of Landlord. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions of
this Section 6.2 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.3 Landlord's Obligations. Subject to the provisions of Article
----------------------
7 (Damage or Destruction) and Article 8 (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on the Property in good order,
condition and repair. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls. Landlord shall not
be obligated to make any repairs under this Section 6.3 until a reasonable time
after receipt of a written notice from Tenant of the need for such repairs.
Tenant waives the benefit of any present or future law which might give Tenant
the right to repair the Property at Landlord's expense or to terminate the Lease
because of the condition of the Property.
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Section 6.4 Tenant's Obligations.
--------------------
(a) Except as provided in Section 6.3, Article 7 (Damage or
Destruction) and Article 8 (Condemnation). Tenant shall keep all portions of
the Property (including nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. Landlord shall have the right, upon written notice to Tenant, to
undertake the responsibility for preventive maintenance of the heating and air
conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's
expense, repair any damage to the roof, foundation or structural portions of
walls caused by Tenant's acts or omissions. It is the intention of Landlord and
Tenant that, at all times during the Lease Term, Tenant shall maintain the
Property in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.4 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.4, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.5 Alterations, Additions, and Improvements.
----------------------------------------
(a) Tenant shall not make any alterations, additions, or improvements
to the Property without Landlord's prior written consent, except for non-
structural alterations which do not exceed One Hundred Thousand Dollars
($100,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and
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completion bonds in form and amount satisfactory to Landlord. Tenant shall
promptly remove any alterations, additions, or improvements constructed in
violation of this Paragraph 6.5(a) upon Landlord's written request. All
alterations, additions, and improvements shall be done in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide Landlord with "as built" Plans, copies of all construction contracts,
and proof of payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
Section 6.6 Condition Upon Termination. Upon the termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article 7 (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations except to the extent installed by Tenant.
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ARTICLE 7
DAMAGE OR DESTRUCTION
---------------------
Section 7.1 Partial Damage to Property.
--------------------------
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.4(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, or if the cause of the damage is not covered
by the insurance policies which Landlord maintains under Paragraph 4.4(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, and, if the damage was due to
an act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance policies and the difference between the actual cost of
repair and any insurance proceeds received by Landlord. If Landlord elects to
terminate the Lease, Tenant may elect to continue this Lease in full force and
effect, in which case Tenant shall repair any damage to the Property and any
building in which the Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any Insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
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Section 7.2 Substantial or Total Destruction. If the Property is
--------------------------------
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.1), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months alter
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.3 Temporary Reduction of Rent. If the Property is destroyed or
---------------------------
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article 7, any rent payable during the period of such damage,
repair and/or restoration shall be reduced according to the degree, if any, to
which Tenant's use of the Property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.4 Waiver. Tenant waives the protection of any statute, code or
------
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.2 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8
CONDEMNATION
------------
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10)
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days after receipt of written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority takes title or
possession). If neither Landlord nor Tenant terminates this Lease, this Lease
shall remain in effect as to the portion of the Property not taken, except that
the Base Rent and Additional Rent shall be reduced in proportion to the
reduction in the floor area of the Property. Any Condemnation award or payment
shall be distributed in the following order: (a) first, to any ground lessor,
mortgagee or beneficiary under a deed of trust encumbering the Property, the
amount of its interest in the Property; (b) second, to Tenant, only the amount
of any award specifically designated for loss of or damage to Tenant's trade
fixtures or removable personal property; and (c) third, to Landlord, the
remainder of such award, whether as compensation for reduction in the value of
the leasehold, the taking of the fee, or otherwise. If this Lease is not
terminated, Landlord shall repair any damage to the Property caused by the
Condemnation, except that Landlord shall not be obligated to repair any damage
for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
-------------------------
Section 9.1 Landlord's Consent Required. No portion of the Property or of
---------------------------
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by sale, assignment, sublease, transfer, operation of law, or act of
Tenant, without Landlord's prior written consent, except as provided in Section
9.2 below. Landlord has the right to grant or withhold its consent as provided
in Section 9.5 below. Any attempted transfer without consent shall be void and
shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than fifty percent (50%) of the
partnership interests shall require Landlord's consent, if Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation (except as set forth in 9.2) shall require Landlord's
consent. Notwithstanding the foregoing, Tenant may mortgage, assign or transfer
its interest in this Lease to any lender and such lender or an affiliate or
designee may subsequently acquire Tenant's interest in this Lease by foreclosure
or assignment in lieu thereof, without Landlord's consent.
Section 9.2 Tenant Affiliate. Tenant may assign this Lease or sublease
----------------
the Property, without Landlord's consent, (i) to any corporation which controls,
is controlled by or is under common control with Tenant, or to any corporation,
partnership, limited liability company or other legal entity resulting from a
reorganization or the merger of or
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consolidation with Tenant ("Tenant's Affiliate") or (ii) in the event of the
------------------
public sale of stock of Tenant or Tenant's Affiliate or for subsequent transfers
of stock whether or not such transfers result in a change in control, provided
that any assignee of the Lease shall assume in writing all of Tenant's
obligations under this Lease, or (iii) in connection with the acquisition of or
a business combination with another business principally engaged in supplying
products to the pet industry with annual revenues in excess of $25,000,000,
provided that any assignee of the Lease shall assume in writing all of Tenant's
obligations under this Lease.
Section 9.3 No Release of Tenant. No transfer permitted by this Article
--------------------
9, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article 9. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee defaults under
this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.
Section 9.4 Offer to Terminate. If Tenant desires to assign the Lease or
------------------
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.5 with respect to any proposed transfer shall
continue to apply.
Section 9.5 Landlord's Consent.
------------------
(a) Tenant's request for consent to any transfer described in
Sections 9.1 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g.,the term of and the
rent and security deposit payable under any proposed assignment or sublease),
and any other information Landlord deems relevant. Landlord shall have the right
to withhold consent, if reasonable, or to grant consent, based on the following
factors: (i) the business of the proposed assignee or subtenant and the proposed
use of the Property; (ii) the net worth and financial reputation of the proposed
assignee or subtenant; (iii) Tenant's compliance with all of its obligations
under the Lease; and (iv) such other factors as Landlord may reasonably deem
relevant. If Landlord objects to a proposed assignment
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solely because of the net worth and/or financial reputation of the proposed
assignee, Tenant may nonetheless sublease (but not assign), all or a portion of
the Property to the proposed transferee, but only on the other terms of the
proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the
Lease the Landlord's Share (stated in Section 1.14) of the Profit (defined
below) on such transaction as and when received by Tenant, unless Landlord
gives written notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
signed, and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt of Landlord's Share shall not be a consent to any
further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.5(b) shall be a material default of the Lease.
Section 9.6 No Merger. No merger shall result from Tenant's sublease of
---------
the Property under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
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ARTICLE 10
DEFAULTS; REMEDIES
------------------
Section 10.1 Covenants and Conditions. Tenant's performance of each of
------------------------
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.2 Defaults. Tenant shall be in material default under this
--------
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.4;
(b) If Tenant fails to pay rent or any other charge within three (3)
days after delivery of notice that such amounts are past due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general arrangement
for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
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(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.3 Remedies. On the occurrence of any material default by
--------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (10%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.3(a), or (ii) proceeding under Paragraph
10.3(b);
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(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Property. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due.
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
Section 10.4 Intentionally Omitted.
---------------------
Section 10.5 Automatic Termination. Notwithstanding any other term or
---------------------
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.3 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to Landlord's
right to possession of the Property. All such damages suffered (apart from Base
Rent and other rent payable hereunder) shall constitute pecuniary damages which
must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.6 Cumulative Remedies. Landlord's exercise of any right or
-------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11
PROTECTION OF LENDERS
---------------------
Section 11.1 Subordination. Landlord shall have the right to subordinate
-------------
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall
execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property
22
<PAGE>
during the Lease Term shall not be disturbed if Tenant pays the rent and
performs all of Tenant's obligations under this Lease and is not otherwise in
default. If any ground lessor beneficiary or mortgagee elects to have this
Lease prior to the lien of its ground lease, dead of trust or mortgage and gives
written notice thereof to Tenant, this Lease shall be deemed prior to such
ground lease, deed of trust or mortgage whether this Lease is dated prior or
subsequent to the date of said ground lease, deed of trust or mortgage or the
date of recording thereof.
Section 11.2 Attornment. If Landlord's interest in the Property is
----------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.3 Signing of Documents. Tenant shall sign and deliver any
--------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant falls to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.4 Estoppel Certificates.
---------------------
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not to Tenant's knowledge in default under this Lease (or, if
Landlord is claimed to be in default, stating why); and (v) such other
representations or information with respect to Tenant or the Lease as Landlord
may reasonably request or which any prospective purchaser or encumbrancer of the
Property may require. Tenant shall deliver such statement to Landlord within ten
(10) days after Landlord's request. Landlord may give any such statement by
Tenant to any prospective purchaser or encumbrancer of the Property. Such
purchaser or encumbrancer may rely conclusively upon such statement as true and
correct.
23
<PAGE>
(b) If Tenant does not deliver such statement to Landlord within such
ten (10)-day period, Landlord, and any prospective purchaser or encumbrancer,
may conclusively presume and rely upon the following facts: (i) that the terms
and provisions of this Lease have not been changed except as otherwise
represented by Landlord; (ii) that this Lease has not been cancelled or
terminated except as otherwise represented by Landlord; (iii) that not more than
one month's Base Rent or other charges have been paid in advance: and (iv) that
Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.5 Tenant's Financial Condition. Within ten (10) days after
----------------------------
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE 12
LEGAL COSTS
-----------
Section 12.1 Legal Proceedings. (a) If Tenant or Landlord shall be in
-----------------
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach of
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the party in whose favor a judgment is
entered, shall receive a reasonable sum as attorneys' fees and casts. The losing
party in such action shall pay such attorneys' fees and costs. Tenant shall
also indemnify Landlord against and hold Landlord harmless from all costs,
expenses, demands and liability Landlord may incur if Landlord becomes or is
made a party to any claim or action (a) instituted by Tenant against any third
party, or by any third party against Tenant, or by or against any person holding
any interest under or using the Property by license of or agreement with Tenant;
(b) for foreclosure of any lien for labor or material furnished to or for Tenant
or such other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
24
<PAGE>
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
(b) Notwithstanding anything to the contrary provided herein, if a
controversy, claim or dispute arises out of or relates to this Lease, or the
breach thereof, and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration as set forth below.
If the parties hereto cannot solve a dispute by mediation within 60 days of
the commencement thereof, any controversy or claim arising out of or relating to
this Lease, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The parties hereto further agree that the
above controversy be submitted to three arbitrators. The parties hereto further
agree to faithfully observe this agreement and the rules, and that the parties
will abide by and perform any award rendered by the arbitrators, and that a
judgment of the court having jurisdiction may be entered on the award.
Section 12.2 Landlord's Consent. Tenant shall pay Landlord's reasonable
------------------
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article 9 (Assignment and Subletting), or in connection with any
other act which Tenant proposes to do and which requires Landlord's consent
ARTICLE 13
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Non-Discrimination. Tenant promises, and it is a condition
------------------
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
25
<PAGE>
Section 13.2 Landlord's Liability; Certain Duties.
------------------------------------
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall have
any personal liability under this Lease.
Section 13.3 Severability. A determination by a court of competent
------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.4 Interpretation. The captions of the Articles or Sections of
--------------
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
26
<PAGE>
Section 13.5 Incorporation of Prior Agreements; Modifications. This Lease
------------------------------------------------
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.6 Notices. All notices required or permitted under this Lease
-------
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.3 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.2 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.7 Waivers. All waivers must be in writing and signed by the
-------
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.8 No Recordation. Tenant shall not record this Lease without
--------------
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.9 Binding Effect; Choice of Law. This Lease binds any party
-----------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 Corporate Authority; Partnership Authority. If Tenant is a
------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the
27
<PAGE>
partnership, that he or it has full authority to sign for the partnership and
that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11 Joint and Several Liability. All parties signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12 Force Majeure. If Landlord cannot perform any of its
-------------
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control Include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13 Execution of Lease. This Lease may be executed in
------------------
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14 Survival. All representations and warranties of Landlord
--------
and Tenant shall survive the termination of this Lease.
Section 13.15 Right of First Refusal.
----------------------
(a) Subject and subordinate to the rights of Related Parties (hereinafter
defined) as set forth in paragraph (b) hereinbelow, Tenant, and its successors
-------------
and assigns, provided that Tenant is not in default of this Lease, shall have a
right of first refusal exercisable from the Commencement Date through the Term
including all extension terms and including the date upon which this Lease
expires with respect to the purchase of the Property. Such right of refusal
shall be exercisable upon and shall be subject to the following conditions:
(1) Upon receipt by Landlord of a bona fide offer acceptable to
Landlord to purchase the Property or to purchase any vacant or undeveloped
contiguous property (herein called the "Bona Fide Offer"), Landlord shall
---------------
notify Tenant of the existence and terms and conditions of the Bona Fide
Offer.
28
<PAGE>
(2) Upon Tenant's receipt of notice of the Bona Fide Offer from
Landlord, Tenant shall have thirty (30) business days to notify Landlord in
writing that Tenant irrevocably elects to (a) purchase the Property or
contiguous property upon all of the terms and conditions stated in the Bona
Fide Offer, including the purchase price stated in the Bona Fide Offer and
(b) simultaneously with Tenant's election in the preceding clause (a), at
Tenant's option, purchase any vacant or undeveloped contiguous property
owned by Landlord that is not subject to Bona Fide Offer at the fair market
value for such property as agreed by the parties. If the parties are
unable to agree upon the fair market value of the Property within ten (10)
days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined
-----------------------
by an appraiser selected by the parties who is a member of the American
Institute of Real Estate Appraisers with at least five years of experience
appraising property comparable to and in the geographic area of the
Property. Such appraiser's determination of the fair market value of the
Property shall be binding on the parties. If the parties are unable to
agree upon the selection of an appraiser, each party shall select a
qualified appraiser and the two selected appraisers shall select a
qualified third appraiser who will determine the fair market value of the
Property. If Tenant does not exercise its right of refusal under this
paragraph (a), either by notifying Landlord in writing of its election not
-------------
to exercise such right or by failing to notify Landlord in writing of
Tenant's election within the thirty (30) business day period following its
receipt of notice of the Bona Fide Offer to purchase the Property, then
Tenant conclusively shall be deemed to have elected not to purchase the
Property and Landlord shall be entitled to sell the Property to any third
party at any time within 6 months of the Bona Fide Offer upon such terms of
the Bona Fide Offer, without any further notice to Tenant. If Tenant
elects to purchase the Property within said thirty (30) business day
period, the Tenant promptly shall enter into a purchase agreement with
Landlord to buy the Property on the terms and conditions set forth in such
Bona Fide Offer with appropriate adjustments as set forth in this paragraph
---------
(a). Notwithstanding anything to the contrary set forth herein, the
---
Tenants rights under this Section shall not apply to any transfer, sale, or
assignment from the Landlord to Benjamin Doskocil, Mary Frances Doskocil,
any child, family member or relative of either Benjamin or Mary Frances
Doskocil, any entity owned or controlled by any of the foregoing or any
charitable organization, any trust created for the benefit of any of the
foregoing (the "Related Parties").
---------------
(b) Notwithstanding anything to the contrary provided herein, Landlord may
at any time transfer, sell or assign the Property in any manner to a Related
Party without the consent of Tenant, and paragraph (a) hereinabove hereof shall
-------------
be subject and subordinate to
29
<PAGE>
the rights of Related Parties with respect to the Property provided that upon
any transfer to a Related Party, the Related Party shall be bound by the terms
of paragraph (a).
Section 13.16 Purchase Option.
---------------
(a) Landlord hereby grants to Tenant the option to elect to purchase,
during the sixty-first (61st) through the sixty-fourth (64th) month of the Term
and during the one hundred and twentieth (120th) month of the Term and to close
the purchase within 60 days of the election, all of Landlord's right, title and
interest in the Property, including without limitation, the buildings, parking
lot, fixtures and improvements constructed on the land, all of Landlord's
equipment, machinery, furniture, inventory and other personal property located
upon and used in connection with the operation of the Property. At the same
time as the Tenant's delivery of the Option Exercise Notice (hereinafter
defined) to Landlord, Tenant may elect to purchase any or all vacant or
undeveloped land that is contiguous to the Property upon the same terms and
conditions set forth herein.
(b) The total base purchase price for the Property (the "Base Purchase
-------------
Price") shall be ninety-five percent (95%) of the fair market value of the
- -----
Property as such fair market value is agreed upon by the parties. If the
parties are unable to agree upon the fair market value of the Property within
ten (10) days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined by an
----------------------
appraiser selected by the parties who is a member of the American Institute of
Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the selection
of an appraiser, each party shall select a qualified appraiser and the two
selected appraisers shall select a qualified third appraiser who will determine
the fair market value of the Property. The Purchase Price shall be paid in cash
at the Closing.
(c) At the Closing (hereinafter defined), Landlord shall convey the
Property to Tenant by special warranty deed (the "Deed") in form and substance
----
reasonably acceptable to Tenant and Landlord.
(d) The closing of the transaction pursuant to the Option Exercise Notice
(the "Closing") shall be at the main office of Old Republic Title, 1501 Summit,
-------
Fort Worth, Texas (the "Title Company"), shall be held at 10:00 o'clock a.m.,
-------------
Arlington time, on the closing date.
30
<PAGE>
(e) At the Closing, Landlord shall cause the following items to be
furnished to Tenant:
(1) The Deed in the form required hereinabove, duly executed and
acknowledged by Landlord.
(2) A fully paid Owner's Policy of Title Insurance covering the
Property issued by the Title Company in accordance with the terms of this
Agreement insuring Tenant's title in the amount of the Base Purchase Price,
containing no liens against the Landlord's fee interest in the Property.
(3) A duly executed and acknowledged bill of sale conveying title to
all personalty and all intangible property to Tenant.
(4) A duly executed and acknowledged assignment in favor of Tenant of
all service, employment and management contracts as are then in force and
pertaining to the Property and designated by Tenant, and executed copies of
all such contracts.
(5) Evidence reasonably satisfactory to Tenant and the Title Company
of the Landlord's closing representatives' power and authority to
consummate the transactions.
(f) Subject to Landlord's full performance of the conditions precedent
listed in and required by paragraph (e) above, at the Closing, Tenant shall:
-------------
(1) Pay to Landlord the Base Purchase Price in cash.
(2) Furnish evidence reasonably satisfactory to Landlord and the
Title Company of the Tenant's and Tenant's closing representatives' power
and authority to consummate the transactions.
(g) On or before Closing, Landlord shall pay: (1) the cost of the Owner's
Policy of Title Insurance required hereby, excluding the additional charges for
modification or deletion of standard exceptions, as hereinabove provided; (b)
Landlord's own attorney's fees; and (c) one-half (1/2) of any escrow fee charged
by the Title Company. On or before Closing, Tenant shall pay: (1) Tenant's own
attorneys' fees; (b) one-half (1/2) of any escrow fee charged by the Title
Company; (3) any charges for modification or deletion of standard exceptions to
the Owner's Policy of Title Insurance; (4) the official fees for filing and
recording Landlord's Deed; and (5) survey for the Property..
31
<PAGE>
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
32
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on July 1, 1997 /s/ Benjamin L. Doskocil, Sr.
------------------------------
Benjamin L. Doskocil, Sr.
"TENANT"
Signed on July 1, 1997 DOSKOCIL MANUFACTURING COMPANY,
INC.
By: /s/ Larry E. Rembold
-----------------------------
Name: Larry E. Rembold
---------------------------
Its: President
----------------------------
33
<PAGE>
I-20 PARKING
EXHIBIT A
The following tract or tracts of land in Tarrant County, Texas:
LOTS 1 and 2, BLOCK 3, SOUTHLAND ACRES, An Addition to the City of
Arlington, Tarrant County, Texas, according to Plat recorded in Volume
388-Z, Page 137, Plat Records, Tarrant County, Texas.
<PAGE>
EXHIBIT 10.22
SPECTRUM
INDUSTRIAL REAL ESTATE LEASE
ARTICLE 1
BASIC TERMS
-----------
This Article 1 contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article 1 explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.1 Date of Lease: July 1, 1997
-------------
Section 1.2 Landlord (include legal entity): Benjamin L. Doskocil and Mary
-------------------------------
Frances Doskocil
Address of Landlord: 5306 Mansfield Road, Arlington, Texas 76017
Section 1.3 Tenant (include legal entity): Doskocil Manufacturing
-----------------------------
Company, Inc.
Address of Tenant: 4209 Barnett, Arlington, Texas 76017
Section 1.4 Property: (include street address, approximate square footage
--------
and description) those building(s) located at 600 Justice, Mansfield, Texas, as
more particularly described on Exhibit "A".
-----------
Section 1.5 Lease Term:
----------
(a) The initial term of this Lease shall be for ten (10) years ("Term") and
----
shall commence on the date hereof ("Commencement Date") and shall terminate at
-----------------
5:00 P.M. local time on the tenth (10th) anniversary of the Commencement Date
(the "Expiration Date").
---------------
(b) Provided that Tenant is not in default of this Lease, Tenant shall have
the option to renew this Lease for three (3) renewal terms of five (5) years
each commencing upon the expiration of the initial ten (10) year Term or any
previous renewal term, as the case may be, and ending at 5:00 P.M. local time
five (5) years thereafter, unless any such renewal term shall sooner terminate
in accordance with this Lease or otherwise; provided that (i) Tenant shall have
notified Landlord in writing of Tenant's exercise of such renewal option not
later than six (6) months prior to the expiration of the initial Term hereof or
the then existing renewal term, as the case may be, (ii) at the time such notice
is given, this Lease
<PAGE>
shall be in full force and effect and Tenant shall not be in default hereunder
for such period of time as would entitle Landlord to terminate this Lease
pursuant to the terms hereof. Such renewal terms shall be upon all of the
agreements, terms, covenants and conditions hereof except that Tenant shall pay
Base Rent (hereinafter defined) to Landlord in monthly installments in an amount
equal to the greater of (i) the fair market rate (the "Fair Market Rent") for
----------------
the Real Property (as defined herein) or (ii) one hundred and ten percent (110%)
of the existing Base Rent on an "AS IS, WHERE IS" basis as of the commencement
of the renewal term, as designated by Landlord within twenty (20) days after
Landlord receives Tenant's renewal notice, but in no event greater than the rate
of Base Rent in effect at the scheduled expiration of the Term or the applicable
renewal term plus twenty-five percent (25%) thereof. In addition, during the
renewal term, Tenant shall pay all other rent and other amounts due under the
Lease. If Tenant does not approve of Landlord's designation of the Base Rent
for the renewal term, then Tenant, as its sole remedy, may submit in writing to
Landlord within ten (10) days after the Landlord's delivery of its determination
Fair Market Rent to Tenant (the "Renewal Commencement Date"), its good faith
-------------------------
determination of Fair Market Rent with appropriate back-up documentation. If
the Tenant's determination of Fair Market Rent is within ten percent (10%) of
the Landlord's determination of the same, the "Fair Market Rent" shall equal the
----------------
median number between each of the Tenant's and Landlord's determination (but in
no event shall the Fair Market Rent be less than the Base Rent existing on the
last day of the Term plus ten percent (10%)). If the Tenant's determination of
Fair Market Rent is not within ten percent (10%) of the Landlord's determination
---
of the same, each of the Landlord and the Tenant shall choose an appraiser on
the eleventh (11th) day after the Renewal Commencement Date to determine the
"fair market rent" and the initial determinations shall be disregarded for all
purposes in determining the Fair Market Rent. Each appraiser shall diligently
attempt to agree on the Fair Market Rent on or before the twenty-fourth (24th)
day after the Renewal Commencement Date. If such appraisers agree on the Fair
Market Rent on or before the twenty-fourth day after the Renewal Commencement
Date, such agreed sum shall constitute the "Fair Market Rent". If the
appraisers have not agreed on the Fair Market Rent by such day, (a) the
appraisers shall select an independent third appraiser (the "Final Appraiser"),
---------------
and (b) each such original appraiser shall deliver in writing to the Final
Appraiser their last determination of the sum (each such sum being hereinafter
referred to as the "Appraisal Price") that such appraiser believes is the Fair
---------------
Market Rent. On or before the twenty-ninth (29th) day after the Renewal
Commencement Date, the Final Appraiser shall choose one Appraisal Price or the
other Appraisal Price as the "Fair Market Rent". Notwithstanding anything to
----------------
the contrary herein, in no event shall the Fair Market Rent be less than the
Base Rent in effect at the last day of the Term plus ten percent (10%) thereof.
Tenant shall have no further renewal rights after the expiration of such renewal
terms. Upon the commencement of each renewal term, (x) the renewal term shall
be added to and become part of the Term, (y) any reference in this
2
<PAGE>
Lease, to the "Term", the "term of this Lease" or any similar expression shall
----
be deemed to include the renewal terms, and (z) the Expiration Date shall become
the expiration of the applicable renewal term.
Section 1.6 Permitted Uses: (See Article Five) Tenant may use the
--------------
Property for any lawful manufacturing or distribution purpose, including to
operate its business as operated on the day immediately preceding this Lease.
Section 1.7 Tenant's Guarantor: (If none, so state) None.
------------------
Section 1.8 Brokers: (See Article 14) (if none, so state) None.
-------
Landlord's Broker: None.
Tenant's Broker: None.
Section 1.9 Commission Payable to Landlord's Broker: (See Article 14) $
---------------------------------------
None
- ----
Section 1.10 Initial Security Deposit: (See Section 3.3) None.
------------------------
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: N/A
------------------------------------------
Section 1.12 Rent and Other Charges Payable by Tenant: See below.
----------------------------------------
(a) Base Rent. Tenant shall pay to Landlord, without notice or
---------
demand, in lawful money of the United States of America, at the office of
Landlord or at such other place as Landlord may designate, the following:
annual fixed rent ("Base Rent") of $446,532.00 per annum for the period
---------
commencing with the Commencement Date, payable in equal monthly installments in
advance on the first day of each and every month during the Term, of $37,211.00
except that the first installment of Base Rent shall be apportioned and shall be
payable on the Commencement Date if the Commencement Date shall occur on a date
other than the first day of a month and except that the installment of Base Rent
due in the month that the Expiration Date occurs shall be apportioned if the
Expiration Date shall occur on a date other than the last of a month.
Commencing upon the first day of the 61st month of the Lease, the Base Rent
shall be increased by ten percent (10%) more than the Base Rent that existed on
the preceding day.
(b) Other Periodic Payments. (i) Real Property Taxes above the
-----------------------
"Base Real Property Taxes" (See Section 4.2); (ii) Utilities (See Section 4.3);
(iii) Impounds for
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Tenant's Share of Insurance Premiums and Property Taxes (See Section 4.7); (iv)
Maintenance, Repairs and Alterations (See Article 6).
Section 1.13 Costs and Charges Payable by Landlord. (a) Base Real
-------------------------------------
Property Taxes (See Section 4.2); (b) Insurance Premiums (See Section 4.4(c);
(c) Maintenance and Repair (See Article 6). Tenant, at its expense, shall take
good care of the Property. Tenant shall promptly make all repairs, interior or
exterior, ordinary or extraordinary, as and when needed to preserve the Property
and any Improvements, therein in good working order and condition other than (a)
repairs necessitated by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors, invitees or licensees, and (b)
maintenance and repairs to the Building's roof, foundation and structural
integrity except as a result of the negligence or willful acts of the Tenant or
its agents, employees, contractors, invitees or licensees. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be at least equal in quality and class to the original work
or installation.
Section 1.14 Landlord's Share of Profit on Assignment or Sublease: (See
----------------------------------------------------
Section 9.5) Landlord's share shall equal seventy percent (70%) of the Profit
(the "Landlord's Share").
Section 1.15 Riders: The following Riders are attached to and made a part
------
of this Lease: (If none, so state) None
ARTICLE 2
LEASE TERM
----------
Section 2.1 Lease of Property For Lease Term. Landlord leases the
--------------------------------
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.5 above and shall
begin and end on the dates specified in Section 1.5 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.5 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.2 Intentionally Omitted.
Section 2.3 Intentionally Omitted.
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Section 2.4 Holding Over. Tenant shall vacate the Property upon the
------------
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall be
a "month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by twenty-five percent (25%).
ARTICLE 3
BASE RENT
---------
Section 3.1 Time and Manner of Payment. Upon execution of this Lease,
--------------------------
Tenant shall pay Landlord the Base Rent in the amount stated In Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
ARTICLE 4
OTHER CHARGES PAYABLE BY TENANT
-------------------------------
Section 4.1 Additional Rent. All charges payable by Tenant other than
---------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.2 Property Taxes.
--------------
(a) Real Property Taxes. Landlord shall pay the "Base Real
-------------------
Property Taxes" on the Property during the Lease Term. Base Real Property Taxes
are real property taxes applicable to the Property as shown on the tax bill for
the most recent tax fiscal year ending prior to the Commencement Date. As of the
first day of each of the sixty-first (61st), seventy-third (73rd), eighty-fifth
(85th), ninety-seventy (97th) and one hundred and ninth (109th) months of the
Term of this Lease, Tenant shall pay the Landlord, the amount, if any, by which
the real property taxes for the current calendar year are in excess of the real
property taxes attributable for calendar year 1996. Subject to Paragraph 4.2(c),
Tenant shall
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make such payments within fifteen (15) days after receipt of Landlord's
statement showing the amount and computation of such increase. Landlord shall
reimburse Tenant for any real property taxes paid by Tenant covering any period
of time prior to or after the Lease Term.
(b) Definition of "Real Property Tax". "Real property tax" means: (i)
---------------------------------
any fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalk's,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed,
----------------
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.2(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
-----------------------
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property belonging
to Tenant. Tenant shall try to have personal property taxed separately from
the Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from
Landlord for such personal property taxes.
Section 4.3 Utilities. Tenant shall pay, directly to the appropriate
---------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of
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Tenant's proportionate share of the cost of such utilities and services and
Tenant shall pay such share to Landlord within fifteen (15) days after receipt
of Landlord's written statement.
Section 4.4 Insurance Policies.
------------------
(a) Liability Insurance. During the Lease Term, Tenant shall
-------------------
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be Ten Million Dollars ($10,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.4(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.5, if the matters giving rise to the indemnity under
Section 5.5 result from the negligence of Tenant. The amount and coverage of
such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary Insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
------------------------------------
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain
insurance for Tenant's fixtures or equipment or building improvements installed
by Tenant on the Property.
(c) Payment of Premiums.
-------------------
(i) Landlord shall pay the "Premiums" for the insurance
policies maintained by Landlord under Paragraph 4.4(b). Notwithstanding
the previous sentence, Tenant shall be obligated to pay the Premiums for
the insurance to the
7
<PAGE>
extent such Premiums increase as a result of Tenant's use of the Property.
For example, if Tenant changes its use of the Property to include an
activity which is inherently more dangerous than its use of the Property as
of the Commencement Date, Tenant shall be obligated to pay for the increase
in Premium resulting from such activity on the Property.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the insurance carrier
to give Landlord not less than thirty (30) days' written notice prior to
any cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which
case Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant and Landlord shall maintain all insurance
required under this Lease with companies holding a "General Policy Rating"
of A-12 or better, as set forth In the most current issue of "Best Key
Rating Guide". Landlord and Tenant acknowledge the insurance markets are
rapidly changing and that insurance in the form and amounts described in
this Section 4.4 may not be available in the future. Tenant acknowledges
that the insurance described in this Section 4.4 is for the primary benefit
of Landlord, If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable
in the insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby waive any and all
rights of recovery against the other, or against the officers, employees,
agents or representatives of the other, for loss of or damage to its
property or the property of others under its control,
8
<PAGE>
if such loss or damage is covered by any insurance policy in force (whether
or not described in this Lease) at the time of such loss or damage. Upon
obtaining the required policies of insurance, Landlord and Tenant shall
give notice to the insurance carriers of this mutual waiver of subrogation.
Section 4.5 Late Charges. Tenant's failure to pay rent promptly may cause
------------
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges end late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to ten percent (10%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
Section 4.6 Interest on Past Due Obligations. Any amount owed by Tenant
--------------------------------
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of Interest on such amounts shall not excuse or cure any
default by Tenant under this Lease, if the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.7 Impounds for Insurance Premiums and Real Property Taxes. If
-------------------------------------------------------
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant to Landlord under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-Interest bearing impound account, if unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the Impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under this
Lease.
9
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ARTICLE 5
USE OF PROPERTY
---------------
Section 5.1 Permitted Uses. Tenant may use the Property only for the
--------------
Permitted Uses set forth in Section 1.6 above.
Section 5.2 Manner of Use. Tenant shall not cause or permit the Property
-------------
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act provided that if any
capital improvements to the Property are required to be made for compliance and
the benefit or useful life of such capital improvements extends beyond the Lease
Term (as such term may be extended by exercise of any options), the useful life
of such capital improvements shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Section 5.3 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes" "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord provided that Landlord is
deemed to have consented to the use of the Hazardous Materials, and reasonable
replacements or substitution thereof, in use on the Property immediately prior
to the Commencement Date. Landlord shall be entitled to take into account such
other factors or facts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall
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<PAGE>
Landlord be required to consent to the installation or use of any storage tanks
on the Property.
Section 5.4 Signs and Auctions. Tenant shall not place any signs on the
------------------
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.5 Indemnity. Tenant shall indemnify Landlord against and hold
---------
Landlord harmless from any and all costs, claims or liability arising subsequent
to the Commencement Date from: (a) Tenant's use of the Property subsequent to
the Commencement Date; (b) the conduct of Tenant's business or anything else
done or permitted by Tenant to be done in or about the Property subsequent to
the Commencement Date, including any contamination of the Property or any other
property resulting from the presence or use of Hazardous Material caused or
permitted by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant subsequent to
the Commencement Date. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.6 Landlord's Access. Landlord or its agents may enter the
-----------------
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems reasonably necessary.
Landlord shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place customary "For Sale" or "For Lease" signs on the
Property.
Section 5.7 Quiet Possession. It Tenant pays the rent and complies with
----------------
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease,
11
<PAGE>
ARTICLE 6
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
-----------------------------------------------------------
Section 6.1 Existing Conditions. Tenant accepts the Property in its
-------------------
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein or in the Recapitalization Agreement dated July 1, 1997 by and among
Enterprise Partners III, L.P., a Delaware limited partnership, Enterprise
Partners III Associates, L.P., a Delaware limited partnership, Enterprise
Partners IV, L.P., a Delaware limited partnership, Enterprise Partners IV
Associates, L.P., a Delaware limited partnership, Enterprise Management Partners
Corporation, a California corporation, EP Texas Company, LLC, a Texas limited
liability company, Benjamin L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock
International, Inc., a Texas corporation, Doskocil Manufacturing Company, Inc.,
a Texas corporation, and Spectrum Polymers, Ltd., a Texas limited partnership,
Tenant acknowledges that neither Landlord nor any agent of Landlord has made any
representation as to the condition of the Property or the suitability of the
Property for Tenant's intended use. Tenant represents and warrants that Tenant
has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease.
Section 6.2 Exemption of Landlord from Liability. Except for Landlord
------------------------------------
defaults under Section 6.3, Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or from other sources or places;
or (d) any act or omission of any other tenant of Landlord. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions of
this Section 6.2 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.3 Landlord's Obligations. Subject to the provisions of Article
----------------------
7 (Damage or Destruction) and Article 8 (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on
12
<PAGE>
the Property in good order, condition and repair. However, Landlord shall not
be obligated to maintain or repair windows, doors, plate glass or the surfaces
of walls. Landlord shall not be obligated to make any repairs under this
Section 6.3 until a reasonable time after receipt of a written notice from
Tenant of the need for such repairs. Tenant waives the benefit of any present
or future law which might give Tenant the right to repair the Property at
Landlord's expense or to terminate the Lease because of the condition of the
Property.
Section 6.4 Tenant's Obligations.
--------------------
(a) Except as provided in Section 6.3, Article 7 (Damage or
Destruction) and Article 8 (Condemnation). Tenant shall keep all portions of
the Property (including nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. Landlord shall have the right, upon written notice to Tenant, to
undertake the responsibility for preventive maintenance of the heating and air
conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's
expense, repair any damage to the roof, foundation or structural portions of
walls caused by Tenant's acts or omissions. It is the intention of Landlord and
Tenant that, at all times during the Lease Term, Tenant shall maintain the
Property in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.4 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.4, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
13
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Section 6.5 Alterations, Additions, and Improvements.
----------------------------------------
(a) Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written consent, except
for non-structural alterations which do not exceed One Hundred Thousand Dollars
($100,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and completion bonds in form
and amount satisfactory to Landlord. Tenant shall promptly remove any
alterations, additions, or improvements constructed in violation of this
Paragraph 6.5(a) upon Landlord's written request. All alterations, additions,
and improvements shall be done in a good and workmanlike manner, in conformity
with all applicable laws and regulations, and by a contractor approved by
Landlord. Upon completion of any such work, Tenant shall provide Landlord with
"as built" Plans, copies of all construction contracts, and proof of payment for
all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
Section 6.6 Condition Upon Termination. Upon the termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article 7 (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment;
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fencing or security gates; or other similar building operating equipment and
decorations except to the extent installed by Tenant.
ARTICLE 7
DAMAGE OR DESTRUCTION
---------------------
Section 7.1 Partial Damage to Property.
--------------------------
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.4(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, or if the cause of the damage is not covered
by the insurance policies which Landlord maintains under Paragraph 4.4(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, and, if the damage was due to
an act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance policies and the difference between the actual cost of
repair and any insurance proceeds received by Landlord. If Landlord elects to
terminate the Lease, Tenant may elect to continue this Lease in full force and
effect, in which case Tenant shall repair any damage to the Property and any
building in which the Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either
15
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Landlord or Tenant may elect to terminate this Lease as of the date the damage
occurred, regardless of the sufficiency of any Insurance proceeds. The party
electing to terminate this Lease shall give written notification to the other
party of such election within thirty (30) days after Tenant's notice to Landlord
of the occurrence of the damage.
Section 7.2 Substantial or Total Destruction. If the Property is
--------------------------------
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.1), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months alter
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.3 Temporary Reduction of Rent. If the Property is destroyed or
---------------------------
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article 7, any rent payable during the period of such damage,
repair and/or restoration shall be reduced according to the degree, if any, to
which Tenant's use of the Property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.4 Waiver. Tenant waives the protection of any statute, code or
------
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.2 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8
CONDEMNATION
------------
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes
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title or possession, whichever occurs first. If more than twenty percent (20%)
of the floor area of the building in which the Property is located, or which is
located on the Property, is taken, either Landlord or Tenant may terminate this
Lease as of the date the condemning authority takes title or possession, by
delivering written notice to the other within ten (10) days after receipt of
written notice of such taking (or in the absence of such notice, within ten (10)
days after the condemning authority takes title or possession). If neither
Landlord nor Tenant terminates this Lease, this Lease shall remain in effect as
to the portion of the Property not taken, except that the Base Rent and
Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or removable
personal property; and (c) third, to Landlord, the remainder of such award,
whether as compensation for reduction in the value of the leasehold, the taking
of the fee, or otherwise. If this Lease is not terminated, Landlord shall
repair any damage to the Property caused by the Condemnation, except that
Landlord shall not be obligated to repair any damage for which Tenant has been
reimbursed by the condemning authority. If the severance damages received by
Landlord are not sufficient to pay for such repair, Landlord shall have the
right to either terminate this Lease or make such repair at Landlord's expense.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
-------------------------
Section 9.1 Landlord's Consent Required. No portion of the Property or of
---------------------------
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by sale, assignment, sublease, transfer, operation of law, or act of
Tenant, without Landlord's prior written consent, except as provided in Section
9.2 below. Landlord has the right to grant or withhold its consent as provided
in Section 9.5 below. Any attempted transfer without consent shall be void and
shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than fifty percent (50%) of the
partnership interests shall require Landlord's consent, if Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation (except as set forth in 9.2) shall require Landlord's
consent. Notwithstanding the foregoing, Tenant may mortgage, assign or transfer
its interest in this Lease to any lender and such lender or an affiliate or
designee may subsequently acquire Tenant's interest in this Lease by foreclosure
or assignment in lieu thereof, without Landlord's consent.
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Section 9.2 Tenant Affiliate. Tenant may assign this Lease or sublease
----------------
the Property, without Landlord's consent, (i) to any corporation which controls,
is controlled by or is under common control with Tenant, or to any corporation,
partnership, limited liability company or other legal entity resulting from a
reorganization or the merger of or consolidation with Tenant ("Tenant's
--------
Affiliate") or (ii) in the event of the public sale of stock of Tenant or
- ---------
Tenant's Affiliate or for subsequent transfers of stock whether or not such
transfers result in a change in control, provided that any assignee of the Lease
shall assume in writing all of Tenant's obligations under this Lease, or (iii)
in connection with the acquisition of or a business combination with another
business principally engaged in supplying products to the pet industry with
annual revenues in excess of $25,000,000, provided that any assignee of the
Lease shall assume in writing all of Tenant's obligations under this Lease.
Section 9.3 No Release of Tenant. No transfer permitted by this Article
--------------------
9, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article 9. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee defaults under
this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.
Section 9.4 Offer to Terminate. If Tenant desires to assign the Lease or
------------------
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.5 with respect to any proposed transfer shall
continue to apply.
Section 9.5 Landlord's Consent.
------------------
(a) Tenant's request for consent to any transfer described in
Sections 9.1 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g.,the term of and the
rent and security deposit payable under any proposed assignment or sublease),
and any other information Landlord deems relevant. Landlord shall have the right
to withhold consent, if reasonable, or to grant consent, based on the following
factors: (i) the
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business of the proposed assignee or subtenant and the proposed use of the
Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee, Tenant may nonetheless sublease
(but not assign), all or a portion of the Property to the proposed transferee,
but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under
the Lease the Landlord's Share (stated in Section 1.14) of the Profit
(defined below) on such transaction as and when received by Tenant, unless
Landlord gives written notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
signed, and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt of Landlord's Share shall not be a consent to any
further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.5(b) shall be a material default of the Lease.
Section 9.6 No Merger. No merger shall result from Tenant's sublease of
---------
the Property under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all
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subtenancies or succeed to the interest of Tenant as sublandlord under any or
all subtenancies.
ARTICLE 10
DEFAULTS; REMEDIES
------------------
Section 10.1 Covenants and Conditions. Tenant's performance of each of
------------------------
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.2 Defaults. Tenant shall be in material default under this
--------
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.4;
(b) If Tenant fails to pay rent or any other charge within three (3)
days after delivery of notice that such amounts are past due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general arrangement
for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take
20
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possession (or if Tenant remains a debtor in possession) and such trustee or
Tenant transfers Tenant's interest hereunder, then Landlord shall receive, as
Additional Rent, the excess, if any, of the rent (or any other consideration)
paid in connection with such assignment or sublease over the rent payable by
Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.3 Remedies. On the occurrence of any material default by
--------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (10%). If Tenant has abandoned the Property,
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Landlord shall have the option of (i) retaking possession of the Property and
recovering from Tenant the amount specified in this Paragraph 10.3(a), or (ii)
proceeding under Paragraph 10.3(b);
(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Property. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due.
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
Section 10.4 Intentionally Omitted.
---------------------
Section 10.5 Automatic Termination. Notwithstanding any other term or
---------------------
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.3 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to Landlord's
right to possession of the Property. All such damages suffered (apart from Base
Rent and other rent payable hereunder) shall constitute pecuniary damages which
must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.6 Cumulative Remedies. Landlord's exercise of any right or
-------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11
PROTECTION OF LENDERS
---------------------
Section 11.1 Subordination. Landlord shall have the right to subordinate
-------------
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall
22
<PAGE>
execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property during the Lease Term shall
not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, dead of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this Lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
Section 11.2 Attornment. If Landlord's interest in the Property is
----------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.3 Signing of Documents. Tenant shall sign and deliver any
--------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant falls to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.4 Estoppel Certificates.
---------------------
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not to Tenant's knowledge in default under this Lease (or, if
Landlord is claimed to be in default, stating why); and (v) such other
representations or information with respect to Tenant or the Lease as Landlord
may reasonably request or which any prospective purchaser or encumbrancer of the
Property may require. Tenant shall deliver such statement to Landlord within ten
(10) days after Landlord's request. Landlord
23
<PAGE>
may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within
such ten (10)-day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been cancelled
or terminated except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or other charges have been paid in advance: and (iv)
that Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.5 Tenant's Financial Condition. Within ten (10) days after
----------------------------
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE 12
LEGAL COSTS
-----------
Section 12.1 Legal Proceedings. (a) If Tenant or Landlord shall be in
-----------------
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach of
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the party in whose favor a judgment is
entered, shall receive a reasonable sum as attorneys' fees and casts. The losing
party in such action shall pay such attorneys' fees and costs. Tenant shall
also indemnify Landlord against and hold Landlord harmless from all costs,
expenses, demands and liability Landlord may incur if Landlord becomes or is
made a party to any claim or action (a) instituted by Tenant against any third
party, or by any third party against Tenant, or by or against any person holding
any interest
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under or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for Tenant or such
other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
(b) Notwithstanding anything to the contrary provided herein, if a
controversy, claim or dispute arises out of or relates to this Lease, or the
breach thereof, and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration as set forth below.
If the parties hereto cannot solve a dispute by mediation within 60 days of
the commencement thereof, any controversy or claim arising out of or relating to
this Lease, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The parties hereto further agree that the
above controversy be submitted to three arbitrators. The parties hereto further
agree to faithfully observe this agreement and the rules, and that the parties
will abide by and perform any award rendered by the arbitrators, and that a
judgment of the court having jurisdiction may be entered on the award.
Section 12.2 Landlord's Consent. Tenant shall pay Landlord's reasonable
------------------
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article 9 (Assignment and Subletting), or in connection with any
other act which Tenant proposes to do and which requires Landlord's consent
ARTICLE 13
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Non-Discrimination. Tenant promises, and it is a condition
------------------
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
25
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Section 13.2 Landlord's Liability; Certain Duties.
------------------------------------
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or the leasehold estate
under a ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord
to perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary,
the liability of Landlord for the performance of its duties and obligations
under this Lease is limited to Landlord's interest in the Property, and neither
the Landlord nor its partners, shareholders, officers or other principals shall
have any personal liability under this Lease.
Section 13.3 Severability. A determination by a court of competent
------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.4 Interpretation. The captions of the Articles or Sections of
--------------
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
26
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Section 13.5 Incorporation of Prior Agreements; Modifications. This Lease
------------------------------------------------
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.6 Notices. All notices required or permitted under this Lease
-------
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.3 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.2 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.7 Waivers. All waivers must be in writing and signed by the
-------
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.8 No Recordation. Tenant shall not record this Lease without
--------------
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.9 Binding Effect; Choice of Law. This Lease binds any party
-----------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 Corporate Authority; Partnership Authority. If Tenant is a
------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the
27
<PAGE>
partnership, that he or it has full authority to sign for the partnership and
that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11 Joint and Several Liability. All parties signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12 Force Majeure. If Landlord cannot perform any of its
-------------
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control Include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13 Execution of Lease. This Lease may be executed in
------------------
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14 Survival. All representations and warranties of Landlord
--------
and Tenant shall survive the termination of this Lease.
Section 13.15 Right of First Refusal.
----------------------
(a) Subject and subordinate to the rights of Related Parties (hereinafter
defined) as set forth in paragraph (b) hereinbelow, Tenant, and its successors
-------------
and assigns, provided that Tenant is not in default of this Lease, shall have a
right of first refusal exercisable from the Commencement Date through the Term
including all extension terms and including the date upon which this Lease
expires with respect to the purchase of the Property. Such right of refusal
shall be exercisable upon and shall be subject to the following conditions:
(1) Upon receipt by Landlord of a bona fide offer acceptable to
Landlord to purchase the Property or to purchase any vacant or undeveloped
contiguous property (herein called the "Bona Fide Offer"), Landlord shall
---------------
notify Tenant of the existence and terms and conditions of the Bona Fide
Offer.
28
<PAGE>
(2) Upon Tenant's receipt of notice of the Bona Fide Offer from
Landlord, Tenant shall have thirty (30) business days to notify Landlord in
writing that Tenant irrevocably elects to (a) purchase the Property or
contiguous property upon all of the terms and conditions stated in the Bona
Fide Offer, including the purchase price stated in the Bona Fide Offer and
(b) simultaneously with Tenant's election in the preceding clause (a), at
Tenant's option, purchase any vacant or undeveloped contiguous property
owned by Landlord that is not subject to Bona Fide Offer at the fair market
value for such property as agreed by the parties. If the parties are
unable to agree upon the fair market value of the Property within ten (10)
days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined
----------------------
by an appraiser selected by the parties who is a member of the American
Institute of Real Estate Appraisers with at least five years of experience
appraising property comparable to and in the geographic area of the
Property. Such appraiser's determination of the fair market value of the
Property shall be binding on the parties. If the parties are unable to
agree upon the selection of an appraiser, each party shall select a
qualified appraiser and the two selected appraisers shall select a
qualified third appraiser who will determine the fair market value of the
Property. If Tenant does not exercise its right of refusal under this
paragraph (a), either by notifying Landlord in writing of its election not
-------------
to exercise such right or by failing to notify Landlord in writing of
Tenant's election within the thirty (30) business day period following its
receipt of notice of the Bona Fide Offer to purchase the Property, then
Tenant conclusively shall be deemed to have elected not to purchase the
Property and Landlord shall be entitled to sell the Property to any third
party at any time within 6 months of the Bona Fide Offer upon such terms of
the Bona Fide Offer, without any further notice to Tenant. If Tenant
elects to purchase the Property within said thirty (30) business day
period, the Tenant promptly shall enter into a purchase agreement with
Landlord to buy the Property on the terms and conditions set forth in such
Bona Fide Offer with appropriate adjustments as set forth in this paragraph
---------
(a). Notwithstanding anything to the contrary set forth herein, the
---
Tenants rights under this Section shall not apply to any transfer, sale, or
assignment from the Landlord to Benjamin Doskocil, Mary Frances Doskocil,
any child, family member or relative of either Benjamin or Mary Frances
Doskocil, any entity owned or controlled by any of the foregoing or any
charitable organization, any trust created for the benefit of any of the
foregoing (the "Related Parties").
---------------
(b) Notwithstanding anything to the contrary provided herein, Landlord may
at any time transfer, sell or assign the Property in any manner to a Related
Party without the consent of Tenant, and paragraph (a) hereinabove hereof shall
-------------
be subject and subordinate to
29
<PAGE>
the rights of Related Parties with respect to the Property provided that upon
any transfer to a Related Party, the Related Party shall be bound by the terms
of paragraph (a).
Section 13.16 Purchase Option.
---------------
(a) Landlord hereby grants to Tenant the option to elect to purchase,
during the sixty-first (61st) through the sixty-fourth (64th) month of the Term
and during the one hundred and twentieth (120th) month of the Term and to close
the purchase within 60 days of the election, all of Landlord's right, title and
interest in the Property, including without limitation, the buildings, parking
lot, fixtures and improvements constructed on the land, all of Landlord's
equipment, machinery, furniture, inventory and other personal property located
upon and used in connection with the operation of the Property. At the same
time as the Tenant's delivery of the Option Exercise Notice (hereinafter
defined) to Landlord, Tenant may elect to purchase any or all vacant or
undeveloped land that is contiguous to the Property upon the same terms and
conditions set forth herein.
(b) The total base purchase price for the Property (the "Base Purchase
-------------
Price") shall be ninety-five percent (95%) of the fair market value of the
- -----
Property as such fair market value is agreed upon by the parties. If the
parties are unable to agree upon the fair market value of the Property within
ten (10) days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined by an
----------------------
appraiser selected by the parties who is a member of the American Institute of
Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the selection
of an appraiser, each party shall select a qualified appraiser and the two
selected appraisers shall select a qualified third appraiser who will determine
the fair market value of the Property. The Purchase Price shall be paid in cash
at the Closing.
(c) At the Closing (hereinafter defined), Landlord shall convey the
Property to Tenant by special warranty deed (the "Deed") in form and substance
----
reasonably acceptable to Tenant and Landlord.
(d) The closing of the transaction pursuant to the Option Exercise Notice
(the "Closing") shall be at the main office of Old Republic Title, 1501 Summit,
-------
Fort Worth, Texas (the "Title Company"), shall be held at 10:00 o'clock a.m.,
-------------
Arlington time, on the closing date.
30
<PAGE>
(e) At the Closing, Landlord shall cause the following items to be
furnished to Tenant:
(1) The Deed in the form required hereinabove, duly executed and
acknowledged by Landlord.
(2) A fully paid Owner's Policy of Title Insurance covering the
Property issued by the Title Company in accordance with the terms of this
Agreement insuring Tenant's title in the amount of the Base Purchase Price,
containing no liens against the Landlord's fee interest in the Property.
(3) A duly executed and acknowledged bill of sale conveying title to
all personalty and all intangible property to Tenant.
(4) A duly executed and acknowledged assignment in favor of Tenant of
all service, employment and management contracts as are then in force and
pertaining to the Property and designated by Tenant, and executed copies of
all such contracts.
(5) Evidence reasonably satisfactory to Tenant and the Title Company
of the Landlord's closing representatives' power and authority to
consummate the transactions.
(f) Subject to Landlord's full performance of the conditions precedent
listed in and required by paragraph (e) above, at the Closing, Tenant shall:
-------------
(1) Pay to Landlord the Base Purchase Price in cash.
(2) Furnish evidence reasonably satisfactory to Landlord and the
Title Company of the Tenant's and Tenant's closing representatives' power
and authority to consummate the transactions.
(g) On or before Closing, Landlord shall pay: (1) the cost of the Owner's
Policy of Title Insurance required hereby, excluding the additional charges for
modification or deletion of standard exceptions, as hereinabove provided; (b)
Landlord's own attorney's fees; and (c) one-half (1/2) of any escrow fee charged
by the Title Company. On or before Closing, Tenant shall pay: (1) Tenant's own
attorneys' fees; (b) one-half (1/2) of any escrow fee charged by the Title
Company; (3) any charges for modification or deletion of standard exceptions to
the Owner's Policy of Title Insurance; (4) the official fees for filing and
recording Landlord's Deed; and (5) survey for the Property.
31
<PAGE>
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
32
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on July 1, 1997 /s/ Benjamin L. Doskocil Sr.
----------------------------------------
Benjamin L. Doskocil
/s/ Mary Frances Doskocil
----------------------------------------
Mary Frances Doskocil
"TENANT"
Signed on July 1, 1997 DOSKOCIL MANUFACTURING COMPANY, INC.
By: /s/ Larry E. Rembold
-------------------------------------
Name: LARRY E. REMBOLD
-----------------------------------
Its: PRESIDENT
-----------------------------------
33
<PAGE>
SPECTRUM
EXHIBIT A
The following tract or tracts of land in Tarrant County, Texas:
LOT 1, BLOCK B, HILLCREST BUSINESS PARK, SECTION ONE, TO THE
CITY OF MANSFIELD, TARRANT COUNTY, TEXAS, ACCORDING TO THE
PLAT AND DEDICATION RECORDED IN CABINET A, SLIDE 1088, PLAT
RECORDS, TARRANT COUNTY, TEXAS; AND
34
<PAGE>
EXHIBIT 10.23
PEYCO
INDUSTRIAL REAL ESTATE LEASE
ARTICLE 1
BASIC TERMS
-----------
This Article 1 contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article 1 explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.1 Date of Lease: July 1, 1997
-------------
Section 1.2 Landlord (include legal entity): Benjamin L. Doskocil
-------------------------------
Address of Landlord: 5306 Mansfield Road, Arlington, Texas 76017
Section 1.3 Tenant (include legal entity): Doskocil Manufacturing
-----------------------------
Company, Inc. Address of Tenant: 4209 Barnett, Arlington, Texas 76017
Section 1.4 Property: (include street address, approximate square footage
--------
and description) those building(s) located at 1708 and 1712 Peyco, Arlington,
Texas, as more particularly described in Exhibit "A".
-----------
Section 1.5 Lease Term:
----------
(a) The initial term of this Lease shall be for ten (10) years ("Term") and
----
shall commence on the date hereof ("Commencement Date") and shall terminate at
-----------------
5:00 P.M. local time on the tenth (10th) anniversary of the Commencement Date
(the "Expiration Date").
---------------
(b) Provided that Tenant is not in default of this Lease, Tenant shall have
the option to renew this Lease for three (3) renewal terms of five (5) years
each commencing upon the expiration of the initial ten (10) year Term or any
previous renewal term, as the case may be, and ending at 5:00 P.M. local time
five (5) years thereafter, unless any such renewal term shall sooner terminate
in accordance with this Lease or otherwise; provided that (i) Tenant shall have
notified Landlord in writing of Tenant's exercise of such renewal option not
later than six (6) months prior to the expiration of the initial Term hereof or
the then existing renewal term, as the case may be, (ii) at the time such notice
is given, this Lease shall be in full force and effect and Tenant shall not be
in default hereunder for such period
<PAGE>
of time as would entitle Landlord to terminate this Lease pursuant to the terms
hereof. Such renewal terms shall be upon all of the agreements, terms,
covenants and conditions hereof except that Tenant shall pay Base Rent
(hereinafter defined) to Landlord in monthly installments in an amount equal to
the greater of (i) the fair market rate (the "Fair Market Rent") for the Real
----------------
Property (as defined herein) or (ii) one hundred and ten percent (110%) of the
existing Base Rent on an "AS IS, WHERE IS" basis as of the commencement of the
renewal term, as designated by Landlord within twenty (20) days after Landlord
receives Tenant's renewal notice, but in no event greater than the rate of Base
Rent in effect at the scheduled expiration of the Term or the applicable renewal
term plus twenty-five percent (25%) thereof. In addition, during the renewal
term, Tenant shall pay all other rent and other amounts due under the Lease. If
Tenant does not approve of Landlord's designation of the Base Rent for the
renewal term, then Tenant, as its sole remedy, may submit in writing to Landlord
within ten (10) days after the Landlord's delivery of its determination Fair
Market Rent to Tenant (the "Renewal Commencement Date"), its good faith
-------------------------
determination of Fair Market Rent with appropriate back-up documentation. If
the Tenant's determination of Fair Market Rent is within ten percent (10%) of
the Landlord's determination of the same, the "Fair Market Rent" shall equal the
----------------
median number between each of the Tenant's and Landlord's determination (but in
no event shall the Fair Market Rent be less than the Base Rent existing on the
last day of the Term plus ten percent (10%)). If the Tenant's determination of
Fair Market Rent is not within ten percent (10%) of the Landlord's determination
---
of the same, each of the Landlord and the Tenant shall choose an appraiser on
the eleventh (11th) day after the Renewal Commencement Date to determine the
"fair market rent" and the initial determinations shall be disregarded for all
purposes in determining the Fair Market Rent. Each appraiser shall diligently
attempt to agree on the Fair Market Rent on or before the twenty-fourth (24th)
day after the Renewal Commencement Date. If such appraisers agree on the Fair
Market Rent on or before the twenty-fourth day after the Renewal Commencement
Date, such agreed sum shall constitute the "Fair Market Rent". If the
appraisers have not agreed on the Fair Market Rent by such day, (a) the
appraisers shall select an independent third appraiser (the "Final Appraiser"),
---------------
and (b) each such original appraiser shall deliver in writing to the Final
Appraiser their last determination of the sum (each such sum being hereinafter
referred to as the "Appraisal Price") that such appraiser believes is the Fair
---------------
Market Rent. On or before the twenty-ninth (29th) day after the Renewal
Commencement Date, the Final Appraiser shall choose one Appraisal Price or the
other Appraisal Price as the "Fair Market Rent". Notwithstanding anything to
----------------
the contrary herein, in no event shall the Fair Market Rent be less than the
Base Rent in effect at the last day of the Term plus ten percent (10%) thereof.
Tenant shall have no further renewal rights after the expiration of such renewal
terms. Upon the commencement of each renewal term, (x) the renewal term shall
be added to and become part of the Term, (y) any reference in this Lease, to the
"Term", the "term of this Lease" or any similar expression shall be deemed to
----
2
<PAGE>
include the renewal terms, and (z) the Expiration Date shall become the
expiration of the applicable renewal term.
Section 1.6 Permitted Uses: (See Article Five) Tenant may use the
--------------
Property for any lawful manufacturing or distribution purpose, including to
operate its business as operated on the day immediately preceding this Lease.
Section 1.7 Tenant's Guarantor: (If none, so state) None.
------------------
Section 1.8 Brokers: (See Article 14) (if none, so state) None.
-------
Landlord's Broker: None.
Tenant's Broker: None.
Section 1.9 Commission Payable to Landlord's Broker: (See Article 14) $
---------------------------------------
None
- ----
Section 1.10 Initial Security Deposit: (See Section 3.3) None.
------------------------
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: N/A
------------------------------------------
Section 1.12 Rent and Other Charges Payable by Tenant: See below.
----------------------------------------
(a) Base Rent. Tenant shall pay to Landlord, without notice or
---------
demand, in lawful money of the United States of America, at the office of
Landlord or at such other place as Landlord may designate, the following:
annual fixed rent ("Base Rent") of $78,000.00 per annum for the period
---------
commencing with the Commencement Date, payable in equal monthly installments in
advance on the first day of each and every month during the Term, of $6,500.00
except that the first installment of Base Rent shall be apportioned and shall be
payable on the Commencement Date if the Commencement Date shall occur on a date
other than the first day of a month and except that the installment of Base Rent
due in the month that the Expiration Date occurs shall be apportioned if the
Expiration Date shall occur on a date other than the last of a month.
Commencing upon the first day of the 61st month of the Lease, the Base Rent
shall be increased by ten percent (10%) more than the Base Rent that existed on
the preceding day.
(b) Other Periodic Payments. (i) Real Property Taxes above the
-----------------------
"Base Real Property Taxes" (See Section 4.2); (ii) Utilities (See Section 4.3);
(iii) Impounds for Tenant's Share of Insurance Premiums and Property Taxes (See
Section 4.7); (iv) Maintenance, Repairs and Alterations (See Article 6).
3
<PAGE>
Section 1.13 Costs and Charges Payable by Landlord. (a) Base Real
-------------------------------------
Property Taxes (See Section 4.2); (b) Insurance Premiums (See Section 4.4(c);
(c) Maintenance and Repair (See Article 6). Tenant, at its expense, shall take
good care of the Property. Tenant shall promptly make all repairs, interior or
exterior, ordinary or extraordinary, as and when needed to preserve the Property
and any Improvements, therein in good working order and condition other than (a)
repairs necessitated by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors, invitees or licensees, and (b)
maintenance and repairs to the Building's roof, foundation and structural
integrity except as a result of the negligence or willful acts of the Tenant or
its agents, employees, contractors, invitees or licensees. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be at least equal in quality and class to the original work
or installation.
Section 1.14 Landlord's Share of Profit on Assignment or Sublease: (See
----------------------------------------------------
Section 9.5) Landlord's share shall equal seventy percent (70%) of the Profit
(the "Landlord's Share").
Section 1.15 Riders: The following Riders are attached to and made a part
------
of this Lease: (If none, so state) None
ARTICLE 2
LEASE TERM
----------
Section 2.1 Lease of Property For Lease Term. Landlord leases the
--------------------------------
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.5 above and shall
begin and end on the dates specified in Section 1.5 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.5 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.2 Intentionally Omitted.
Section 2.3 Intentionally Omitted.
Section 2.4 Holding Over. Tenant shall vacate the Property upon the
------------
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the
4
<PAGE>
Property. If Tenant does not vacate the Property upon the expiration or earlier
termination of the Lease and Landlord thereafter accepts rent from Tenant,
Tenant's occupancy of the Property shall be a "month-to-month" tenancy, subject
to all of the terms of this Lease applicable to a month-to-month tenancy, except
that the Base Rent then in effect shall be increased by twenty-five percent
(25%).
ARTICLE 3
BASE RENT
---------
Section 3.1 Time and Manner of Payment. Upon execution of this Lease,
--------------------------
Tenant shall pay Landlord the Base Rent in the amount stated In Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
ARTICLE 4
OTHER CHARGES PAYABLE BY TENANT
-------------------------------
Section 4.1 Additional Rent. All charges payable by Tenant other than
---------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.2 Property Taxes.
--------------
(a) Real Property Taxes. Landlord shall pay the "Base Real
-------------------
Property Taxes" on the Property during the Lease Term. Base Real Property Taxes
are real property taxes applicable to the Property as shown on the tax bill for
the most recent tax fiscal year ending prior to the Commencement Date. As of the
first day of each of the sixty-first (61st), seventy-third (73rd), eighty-fifth
(85th), ninety-seventy (97th) and one hundred and ninth (109th) months of the
Term of this Lease, Tenant shall pay the Landlord, the amount, if any, by which
the real property taxes for the current calendar year are in excess of the real
property taxes attributable for calendar year 1996. Subject to Paragraph 4.2(c),
Tenant shall make such payments within fifteen (15) days after receipt of
Landlord's statement showing the amount and computation of such increase.
Landlord shall reimburse Tenant for any real property taxes paid by Tenant
covering any period of time prior to or after the Lease Term.
5
<PAGE>
(b) Definition of "Real Property Tax". "Real property tax" means: (i)
---------------------------------
any fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalk's,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed,
----------------
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.2(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
-----------------------
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the
Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement from
Landlord for such personal property taxes.
Section 4.3 Utilities. Tenant shall pay, directly to the appropriate
---------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
6
<PAGE>
Section 4.4 Insurance Policies.
------------------
(a) Liability Insurance. During the Lease Term, Tenant shall
-------------------
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be Ten Million Dollars ($10,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.4(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.5, if the matters giving rise to the indemnity under
Section 5.5 result from the negligence of Tenant. The amount and coverage of
such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary Insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
------------------------------------
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain
insurance for Tenant's fixtures or equipment or building improvements installed
by Tenant on the Property.
(c) Payment of Premiums.
-------------------
(i) Landlord shall pay the "Premiums" for the insurance
policies maintained by Landlord under Paragraph 4.4(b). Notwithstanding
the previous sentence, Tenant shall be obligated to pay the Premiums for
the insurance to the extent such Premiums increase as a result of Tenant's
use of the Property. For example, if Tenant changes its use of the
Property to include an activity which is inherently more dangerous than its
use of the Property as of the Commencement
7
<PAGE>
Date, Tenant shall be obligated to pay for the increase in Premium
resulting from such activity on the Property.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the insurance carrier
to give Landlord not less than thirty (30) days' written notice prior to
any cancellation or modification of such coverage.
(ii) if Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time
period or if any such policy is cancelled or modified during the Lease Term
without Landlord's consent, Landlord may obtain such insurance, in which
case Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant and Landlord shall maintain all insurance required
under this Lease with companies holding a "General Policy Rating" of A-12
or better, as set forth In the most current issue of "Best Key Rating
Guide". Landlord and Tenant acknowledge the insurance markets are rapidly
changing and that insurance in the form and amounts described in this
Section 4.4 may not be available in the future. Tenant acknowledges that
the insurance described in this Section 4.4 is for the primary benefit of
Landlord, If at any time during the Lease Term, Tenant is unable to
maintain the insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially reasonable
in the insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at
the time of such loss or damage. Upon obtaining the
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required policies of insurance, Landlord and Tenant shall give notice to
the insurance carriers of this mutual waiver of subrogation.
Section 4.5 Late Charges. Tenant's failure to pay rent promptly may cause
------------
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges end late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to ten percent (10%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
Section 4.6 Interest on Past Due Obligations. Any amount owed by Tenant
--------------------------------
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of Interest on such amounts shall not excuse or cure any
default by Tenant under this Lease, if the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.7 Impounds for Insurance Premiums and Real Property Taxes. If
-------------------------------------------------------
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant to Landlord under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-Interest bearing impound account, if unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the Impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under this
Lease.
ARTICLE 5
USE OF PROPERTY
---------------
Section 5.1 Permitted Uses. Tenant may use the Property only for the
--------------
Permitted Uses set forth in Section 1.6 above.
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Section 5.2 Manner of Use. Tenant shall not cause or permit the Property
-------------
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act provided that if any
capital improvements to the Property are required to be made for compliance and
the benefit or useful life of such capital improvements extends beyond the Lease
Term (as such term may be extended by exercise of any options), the useful life
of such capital improvements shall be prorated over the remaining portion of the
Lease Term (as extended), and Tenant shall be liable only for that portion of
the cost which is applicable to the Lease Term (as extended).
Section 5.3 Hazardous Materials. As used in this Lease, the term
-------------------
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes" "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord provided that Landlord is
deemed to have consented to the use of the Hazardous Materials, and reasonable
replacements or substitution thereof, in use on the Property immediately prior
to the Commencement Date. Landlord shall be entitled to take into account such
other factors or facts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall Landlord be
required to consent to the installation or use of any storage tanks on the
Property.
Section 5.4 Signs and Auctions. Tenant shall not place any signs on the
------------------
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
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Section 5.5 Indemnity. Tenant shall indemnify Landlord against and hold
---------
Landlord harmless from any and all costs, claims or liability arising subsequent
to the Commencement Date from: (a) Tenant's use of the Property subsequent to
the Commencement Date; (b) the conduct of Tenant's business or anything else
done or permitted by Tenant to be done in or about the Property subsequent to
the Commencement Date, including any contamination of the Property or any other
property resulting from the presence or use of Hazardous Material caused or
permitted by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant subsequent to
the Commencement Date. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in connection with any such claim. As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.
Section 5.6 Landlord's Access. Landlord or its agents may enter the
-----------------
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems reasonably necessary.
Landlord shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place customary "For Sale" or "For Lease" signs on the
Property.
Section 5.7 Quiet Possession. It Tenant pays the rent and complies with
----------------
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease,
ARTICLE 6
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
-----------------------------------------------------------
Section 6.1 Existing Conditions. Tenant accepts the Property in its
-------------------
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein or in the Recapitalization Agreement dated July 1, 1997 by and among
Enterprise Partners III, L.P., a Delaware
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limited partnership, Enterprise Partners III Associates, L.P., a Delaware
limited partnership, Enterprise Partners IV, L.P., a Delaware limited
partnership, Enterprise Partners IV Associates, L.P., a Delaware limited
partnership, Enterprise Management Partners Corporation, a California
corporation, EP Texas Company, LLC, a Texas limited liability company, Benjamin
L. Doskocil, Sr., Mary Frances Doskocil, Bed Rock International, Inc., a Texas
corporation, Doskocil Manufacturing Company, Inc., a Texas corporation, and
Spectrum Polymers, Ltd., a Texas limited partnership, Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation as to the
condition of the Property or the suitability of the Property for Tenant's
intended use. Tenant represents and warrants that Tenant has made its own
inspection of and inquiry regarding the condition of the Property and is not
relying on any representations of Landlord or any Broker with respect thereto.
If Landlord or Landlord's Broker has provided a Property Information Sheet or
other Disclosure Statement regarding the Property, a copy is attached as an
exhibit to the Lease.
Section 6.2 Exemption of Landlord from Liability. Except for Landlord
------------------------------------
defaults under Section 6.3, Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising in or about the Property or from other sources or places;
or (d) any act or omission of any other tenant of Landlord. Landlord shall not
be liable for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions of
this Section 6.2 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.3 Landlord's Obligations. Subject to the provisions of Article
----------------------
7 (Damage or Destruction) and Article 8 (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on the Property in good order,
condition and repair. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls. Landlord shall not
be obligated to make any repairs under this Section 6.3 until a reasonable time
after receipt of a written notice from Tenant of the need for such repairs.
Tenant waives the benefit of any present or future law which might give Tenant
the right to repair the Property at Landlord's expense or to terminate the Lease
because of the condition of the Property.
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Section 6.4 Tenant's Obligations.
--------------------
(a) Except as provided in Section 6.3, Article 7 (Damage or
Destruction) and Article 8 (Condemnation). Tenant shall keep all portions of
the Property (including nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. Landlord shall have the right, upon written notice to Tenant, to
undertake the responsibility for preventive maintenance of the heating and air
conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's
expense, repair any damage to the roof, foundation or structural portions of
walls caused by Tenant's acts or omissions. It is the intention of Landlord and
Tenant that, at all times during the Lease Term, Tenant shall maintain the
Property in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.4 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.4, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.5 Alterations, Additions, and Improvements.
----------------------------------------
(a) Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written consent, except
for non-structural alterations which do not exceed One Hundred Thousand Dollars
($100,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and
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completion bonds in form and amount satisfactory to Landlord. Tenant shall
promptly remove any alterations, additions, or improvements constructed in
violation of this Paragraph 6.5(a) upon Landlord's written request. All
alterations, additions, and improvements shall be done in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide Landlord with "as built" Plans, copies of all construction contracts,
and proof of payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
Section 6.6 Condition Upon Termination. Upon the termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article 7 (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations except to the extent installed by Tenant.
14
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ARTICLE 7
DAMAGE OR DESTRUCTION
---------------------
Section 7.1 Partial Damage to Property.
--------------------------
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.4(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not
sufficient to pay the entire cost of repair, or if the cause of the damage is
not covered by the insurance policies which Landlord maintains under Paragraph
4.4(b), Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, and, if the damage was due to an
act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance policies and the difference between the actual cost of
repair and any insurance proceeds received by Landlord. If Landlord elects to
terminate the Lease, Tenant may elect to continue this Lease in full force and
effect, in which case Tenant shall repair any damage to the Property and any
building in which the Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any Insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
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Section 7.2 Substantial or Total Destruction. If the Property is
--------------------------------
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.1), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months alter
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.3 Temporary Reduction of Rent. If the Property is destroyed or
---------------------------
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article 7, any rent payable during the period of such damage,
repair and/or restoration shall be reduced according to the degree, if any, to
which Tenant's use of the Property is impaired. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.4 Waiver. Tenant waives the protection of any statute, code or
------
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.2 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE 8
CONDEMNATION
------------
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within
16
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ten (10) days after the condemning authority takes title or possession). If
neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the Base Rent
and Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or removable
personal property; and (c) third, to Landlord, the remainder of such award,
whether as compensation for reduction in the value of the leasehold, the taking
of the fee, or otherwise. If this Lease is not terminated, Landlord shall
repair any damage to the Property caused by the Condemnation, except that
Landlord shall not be obligated to repair any damage for which Tenant has been
reimbursed by the condemning authority. If the severance damages received by
Landlord are not sufficient to pay for such repair, Landlord shall have the
right to either terminate this Lease or make such repair at Landlord's expense.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
-------------------------
Section 9.1 Landlord's Consent Required. No portion of the Property or of
---------------------------
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by sale, assignment, sublease, transfer, operation of law, or act of
Tenant, without Landlord's prior written consent, except as provided in Section
9.2 below. Landlord has the right to grant or withhold its consent as provided
in Section 9.5 below. Any attempted transfer without consent shall be void and
shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than fifty percent (50%) of the
partnership interests shall require Landlord's consent, if Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation (except as set forth in 9.2) shall require Landlord's
consent. Notwithstanding the foregoing, Tenant may mortgage, assign or transfer
its interest in this Lease to any lender and such lender or an affiliate or
designee may subsequently acquire Tenant's interest in this Lease by foreclosure
or assignment in lieu thereof, without Landlord's consent.
Section 9.2 Tenant Affiliate. Tenant may assign this Lease or sublease
----------------
the Property, without Landlord's consent, (i) to any corporation which controls,
is controlled by or is under common control with Tenant, or to any corporation,
partnership, limited liability company or other legal entity resulting from a
reorganization or the merger of or consolidation with Tenant ("Tenant's
--------
Affiliate") or (ii) in the event of the public sale of stock
- ---------
17
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of Tenant or Tenant's Affiliate or for subsequent transfers of stock whether or
not such transfers result in a change in control, provided that any assignee of
the Lease shall assume in writing all of Tenant's obligations under this Lease,
or (iii) in connection with the acquisition of or a business combination with
another business principally engaged in supplying products to the pet industry
with annual revenues in excess of $25,000,000, provided that any assignee of the
Lease shall assume in writing all of Tenant's obligations under this Lease.
Section 9.3 No Release of Tenant. No transfer permitted by this Article
--------------------
9, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article 9. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee defaults under
this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.
Section 9.4 Offer to Terminate. If Tenant desires to assign the Lease or
------------------
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.5 with respect to any proposed transfer shall
continue to apply.
Section 9.5 Landlord's Consent.
------------------
(a) Tenant's request for consent to any transfer described in
Sections 9.1 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g.,the term of and the
rent and security deposit payable under any proposed assignment or sublease),
and any other information Landlord deems relevant. Landlord shall have the right
to withhold consent, if reasonable, or to grant consent, based on the following
factors: (i) the business of the proposed assignee or subtenant and the proposed
use of the Property; (ii) the net worth and financial reputation of the proposed
assignee or subtenant; (iii) Tenant's compliance with all of its obligations
under the Lease; and (iv) such other factors as Landlord may reasonably deem
relevant. If Landlord objects to a proposed assignment solely because of the net
worth and/or financial reputation of the proposed assignee, Tenant
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may nonetheless sublease (but not assign), all or a portion of the Property to
the proposed transferee, but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the
Lease the Landlord's Share (stated in Section 1.14) of the Profit (defined
below) on such transaction as and when received by Tenant, unless Landlord
gives written notice to Tenant and the assignee or subtenant that
Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is
signed, and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt of Landlord's Share shall not be a consent to any
further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.5(b) shall be a material default of the Lease.
Section 9.6 No Merger. No merger shall result from Tenant's sublease of
---------
the Property under this Article 9, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
19
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ARTICLE 10
DEFAULTS; REMEDIES
------------------
Section 10.1 Covenants and Conditions. Tenant's performance of each of
------------------------
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.2 Defaults. Tenant shall be in material default under this
--------
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of
the Property results in the cancellation of any insurance described in Section
4.4;
(b) If Tenant fails to pay rent or any other charge within three
(3) days after delivery of notice that such amounts are past due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against Tenant
and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is
appointed to take possession of substantially all of Tenant's assets located at
the Property or of Tenant's interest in this Lease and possession is not
restored to Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Property or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant transfers
Tenant's interest hereunder, then Landlord shall receive, as Additional Rent,
the excess, if any, of the rent (or any other consideration) paid in connection
with such assignment or sublease over the rent payable by Tenant under this
Lease.
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(e) If any guarantor of the Lease revokes or otherwise
terminates, or purports to revoke or otherwise terminate, any guaranty of all or
any portion of Tenant's obligations under the Lease. Unless otherwise expressly
provided, no guaranty of the Lease is revocable.
Section 10.3 Remedies. On the occurrence of any material default by
--------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by
any lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (10%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.3(a), or (ii) proceeding under Paragraph
10.3(b);
21
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(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has abandoned the Property.
In such event, Landlord shall be entitled to enforce all of Landlord's rights
and remedies under this Lease, including the right to recover the rent as it
becomes due.
(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which the Property
is located.
Section 10.4 Intentionally Omitted.
---------------------
Section 10.5 Automatic Termination. Notwithstanding any other term or
---------------------
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.3 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to Landlord's
right to possession of the Property. All such damages suffered (apart from Base
Rent and other rent payable hereunder) shall constitute pecuniary damages which
must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.6 Cumulative Remedies. Landlord's exercise of any right or
-------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11
PROTECTION OF LENDERS
---------------------
Section 11.1 Subordination. Landlord shall have the right to subordinate
-------------
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall
execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property
22
<PAGE>
during the Lease Term shall not be disturbed if Tenant pays the rent and
performs all of Tenant's obligations under this Lease and is not otherwise in
default. If any ground lessor beneficiary or mortgagee elects to have this
Lease prior to the lien of its ground lease, dead of trust or mortgage and gives
written notice thereof to Tenant, this Lease shall be deemed prior to such
ground lease, deed of trust or mortgage whether this Lease is dated prior or
subsequent to the date of said ground lease, deed of trust or mortgage or the
date of recording thereof.
Section 11.2 Attornment. If Landlord's interest in the Property is
----------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.3 Signing of Documents. Tenant shall sign and deliver any
--------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant falls to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.4 Estoppel Certificates.
---------------------
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not to Tenant's knowledge in default under this Lease (or, if
Landlord is claimed to be in default, stating why); and (v) such other
representations or information with respect to Tenant or the Lease as Landlord
may reasonably request or which any prospective purchaser or encumbrancer of the
Property may require. Tenant shall deliver such statement to Landlord within ten
(10) days after Landlord's request. Landlord may give any such statement by
Tenant to any prospective purchaser or encumbrancer of the Property. Such
purchaser or encumbrancer may rely conclusively upon such statement as true and
correct.
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(b) If Tenant does not deliver such statement to Landlord within
such ten (10)-day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been cancelled
or terminated except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or other charges have been paid in advance: and (iv)
that Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.5 Tenant's Financial Condition. Within ten (10) days after
----------------------------
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE 12
LEGAL COSTS
-----------
Section 12.1 Legal Proceedings. (a) If Tenant or Landlord shall be in
-----------------
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach of
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the party in whose favor a judgment is
entered, shall receive a reasonable sum as attorneys' fees and casts. The losing
party in such action shall pay such attorneys' fees and costs. Tenant shall
also indemnify Landlord against and hold Landlord harmless from all costs,
expenses, demands and liability Landlord may incur if Landlord becomes or is
made a party to any claim or action (a) instituted by Tenant against any third
party, or by any third party against Tenant, or by or against any person holding
any interest under or using the Property by license of or agreement with Tenant;
(b) for foreclosure of any lien for labor or material furnished to or for Tenant
or such other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
24
<PAGE>
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
(b) Notwithstanding anything to the contrary provided herein, if a
controversy, claim or dispute arises out of or relates to this Lease, or the
breach thereof, and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration as set forth below.
If the parties hereto cannot solve a dispute by mediation within 60 days of
the commencement thereof, any controversy or claim arising out of or relating to
this Lease, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The parties hereto further agree that the
above controversy be submitted to three arbitrators. The parties hereto further
agree to faithfully observe this agreement and the rules, and that the parties
will abide by and perform any award rendered by the arbitrators, and that a
judgment of the court having jurisdiction may be entered on the award.
Section 12.2 Landlord's Consent. Tenant shall pay Landlord's reasonable
------------------
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article 9 (Assignment and Subletting), or in connection with any
other act which Tenant proposes to do and which requires Landlord's consent
ARTICLE 13
MISCELLANEOUS PROVISIONS
------------------------
Section 13.1 Non-Discrimination. Tenant promises, and it is a condition
------------------
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
25
<PAGE>
Section 13.2 Landlord's Liability; Certain Duties.
------------------------------------
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or the leasehold estate
under a ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord
to perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary,
the liability of Landlord for the performance of its duties and obligations
under this Lease is limited to Landlord's interest in the Property, and neither
the Landlord nor its partners, shareholders, officers or other principals shall
have any personal liability under this Lease.
Section 13.3 Severability. A determination by a court of competent
------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.4 Interpretation. The captions of the Articles or Sections of
--------------
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
26
<PAGE>
Section 13.5 Incorporation of Prior Agreements; Modifications. This Lease
------------------------------------------------
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.6 Notices. All notices required or permitted under this Lease
-------
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.3 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.2 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.7 Waivers. All waivers must be in writing and signed by the
-------
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.8 No Recordation. Tenant shall not record this Lease without
--------------
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.9 Binding Effect; Choice of Law. This Lease binds any party
-----------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10 Corporate Authority; Partnership Authority. If Tenant is a
------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the
27
<PAGE>
partnership, that he or it has full authority to sign for the partnership and
that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11 Joint and Several Liability. All parties signing this Lease
---------------------------
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12 Force Majeure. If Landlord cannot perform any of its
-------------
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control Include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13 Execution of Lease. This Lease may be executed in
------------------
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14 Survival. All representations and warranties of Landlord
--------
and Tenant shall survive the termination of this Lease.
Section 13.15 Tenant's Termination Rights. Provided that Tenant is not in
---------------------------
default of this Lease, Tenant shall have the right to terminate this Lease at
any time during the term for any reason upon six (6) months' prior written
notice to Landlord. Upon such termination, each party shall be released from
all its obligations pursuant to this Lease except for those obligations which
specifically survive the termination of this Lease.
Section 13.16 Right of First Refusal.
----------------------
(a) Subject and subordinate to the rights of Related Parties (hereinafter
defined) as set forth in paragraph (b) hereinbelow, Tenant, and its successors
-------------
and assigns, provided that Tenant is not in default of this Lease, shall have a
right of first refusal exercisable from the Commencement Date through the Term
including all extension terms and including the date upon which this Lease
expires with respect to the purchase of the Property. Such right of refusal
shall be exercisable upon and shall be subject to the following conditions:
28
<PAGE>
(1) Upon receipt by Landlord of a bona fide offer acceptable to
Landlord to purchase the Property or to purchase any vacant or undeveloped
contiguous property (herein called the "Bona Fide Offer"), Landlord shall
---------------
notify Tenant of the existence and terms and conditions of the Bona Fide
Offer.
(2) Upon Tenant's receipt of notice of the Bona Fide Offer from
Landlord, Tenant shall have thirty (30) business days to notify Landlord in
writing that Tenant irrevocably elects to (a) purchase the Property or
contiguous property upon all of the terms and conditions stated in the Bona
Fide Offer, including the purchase price stated in the Bona Fide Offer and
(b) simultaneously with Tenant's election in the preceding clause (a), at
Tenant's option, purchase any vacant or undeveloped contiguous property
owned by Landlord that is not subject to Bona Fide Offer at the fair market
value for such property as agreed by the parties. If the parties are
unable to agree upon the fair market value of the Property within ten (10)
days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined
----------------------
by an appraiser selected by the parties who is a member of the American
Institute of Real Estate Appraisers with at least five years of experience
appraising property comparable to and in the geographic area of the
Property. Such appraiser's determination of the fair market value of the
Property shall be binding on the parties. If the parties are unable to
agree upon the selection of an appraiser, each party shall select a
qualified appraiser and the two selected appraisers shall select a
qualified third appraiser who will determine the fair market value of the
Property. If Tenant does not exercise its right of refusal under this
paragraph (a), either by notifying Landlord in writing of its election not
-------------
to exercise such right or by failing to notify Landlord in writing of
Tenant's election within the thirty (30) business day period following its
receipt of notice of the Bona Fide Offer to purchase the Property, then
Tenant conclusively shall be deemed to have elected not to purchase the
Property and Landlord shall be entitled to sell the Property to any third
party at any time within 6 months of the Bona Fide Offer upon such terms of
the Bona Fide Offer, without any further notice to Tenant. If Tenant
elects to purchase the Property within said thirty (30) business day
period, the Tenant promptly shall enter into a purchase agreement with
Landlord to buy the Property on the terms and conditions set forth in such
Bona Fide Offer with appropriate adjustments as set forth in this paragraph
---------
(a). Notwithstanding anything to the contrary set forth herein, the
---
Tenants rights under this Section shall not apply to any transfer, sale, or
assignment from the Landlord to Benjamin Doskocil, Mary Frances Doskocil,
any child, family member or relative of either Benjamin or Mary Frances
Doskocil, any entity owned or controlled by any of the foregoing or any
charitable organization, any trust created for the benefit of any of the
foregoing (the "Related Parties").
---------------
29
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(b) Notwithstanding anything to the contrary provided herein, Landlord may
at any time transfer, sell or assign the Property in any manner to a Related
Party without the consent of Tenant, and paragraph (a) hereinabove hereof shall
-------------
be subject and subordinate to the rights of Related Parties with respect to the
Property provided that upon any transfer to a Related Party, the Related Party
shall be bound by the terms of paragraph (a).
Section 13.17 Purchase Option.
---------------
(a) Landlord hereby grants to Tenant the option to elect to purchase,
during the sixty-first (61st) through the sixty-fourth (64th) month of the Term
and during the one hundred and twentieth (120th) month of the Term and to close
the purchase within 60 days of the election, all of Landlord's right, title and
interest in the Property, including without limitation, the buildings, parking
lot, fixtures and improvements constructed on the land, all of Landlord's
equipment, machinery, furniture, inventory and other personal property located
upon and used in connection with the operation of the Property. At the same
time as the Tenant's delivery of the Option Exercise Notice (hereinafter
defined) to Landlord, Tenant may elect to purchase any or all vacant or
undeveloped land that is contiguous to the Property upon the same terms and
conditions set forth herein.
(b) The total base purchase price for the Property (the "Base Purchase
-------------
Price") shall be ninety-five percent (95%) of the fair market value of the
- -----
Property as such fair market value is agreed upon by the parties. If the
parties are unable to agree upon the fair market value of the Property within
ten (10) days after delivery of Tenant's election to purchase the Property (the
"Option Exercise Notice"), then the fair market value shall be determined by an
----------------------
appraiser selected by the parties who is a member of the American Institute of
Real Estate Appraisers with at least five years of experience appraising
property comparable to and in the geographic area of the Property. Such
appraiser's determination of the fair market value of the Property shall be
binding on the parties. If the parties are unable to agree upon the selection
of an appraiser, each party shall select a qualified appraiser and the two
selected appraisers shall select a qualified third appraiser who will determine
the fair market value of the Property. The Purchase Price shall be paid in cash
at the Closing.
(c) At the Closing (hereinafter defined), Landlord shall convey the
Property to Tenant by special warranty deed (the "Deed") in form and substance
----
reasonably acceptable to Tenant and Landlord.
(d) The closing of the transaction pursuant to the Option Exercise Notice
(the "Closing") shall be at the main office of Old Republic Title, 1501 Summit,
-------
Fort Worth,
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Texas (the "Title Company"), shall be held at 10:00 o'clock a.m., Arlington
-------------
time, on the closing date.
(e) At the Closing, Landlord shall cause the following items to be
furnished to Tenant:
(1) The Deed in the form required hereinabove, duly executed and
acknowledged by Landlord.
(2) A fully paid Owner's Policy of Title Insurance covering the
Property issued by the Title Company in accordance with the terms of this
Agreement insuring Tenant's title in the amount of the Base Purchase Price,
containing no liens against the Landlord's fee interest in the Property.
(3) A duly executed and acknowledged bill of sale conveying title to
all personalty and all intangible property to Tenant.
(4) A duly executed and acknowledged assignment in favor of Tenant of
all service, employment and management contracts as are then in force and
pertaining to the Property and designated by Tenant, and executed copies of
all such contracts.
(5) Evidence reasonably satisfactory to Tenant and the Title Company
of the Landlord's closing representatives' power and authority to
consummate the transactions.
(f) Subject to Landlord's full performance of the conditions precedent
listed in and required by paragraph (e) above, at the Closing, Tenant shall:
-------------
(1) Pay to Landlord the Base Purchase Price in cash.
(2) Furnish evidence reasonably satisfactory to Landlord and the
Title Company of the Tenant's and Tenant's closing representatives' power
and authority to consummate the transactions.
(g) On or before Closing, Landlord shall pay: (1) the cost of the Owner's
Policy of Title Insurance required hereby, excluding the additional charges for
modification or deletion of standard exceptions, as hereinabove provided; (b)
Landlord's own attorney's fees; and (c) one-half (1/2) of any escrow fee charged
by the Title Company. On or before Closing, Tenant shall pay: (1) Tenant's own
attorneys' fees; (b) one-half (1/2) of any
31
<PAGE>
escrow fee charged by the Title Company; (3) any charges for modification or
deletion of standard exceptions to the Owner's Policy of Title Insurance; (4)
the official fees for filing and recording Landlord's Deed; and (5) survey for
the Property..
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
32
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on July 1, 1997 /s/ Benjamin L. Doskocil Sr.
----------------------------------
Benjamin L. Doskocil
"TENANT"
Signed on July 1, 1997 DOSKOCIL MANUFACTURING COMPANY,
INC.
By: /s/ Larry E. Rembold
-------------------------------
Name: Larry E. Rembold
-----------------------------
Its: President
-----------------------------
33
<PAGE>
PEYCO DRIVE
EXHIBIT A
The following tract of land in Tarrant County, Texas:
BEING all that certain lot, tract or parcel of land out of the W.W. WARNELL
SURVEY, Abstract No. 1612 and the T.O. HARRIS SURVEY, Abstract No. 645, Tarrant
County, Texas, being all that certain tract of land as conveyed to Paul E.
Yarborough, Jr. by deed as recorded in Volume 4730, Page 187, Deed Records of
Tarrant County, Texas, being generally described as being South 50 degrees East,
approximately 14 miles from the Courthouse of Tarrant County, Texas, and being
more particularly described by metes and bounds as follows:
BEGINNING at an iron rod that bears East 2052.79 feet; South 00 degrees 15' East
1073.40 feet and North 89 degrees 07' East 1607.09 feet from the Northwest
corner of the W.W. Warnell Survey;
THENCE North 00 degrees 16' West a distance of 299.63 feet to a point for
corner;
THENCE North 89 degrees 44' East a distance of 635.69 feet along the South
right-of-way line of Peyco Drive South, to a point for corner;
THENCE South 00 degrees 16' east leaving said right-of-way line, a distance of
299.63 feet to a point for a corner;.
THENCE South 89 degrees 07' West a distance of 635.40 feet to the POINT OF
BEGINNING.
But excluding the office area inside the building at 1708 South Peyco Drive and
the yard east of 1708 South Peyco Drive as depicted on Exhibit B attached
---------
hereto.
<PAGE>
PEYCO DRIVE
EXHIBIT B
Yard Area Excluded From Lease
Office Area Excluded From Lease
LOT 2 BLOCK 1
PEYCO INDUSTRIAL PARK
TARRANT COUNTY, TEXAS
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT 10.24
LEASE
This Lease is entered into by Belmont Warehousing Complex, Inc. ("Landlord") and
---------------------------------
Dogloo, Inc. ("Tenant"). Landlord and Tenant, in consideration of the mutual
- ------------
promises and covenants contained herein, now agree as follows:
1. Leased Premises. The leased premises ("Property") is described as follows:
125,000 sq. ft.
- --------------------------------------------------------------------------------
2. Term. The term of this Lease shall begin on January 1, 1997 and ending on
---------------
December 31, 1998.
- --------------------------------------------------------------------------------
3. Rent. Tenant shall pay Landlord the sum of $281,250.00 Dollars ($_________)
-----------
per year, payable monthly in advance, in the amount of $23,437.50 Dollars
----------
($__________) per month on the 1st day of each month as rent for the Property.
---
4. Deposit. On the date of execution of this Lease, the Tenant shall pay the
Landlord a damage deposit in the amount of None Dollars ($__________), which
----
deposit shall be return to Tenant within thirty (30) days after the termination
of this Lease if the Property is in satisfactory condition and free from damage,
normal wear and tear expected.
5. Use. The Property shall only be used for Storage of Dog houses. Tenant
---------------------
agrees not to use Property in any manner of for any purpose which would be in
violation of any Federal, State or Local law, or is immoral.
6. Assignment. Tenant agrees that this Lease may be assigned or sub-leased to
any other person or legal entity. Subject to approval of Landlord. EG RB DE
7. Waste. Tenant agrees that no waste will be committed on this Property or
damage done to this Property. Tenant agrees to keep the Property in good repair
and not to make any alterations to the Property.
8. Liability. Tenant agrees that the Landlord shall not be responsible to the
Tenant, or any members of the Tenant's family, for any injury or damage to any
person or property that may occur on or about the Property during the term of
this Lease.
9. Utilities. Tenant agrees to pay for all utilities connected to the Property
such as sewer, cable, television, telephone, water, steam, gas or electricity.
10. Termination. Tenant agrees that if he breaches any of the terms of this
Lease then the Landlord any, at its option, in addition to any other remedy or
right it has at law or in equity, re-enter the Property, without demand or
notice, and resume possession by an action in law or equity or by force or
otherwise and without being liable in trespass or for any damages and without
terminating this Lease; and Landlord shall also be entitled to recover its
reasonable attorney fee, court costs and other expenses associated with
enforcing Landlord's rights caused by Tenant's breach of this Lease. Landlord
may remove all persons and property from the Property and such property may be
removed and stored at the cost of the Tenant.
-1-
<PAGE>
11. Modification. Landlord and Tenant agree that this Lease may not be modified
unless there is a written consent to do so executed by Landlord and Tenant.
12. ALTERATIONS AND MAINTENANCE. Tenant shall not cause or permit any
alterations, additions or changes of or upon any part of the Leased Premises
without first obtaining the written consent of Landlord. All alterations,
additions or changes to the Leased Premises shall be made in accordance with all
applicable laws and shall become the property of the Landlord.
13. MECHANIC'S LIENS. Tenant shall not permit any Statement of Intention to
Hold Mechanic's Lien to be filed against the Leased Premises or any part thereof
nor against any interest or estate therein by reason of labor, services or
materials claimed to have been performed or furnished to Tenant.
14. ENVIRONMENT CONSIDERATIONS. Lessee hereby agrees to defend, indemnify and
hold harmless Lessor, its officers, agents and employees, from and against all
claims (including claims for contribution, penalties and forfeitures), demands,
actions, causes of action, loss and liability including, but not limited to,
litigation or settlement expenses, costs and fees, resulting from or arising
because of the transportation, treatment, handling, use, storage, or disposal of
toxic and/or hazardous substances used and/or hazardous substances used and/or
handled by Lessee upon, or removed by Lessee from, the Leased premises,
including use, handling and/or removal not only by Lessee, but also by its
agents, employees, representatives and/or subcontractors, and shall include, but
not be limited to, liability arising under the Comprehensive Environmental
Response Compensation Liability Act, 42 U.S.C. 1901 et. seq., and the Hazardous
--------
Waste Management as set forth in Title 42, of the U.S. Code and/or other
statutory and regulatory provisions. Lessee also shall defend, indemnify and
hold harmless Lessor, its officers, agents and employees, from and against any
and all claims, demands, actions, causes of action, loss and liability caused by
Lessee's contamination of the Leased Premises by hazardous substances. For
purposes hereof, the term "hazardous substances" shall have the meaning set
forth in 42 U.S.C. 9601(14), or any successor to or amendment thereof.
Tenant represents and warrants as follows: (a) that during the term of the
Lease, Tenant shall use, store or otherwise handle Hazardous Substances in
compliance with all Environmental Laws. Tenant agrees to provide Landlord with
prompt written notice of any Hazardous Substance used, stored, or otherwise
handled on or in the Leased Premises; (b) that Tenant shall bear the cost of any
necessary redemption, removal, treatment and disposal of any Hazardous
Substances used, placed or allowed to be placed on or in the Leased Premises, or
released, spilled or discharged from the Leased Premises by Tenant, its
operations or any person operating through Tenant; and (c) that Tenant agrees to
provide Landlord with prompt written notice: (i) upon the Tenant's obtaining
knowledge of any potential or known release, or threat of release, of any
Hazardous Substance on or from the Leased Premises, or (ii) upon Tenant's
receipt of any notice of violation or notice of potential environmental
liability from any government authority regarding its operation on the Leased
Premises. Tenant further agrees to protect, indemnify, defend, and hold harmless
Landlord and its agents and employees (collectively "Indemnities") from and
against, and promptly pay or reimburse the Indemnities for any liabilities,
obligations, claims, damages, penalties, causes of action, cost and expenses
(including, without limitation, reasonable attorneys' and consultant's fees and
expenses) arising out of or caused by the breach of any environmental
representation in this Lease. This indemnification obligation shall survive the
termination or expiration of this Lease.
-2-
<PAGE>
The Lessor shall provide the Lessee with written notice of any claim, demand,
action, cause of action, loss or liability giving rise to a claim for
indemnification hereunder. The Lessee shall be entitled to retain counsel of its
choice to defend any matter giving rise to a claim for indemnification and shall
be entitled to settle and compromise any such matter; provided, however, that no
such settlement or compromise shall result in any deficiency or continuing
liability on the part of the Lessor. The Lessor agrees to cooperate with the
Lessee and its counsel in any such defense, but any and all costs and expenses
asssociated with such cooperation shall be borne by the Lessee and shall be
payable to Lessor upon demand.
15. ATTORNEY'S FEES. The Tenant shall pay the Landlord's reasonable legal
cost, investigative fees and attorney's fees incurred in enforcing against the
Tenant any covenant, term or condition of this Lease.
16. TENANT'S INSURANCE OBLIGATIONS. Tenant agrees to place and maintain, at
Tenant's expense, with an insurance company qualified to do business in the area
in which the Leased premises are located and which is acceptable to the
Landlord, public liability insurance with regard to Tenant's use and occupancy
of said premises. In addition to the aforementioned insurance, Tenant shall
provide insurance to cover its contents, and other insurance needs, and hold the
Landlord harmless from liability for damage to Tenant's property due to fire,
theft, or other insurable contingencies.
17. APPLICABLE LAW. It is agreed by and between the parties that this Contract
shall be construed pursuant to the laws of the State of Indiana and that the
Superior or Circuit Court of Marion County, Indiana, shall be a proper Court of
venue and jurisdiction, and the Tenant hereby waives its right to trial by jury.
12. Special Provisions.
Tenant has right to one (2) year extension of lease at current lease rates.
- --------------------------------------------------------------------------------
Tenant has first right of refusal on adjacent 40,000 square feet located to the
- --------------------------------------------------------------------------------
North of current space.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Lease is executed at Belmont Warehousing Complex, Inc., on the 3rd day of
--------------------------------- ---
December, 1996
- -------- --
This Agreement may be executed simultaneously or 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. Delivery of this document any be
accomplished by electronic facsimile reproduction (FAX); if FAX delivery is
utilized, the original document shall be promptly executed and/or delivered, if
requested.
<TABLE>
<CAPTION>
LANDLORD TENANT
<S> <C>
Belmont Warehousing Complex, Inc. Dogloo, Inc.
- ------------------------------------------ ------------------------------------
217 A South Belmont Ave., Indpls, IN 46222 6450 W. Hanna Ave., Indpls, IN 46241
- ------------------------------------------ ------------------------------------
SIGNATURE SIGNATURE
/s/ ^^[ILLEGIBLE SIGNATURE]^^ /s/ RONALD E. BARLOW
- ------------------------------------------ ------------------------------------
V.P.
</TABLE>
-3-
<PAGE>
EXHIBIT 10.25
ORIGINAL CORONA LEASE
[LOGO OF AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION]
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL LEASE-GROSS
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
November 2, 1992, is made by and between Patrician Associates, a California
- ---------- -- ----------------------------------
Corporation and Club Drive Partners, a California General Partnership, also
- ---------------------------------------------------------------------------
known as "Old Temescal Road Project". ("Lessor")
- -----------------------------------
and Dogloo Inc, a California Corporation
----------------------------------------------------------------------------
- ---------------------------------------------------------------------("Lessee"),
(collectively the "Parties," or individually a "Party").
1.2 Premises: That certain real property, including all improvements therein
or to be provided by Lessor under the terms of this Lease, and commonly known by
the street address of 1241 Old Temescal Road, Corona, located in the County of
------------------------------
Riverside, State of California 91719, and generally described as (describe
- --------- ----------------
briefly the nature of the property) the easterly approximately 84,283 sq.ft.
---------------------------------------
portion, together with the second floor offices, in a larger tilt-up concrete
- -----------------------------------------------------------------------------
industrial building together with the truck loading and parking shown on Exhibit
- --------------------------------------------------------------------------------
"A" and joint use of the driveway access to the truck loading and parking
- --------------------------------------------------------------------------
areas, including 120 car parking. ("Premises"). (See Paragraph 2 for further
- --------------------------------
provisions.)
1.3 Term: three (3) years and 11 months ("Original Term") commencing
--------- --
January 1, 1993 ("Commencement Date") and ending November 30, 1996 ("Expiration
- --------------- -----------------
Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: After completion of second floor offices, Dec. 28,
--------------------------------------------------
1992. ("Early Possession Date"). (See Paragraphs 3.2 and 3.3 for further
- ----
provisions.)
1.5 Base Rent: $22,967.11 per month ("Base Rent"), payable on the first day
---------- -----
of each month commencing December 1, 1993 and each month thereafter. There will
------------------------------------------------------
be early graduated rent due January 1, 1993 for $2,450.00 per month, which
- --------------------------------------------------------------------------
increases on April 1, 1993 to $8,583.75 per month, which increases August 1,
- ---------------------------------------------------------------------------
1993 to $15,396.25 per month. See Addendum. (See Paragraph 4 for further
- ------------------------------------------
provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 Base Rent Paid Upon Execution: $8,583.75 as Base Rent for the period the
--------- ---
month of April 1993. Lessee shall also pay upon occupancy the $2,450 per month
- -------------------------------------------------------------------------------
rent which is due January 1, 1993 for the January 1993 office rent.
- ------------------------------------------------------------------
1.7 Security Deposit: $22,967.11 ("Security Deposit"). (See Paragraph 5 for
----------
further provisions.)
1.8 Permitted Use: manufacturing, assembly, and warehousing of pet products
--------------------------------------------------------
together with offices and all related activities and any legal use. (See
- ------------------------------------------------------------------
Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party." $1,383.00 is the "Base
---------
Premium." (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
Penta Pacific Properties represents
- ------------------------
[_] Lessor exclusively ("Lessor's Broker"); [X] both Lessor and Lessee, and
-----------------------------------------------------------------------
- ----------------------------------------------------------------------represents
[_] Lessee exclusively ("Lessee's Broker"); [_] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See Paragraph 37 for further provisions.)
---
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 55 and Exhibits "A" and "B" all of which constitute a part
-- -- -----------
of this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date. Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor
written notice of a non-compliance with this warranty within 180-days after the
Commencement Date, correction of that non-compliance shall be the obligation of
Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warrant, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
shall be in effect during such period. Any such early possession shall not
affect nor advance the Expiration Date of the Original Term.
Initials ______
______
GROSS PAGE 1
(c) -- American Industrial Real Estate Association
<PAGE>
3.3 Delay in Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date, if one
is specified in Paragraph 1.4, or, if no Early Possession Date is specified,
by the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent. See Addendum for description of rental adjustment on December 1,
1995.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall, upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessee assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority; or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Law (as defined
in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of
any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority.
Reportable Use shall also include Lessee's being responsible for the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Law requires that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but in compliance with all Applicable Law,
use any ordinary and customary materials reasonably required to be used by
Lessee in the normal course of Lessee's business permitted on the Premises, so
long as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefrom or therefor,
including, but not limited to, the installation (and removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure
to, any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Promises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
Installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to be Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc),
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and ), ceilings, floors, windows, doors,
plate glass, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises, but excluding foundations, the exterior roof and the structural
aspects of the Premises. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under or about the Premises
(including through the plumbing or sanitary sewer system) and shall promptly, at
Lessee's expense, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of any
contamination of, and for the maintenance, security and/or monitoring of, the
Premises, the elements surrounding same, or neighboring properties, that was
caused or materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance and/or storage tank brought onto the Premises by or for
Lessee or under its control. Lessee, in keeping the Premises in good order,
condition and repair, shall exercise and perform good maintenance practices.
Lessee's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) and (vi) asphalt and parking lot maintenance.
7.2 Lessor's Obligations. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, condition and repair, Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor receives
written notice of the need for such repairs. It is the intention of the Parties
that the terms of this Lease govern the respective obligations of the Parties as
to maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000. Lessee retains the ownership of his
machinery and trade fixtures and may remove said equipment.
(b) Consent. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the form of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases. $1,383.00 is the base premium for this
premises portion of the larger building.
(a) Lessee shall pay to Lessor any insurance cost increase ("Insurance
Cost Increase") occurring during the term of this Lease. "Insurance Cost
Increase" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("Required Insurance"),
over and above the Base Premium, as hereinafter defined, calculated on an annual
basis. "Insurance Cost Increase" shall include, but not be limited to, increases
resulting from the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, and/or a premium rate increase. If the
parties insert a dollar amount in Paragraph 1.9, such amount shall be considered
the "Base Premium." In lieu thereof, if the Premises have been previously
occupied, the "Base Premium" shall be the lowest annual premium reasonably
obtainable for the Required Insurance as of the commencement of the Original
Term, assuming the most nominal use possible of the Premises. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b) (Liability Insurance Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement or
other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost Increase
attributable only to the Premises showing in reasonable detail the manner in
which such amount was computed. Premiums for policy periods commencing prior to,
or extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Commencement or Expiration of the Lease term.
8.2 Liability Insurance
(a) Carried by Lessee. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee and Lessor (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises"
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Endorsement and contain the "Amendment to the Pollution Exclusion" for damage
caused by heat, smoke or sparks from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by Lessee shall
be primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) Carried By Lessor. In the event Lessor is the Insuring Party, Lessor
shall also maintain liability insurance described in Paragraph 8.2(a) above, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee. Lessee shall not be named as an additional insured therein.
8.3 Property Insurance -- Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and keep
in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on he Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. Lessee Owned Alterations and Utility Installations shall be
insured by Lessee under Paragraph 8.4. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate glass insurance.
Said policy or policies shall also contain an agreed valuation provision in
lieu of any coinsurance clause, waiver of subrogation, and inflation guard
protection, causing an increase in the annual property insurance coverage amount
by a factor of not less than the adjusted U.S. Department of Labor Consumer
Price Index for All Urban Consumers for the city nearest to where the Premises
are located. Lessee is occupying 40.783% of the total larger building.
(b) Rental Value. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. Since Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds,
required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 Waiver or Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessee need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to the
Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal
and upgrading required by the operation of applicable building codes, ordinances
or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 8.2(a), in, on, or under the
Premises.
9.2 Partial Damage -- Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair
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any such damage or destruction. Partial Damage due to flood or earthquake
shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding
that there may be some insurance coverage, but the net proceeds of any such
insurance shall be made available for the repairs if made by either Party.
9.3 Partial Damage--Uninsured Loss. If a Promises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate following the date of
such Premises Total Destruction, whether or not the damage or destruction is an
Insured Loss or was caused by a negligent or willful act of Lessee. In the
event, however, that the damage or destruction was caused by Lessee, Lessor
shall have the right to recover Lessor's damages from Lessee except as released
and waived in Paragraph 8.6.
9.5 Damage Near End Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of such notice, this Lease shall continue in full
force and effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt
of such notice to give written notice to Lessor of Lessee's commitment to pay
for the investigation and remediation of such Hazardous Substance Condition
totally at Lessee's expense and without reimbursement from Lessor except to the
extent of an amount equal to twelve (12) times the then monthly Base Rent of
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following Lessee's said commitment. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible and the required funds are available.
If Lessee does not give such notice and provide the required funds or assurance
thereof within the times specified above, this Lease shall terminate as of the
date specified in Lessor's notice of termination. If a Hazardous Substance
Condition occurs for which Lessee is not legally responsible, there shall be
abatement of Lessee's obligations under this Lease to the same extent as
provided in Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 Termination--Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1(a) Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("Tax Increase"). Subject to
Paragraph 10.1(b), payment of any such Tax Increase shall be made by Lessee
within thirty (30) days after receipt of Lessor's written statement setting
forth the amount due and the computation thereof. Lessee shall promptly furnish
Lessor with satisfactory evidence that such taxes have been paid. If any such
taxes to be paid by Lessee shall cover any period of time prior to or after the
expiration or earlier termination of the term hereof, Lessee's share of such
taxes shall be equitably prorated to cover only the period of time within the
tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for
any overpayment after such proration.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Tax Increase to be paid in advance
to Lessor by Lessee, either: (i) in a lump sum amount equal to the amount due,
at least twenty (20) days prior to the applicable delinquency date, or (ii)
monthly in advance with the payment of the Base Rent. If Lessor elects to
require payment monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Tax Increase as the same becomes due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary
to pay such obligation. All moneys paid to Lessor under this Paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at
the option of Lessor, be treated as an additional Security Deposit under
Paragraph 5.
(c) Additional Improvements. Notwithstanding Paragraph 10.1(a) hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase in
Real Property Taxes assessed by reason of Alterations or Utility Installations
placed upon the Premises by Lessee or at Lessee's request.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change
in the ownership of the Premises or in the improvements thereon, the execution
of this Lease, or any modification, amendment or transfer thereof, and whether
or not contemplated by the Parties.
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10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable portion of the Real Property Taxes for
all of the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations assigned in
the assessor's work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall be
conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36., Lessor shall not unreasonably withhold consent.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of fifty
percent (50%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a non-
refundable deposit of $1,000 or ten percent (10%) of the current monthly Base
Rent, whichever is greater, as reasonable consideration for Lessor's considering
and processing the request for consent. Lessee agrees to provide Lessor with
such other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every form, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent, which Lessor will not
unreasonably withhold.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from any against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default,
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and that Lessor may include the cost of such services and costs in said notice
as rent due and payable to ??? Default. A "Default" is defined as a failure by
the Lessee to observe, comply with or perform any of the terms, covenants,
conditions or rules applicable to Lessee under this Lease. A "Breach" is defined
as the occurrence of any one or more of the following Defaults, and, where a
grace period for cure after notice is specified herein, the failure by Lessee to
cure such Default prior to the expiration of the applicable grace period, shall
entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same,
or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be doomed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C.(s)101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days; (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor
by Lessee or any Guarantor of Lessee's obligations hereunder was materially
false. The Lessee anticipates providing balance sheets, vendor and bank
references.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's behalf
including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default
or Breach of this Lease shall not waive Lessor's right to recover damages under
this Paragraph. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture In Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge,bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may by imposed upon Lessor by
the terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than (15) days after receipt by Lessor, and by
the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
<PAGE>
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or surrender the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $ (per agreement) for brokerage services
-------------
rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease
after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation of
an escalation clause herein, then as to any of said transactions, Lessor shall
pay said Brokers a fee in accordance with the schedule of said Brokers in effect
at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent
of its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
of owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease
and as to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing and
may be delivered in person (by hand or by messenger or courier service) or may
be sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received
on a Sunday or legal holiday, it shall be deemed received on the next business
day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
Initials
_______
<PAGE>
26. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal
thereon, shall be entitled to reasonable attorney's fees. Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term, "Prevailing
Party" shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any
time place on or about the Premises or building any ordinary "For Sale" signs
and Lessor may at any time during the last one hundred twenty (120) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation thereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate in
the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one or
all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by written
notice to the holder of any such lesser interest, shall constitute Lessor's
election to have such event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the
form of the guaranty to be executed by each such Guarantor shall be in the form
most recently published by the American Industrial Real Estate Association, and
each said Guarantor shall have the same obligations as Lessee under this Lease,
including but not limited to the obligation to provide the Tenancy Statement and
information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee
<PAGE>
is in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease in
any manner, by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of
time any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option. If, after such exercise and during the term
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the Provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to pay such sum or any part thereof, said Party shall be entitled to
recover such sum or so much thereof as it was not legally required to pay under
the provisions of this Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
See attached Addendum.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE
THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE
TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S)
OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER
THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Santa Fe Springs, California Executed at Corona, California
on November 6, 1992 on November 6, 1992
by LESSOR: by LESSEE:
Patrician Associates, a California Dogloo Inc., a California Corporation
Corporation & Club Drive Partnership,
a California General Partnership
By By /s/ AURELIO BARRETO
Name Printed: See complete attached Name Printed: Aurelio Barreto
signature page
Title: for Lessor's signature Title: President
By By /s/ DARRELL R. PAXMAN
Name Printed: Name Printed: Darrell R. Paxman
Title: Title: Executive Vice President
Address: 10005 Mission Mill Road Address: 1160 California Avenue
Whittier, CA 90608-0985 Corona, CA 91719
Tel. No. (310) 948-4242 Tel. No.(714) 279-9500
Fax No. ( ) Fax No. (714) 279-2206
GROSS PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 345 South Figueroa
Street Suite M-1, Los Angeles, CA 90071. (213) 687-8777.
Fax. No. (213) 687-8616.
<PAGE>
SIGNATURE PAGE FOR LESSOR
ATTACHED TO NOVEMBER 2, 1992 LEASE FOR
Lessor: Patrician Associates and Club Drive Partners, AKA "Old Temescal Road
Project"
Lessee: Dogloo Inc., a California Corporation
Property: 1241 Old Temescal Road, Corona, California
Signed by Lessor:
PATRICIAN ASSOCIATES, INC.
By /s/ TIMOTHY E. MINTON
----------------------------------------
TIMOTHY E. MINTON
VICE PRESIDENT
By /s/ R.E. SCOTT
----------------------------------------
R.E. Scott
Vice President
CLUB DRIVE PARTNERS
- -------------------
By: ANITA INVESTORS, a general partner
By /s/ J.O. OLTMANS II
-----------------------------------
J.O. Oltmans II
By /s/ BASIL C. JOHNSON
-----------------------------------
Basil C. Johnson
By /s/ GEORGE C. SCHUMACHER 11/6/92
----------------------------------------
George C. Schumacher
General Partner
By /s/ JOSEPH E. MAIOLO 11/6/92
----------------------------------------
Joseph E. Maiolo, Trustee Under
Declaration of Trust dated
June 2, 1980, General Partner
<PAGE>
ADDENDUM TO LEASE
DATED NOVEMBER 2, 1992
BY AND BETWEEN
PATRICIAN ASSOCIATES, A CALIFORNIA CORPORATION AND
CLUB DRIVE PARTNERS, A CALIFORNIA GENERAL PARTNERSHIP, LESSOR
AND
DOGLOO INC., A CALIFORNIA CORPORATION, LESSEE
PREMISES 1241 OLD TEMESCAL ROAD, CORONA, CALIFORNIA
Lessee and Lessor additionally agree as follows:
49. Leased Premises: The total demised premises including the second floor
---------------
offices will equal approximately 84,283 sq. ft. together with the
immediately adjacent yard and parking located at the easterly most portion
of the larger industrial building. Also included in these premises will be
the completion of the second floor offices of approximately 2,480 sq. ft.
plus additional of 1,500 sq. ft. on the ground floor plus an additional
womens toilet room plus a warehouse dispatch office and 800 amps of
electrical service. The complete leasehold improvement office layout will
be shown on an architectural plan prepared promptly after the signing of
the lease document. The plan will be prepared by Hill Pinckert Architects
and reasonably reviewed and approved by Lessee and Lessor. Oltmans
Construction Co., the building contractor, will prepare its final budget
based on the approved plan.
50. Monthly Base Lease Rental Rate: The monthly rental amount due to Lessor
------------------------------
will increase as the total area of the premises demised for Lessee is
occupied. The progressive schedule of monthly rent is as follows:
a. January 1, 1993, the monthly rent will commence at $2,450 per month
which equals approximately 50c per square foot for the 5,200 sq. ft. of
office and toilet room area that Lessee has occupied.
b. April 1, 1993, the Lessee will occupy a total of approximately 31,500
sq. ft. including the office area and the monthly rent will increase to
$8,583.75 per month gross rent. This is comprised of approximately 25c
per square foot of rent plus 2.25c per square foot to partially
recapture a portion of the leasehold improvement expense. The monthly
rent, therefore, is 27.25c gross for the area occupied.
c. August 1, 1993, Lessee will occupy a total of 56,500 sq. ft. of
building area and the monthly rent will increase to $15,396.25 per
square foot gross rent per month. This equals 27.25c for the 56,500 sq.
ft. of area that is occupied. Provided that Lessee has made all of its
deposits and is not in default under any of the terms of the lease,
then Lessee may occupy this full 56,500 sq. ft. even before August 1,
1993. It is restated that the agreed upon rent, however, will increase
to the $15,396.25 per month figure on August 1, 1993.
d. December 1, 1993, the monthly rent will increase to $22,967.11 per
month gross rent and continue each month thereafter. This equals 27.25c
for the entire 84,283 sq. ft. space. This final remaining portion of
the warehouse area will be designated by a white line painted on the
warehouse floor. If Lessee desires to take occupancy of the final
portion of the warehouse area prior to December 1, 1993, then Lessee
will commence paying monthly rent to Lessor for that 27,783 sq. ft. of
warehouse area when Lessee takes early occupancy. If, therefore, Lessee
through its growth of its warehouse use takes over the additional
square footage prior to December 1, 1993, then the $22,967.11 rent will
commence at the time the additional square footage is occupied.
<PAGE>
Addendum to Lease
Dated November 2, 1992
Page 2 of 3
e. December 1, 1995, the gross monthly rent will be increased 2c per square
foot per month which will bring the rent to 29.25c per square foot. This
equals $24,652.77 per month which shall continue to be paid monthly
until the end of the primary lease term which is November 30, 1996.
51. Monthly Rental Adjustment for Additional Leasehold Expense: Note that the
----------------------------------------------------------
attached leasehold improvement budget equals approximately $167,500. Lessor
is contributing $104,000 towards those improvements and recapturing from
Lessee a portion of the leasehold expenses in the amount of $63,500 by
charging an additional 2.25c per square foot per month. That specific
surcharge will expire at the end of the primary lease term on November 30,
1996. The 2.25c is computed at the rate of .0355c per $1,000 of extra
leasehold improvements per square foot per month. If the extra amount of
special leasehold improvements in the amount of $63,500 cost is less, then
the computed 2.25c per square foot will be proportionately reduced at the
time the budget is approved and the improvements are constructed. Lessee
and Lessor will sign a Addendum to the lease making the monthly rental
adjustment if any savings are experienced.
52. Option to Extend the Lease Term: Provided that Lessee is not in default
-------------------------------
under the terms of the lease and is in occupancy of the premises, then with
120 day prior written notice to Lessor, Lessee may have an option to extend
the lease on a one time basis either for an additional one-year term or for
one additional three-year term. At the time Lessee makes its written
statement to Lessor exercising Lessee's option to renew, Lessee shall also
state specifically whether the option exercised is for a one-year extension
or specifically whether the option exercised is for a one-year extension or
specifically for a three-year extension. This is a one time option to
renew. The monthly rental rate will be payable during the extended term on
the following basis.
a. Year 1 - 28.25c gross per square foot per month equals $23,809.94.
b. Year 2 - 29.25c gross per square foot per month equals $24,652.77.
c. Year 3 - 30.25c gross per square foot per month equals $25,495.60.
53. Tenant Improvements: Lessor shall have Oltmans Construction Co. promptly
-------------------
install the various leasehold improvements described on the attached
improvement budget and which will be shown on construction plans prepared
by Hill Pinckert Architectural firm. The plans are subject to mutual
reasonable approved by both Lessee and Lessor.
Lessee is informed that Lessor has provided at the building a .60 fire
protection sprinkler system together with vented skylights and six foot
deep draft curtains dividing the warehouse area into approximately 8,000
sq. ft. section. Lessee is responsible for the installation of its racks
and any other requirements of the City of Corona to comply with the storage
of Lessee's products. Lessor will provide a deposit on the fire alarm
system up to $3,000 for installation, however, the alarm system and its
monthly expense together with any other installation charges will be the
cost to Lessee.
The commencement of this lease is subject to Lessee's ability to obtain
permission and approval from the City of Corona Fire Department to occupy
the subject building and process and store Lessee's goods and products in
the warehouse area. Lessee will obtain that approval prior to occupying the
premises.
<PAGE>
Addendum to Lease
Dated November 2, 1992
Page 3 of 3
54. Conditional Right of First Refusal: The westerly most tenant in the
----------------------------------
building, Hayden Inc., and the middle tenant, Pacific Connections, have
existing rights of first refusal on the space adjacent to their space. If
either of them vacate the building and the other remaining tenant does not
exercise its right to occupy the space, then Dogloo Inc. will also be
informed of any available space and of any written offer that Lessor is
willing to accept. Dogloo will then have five business days to respond and
state if Dogloo Inc. will lease the available space upon the same price and
terms as the offer which Lessor is willing to accept. As stated then
Lessee, Dogloo Inc., will have a right of second refusal in connection with
any outside offers that come to Lessor for the building.
If the building is offered for sale, Lessor will inform Lessee of the price
and terms and Lessee will have five days to respond with its agreement to
purchase the building on price and terms acceptable to Lessor.
55. Electric Panel: Lessor will provide 800 amps of 480 volt 3 phase power to
--------------
this portion of the larger industrial building which is proposed for Dogloo
Inc. to occupy. This 800 amps of power will be separately metered. Any
distribution of the power to the warehouse area or the manufacturing area
will be Lessee's responsibility and expense.
APPROVED AND AGREED:
<TABLE>
<CAPTION>
LESSEE: LESSOR:
<S> <C>
Dogloo Inc., Patrician Associates, Inc. and Club
a California Corporation Drive Partners, AKA "Old Temescal Road
Project"
By /s/ A.F. BARRETO By /s/ TIMOTHY E. MINTON
----------------------------- --------------------------------------
TIMOTHY E. MINTON
By /s/ DARRELL R. PAXMAN VICE PRESIDENT
-----------------------------
By /s/ R.E. SCOTT
--------------------------------------
R.E. Scott
Vice President
CLUB DRIVE MEMBERS
By: ANITA INVESTORS, A General Partner
By /s/ J.O. OLTMANS II
-----------------------------------
J.O. Oltmans II
By /s/ BASIL C. JOHNSON
-----------------------------------
Basil C. Johnson
By /s/ GEORGE C. SCHUMACHER 11/6/92
----------------------------------------
George C. Schumacher
General Partner
By /s/ JOSEPH E. MAIOLO
----------------------------------------
Joseph E. Maiolo, Trustee Under
Declaration of Trust dated
June 2, 1980, General Partner
</TABLE>
<PAGE>
EXHIBIT "A"
[MAP OF OLD TEMESCAL ROAD PROJECT]
<PAGE>
EXHIBIT "B"
Dogloo Leasehold Budget
1241 Old Temescal Road, Corona
November 2, 1992
<TABLE>
<S> <C>
(1) Finish second floor 2,480 sq.ft.
plus new carpet on 1st floor
plus add 2 non-bearing office walls $45,000.00
(2) Add 1,500 sq.ft. ground floor offices @ $30 45,000.00
(3) Build 12'x 12' shop office including window A/C 4,500.00
(4) Extra women's shop toilets 20,000.00
(5) Add 800Amp 480V main electric service 15,000.00
(6) Possible alarm deposit 3,000.00
(7) Architecture design and permit fees 8,000.00
(8) Draft curtain allowance and hose allowance 12,000.00
(9) Contingence 3,000.00
(10) 1/2 cost demising wall 12,000.00
-----------
TOTAL ESTIMATE: $167,500.00
</TABLE>
Budget $167,500.00
minus 104,000.00 allowance from Lessor
-----------
$63,500.00 net difference
Amortize $63,500.00 over lease term 2.25c net.
-----
Lessor is supplying approximately 6' deep draft curtains
@ approximately 8,000 sq.ft. area in hi pile area
the sprinkler system is .60 over remote 3,000 sq.ft.
the skylights are approx 3.33% of roof area
All other requirements for rack storage of Lessee's products will be the
responsibility of Lessee. Lessee will review said requirements with the City of
Corona Fire Department.
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment To Lease ("Amendment") is made this day of July 29,
1996, by and between Dogloo, Inc., a California corporation ("Lessee"), and
Patrician Associates, Inc., a general partnership, a/k/a/ "Old Temescal Road
Project" (collectively, "Lessor").
RECITALS
A. Lessee and Lessor are parties to that certain Standard
Industrial/Commerical Lease - Gross, together with the Addendum To Lease which
is attached thereto, both dated November 2, 1992 (both such documents are
collectively referred to herein as the Temescal Road, Corona, California, as
more particularly described in the Lease (the "Premises"). Capitalized terms
are defined herein have the meanings given them in the Lease.
B. Lessee has exercised its option to extend the Lease, and in
connection with and as consideration for such extension, the parties agree to
amend the Lease as set forth herein.
Now, therefore, Lessee and Lessor hereby agree as follows:
1. Exercise of Initial Option to Extend. Lessor acknowledges that
------------------------------------
Lessee has exercised its initial option to extend the Lease for one additional
three (3) year term, which extended term shall commence on December 1, 1996 and
shall expire on November 30, 1999, and that the monthly rental payable by Lessee
during such extended term shall be as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year 1: $0.2825 gross per square foot 23,809.95 mo
Year 2: $0.2925 gross per square foot 24,652.78 mo
Year 3: $0.3025 gross per square foot 25,495.61 mo
</TABLE>
2. First Amendment to Lease. Lessor and Lessee hereby amend the Lease in
------------------------
the following respects only:
A. Additional Option to Extend. Lessee is hereby granted the further
---------------------------
option to extend this Lease, as it has now been extended, for one
additional term of two (2) years, commencing December 1, 1999 and ending
November 30, 2001. Provided that Lessee is not than in default under the
Lease, Lessee may exercise this option by giving written notice to
Lessor of Lessee's intent to exercise this option at least 180 days
prior to the expiration of the extended term of this lease.
<PAGE>
The monthly rental payable during this additional two year extension period
of the Lease shall be as follows:
<TABLE>
<CAPTION>
<S> <C>
Year 4: $0.3600 gross per square foot
Year 5: $0.3750 gross per square foot
</TABLE>
B. Right to Sublease. Notwithstanding anything to the contrary in the
-----------------
Lease (including Section 12 thereof), Lessor hereby agrees that Lessee may
sublet all or part of the Premises without the prior written consent of Lessor
except that Lessor's prior written approval shall be required of proposed
sublessee's credit worthiness, which approval shall not be unreasonably
withheld. City to approve sublessee proposed use of the premises. Lessor agrees
that such subletting shall not constitute a Breach of a Default under the Lease.
Lessor further agrees that, notwithstanding anything to the contrary in the
Lease (including Section 12 thereof), in the event of any subletting by Lessee
during the term of the Lease: (i) the monthly rental payable under the Lease
shall not increase except as provided in the scheduled increases listed above;
(ii) no additional or increased security deposit shall be required; and (iii)
not processing charge and/or assumption fee shall be imposed upon Lessee or
sublessee.
C. Consent. In the event that Lessee or any sublessee desires to make any
-------
Alterations to the Premises, or to take any other action which requires the
consent of Lessor under the Lease, Lessor agrees (i) to not unreasonably
withhold its consent, and (ii) to respond to the request for consent within
fourteen (14) calendar days after the receipt thereof.
3. Effect of Amendment. Except as modified by this Amendment, the terms
-------------------
and conditions of the Lease shall remain unmodified and in full force and
effect. In the event of any conflict or inconsistency between this Amendment and
the Lease, the terms of this Amendment shall be controlling.
In Witness Whereof, Lessor and Lessee have duly executed this Amendment of
Lease as of the day and year first above written.
LESSEE:
Dogloo, Inc., a California corporation
By: /s/ AURELIO BARRETO
------------------------------------
Aurelio Barreto,
President
LESSOR:
By: Patrician Associates, Inc., a
California corporation
By: /s/ KURT D. SCHAEFFER
------------------------------------
KURT D. SCHAEFFER
VICE PRESIDENT
By: /s/ RONALD B. FRANKLIN
------------------------------------
Ronald B. Franklin
<PAGE>
By: Club Drive Partners, A
California general partnership
By: Anita Investors, General
Partner
By: /s/ J.O.OLTMANS II
-------------------------------
J.O. Oltmans II
By: /s/ BASIL C. JOHNSON
-------------------------------
Basil C. Johnson
By: /s/ JOSEPH E. MAIOLO
-----------------------------------
Joseph E. Maiolo, Trustee
under Declaration of Trust
dated June 2, 1980, General Partner
<PAGE>
EXHIBIT 10.26
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered into
as of the____________________, by and between ________________________ (the
"Company"), and___________________ (the "Indemnitee").
RECITALS
--------
WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available;
WHEREAS, the Indemnitee is director and/or officer of the Company;
WHEREAS, both the Company and the Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
companies in today's environment;
WHEREAS, the Company's Articles of Incorporation (the "Articles") provides
that the Company will indemnify its directors and officers to the full extent
permitted by law, and the Indemnitee's willingness to serve as a director and/or
officer of the Company is based in part on the Indemnitee's reliance on such
provisions; and
WHEREAS, the Texas Business Corporation Act (the "Texas Statute") expressly
recognizes that the indemnification provisions of the Texas Statute are not
exclusive of any other rights to which a person seeking indemnification may be
entitled under the Articles or Bylaws of the Company, a resolution of the
directors, an agreement or as permitted or required by common law, and this
Agreement is being entered into pursuant to and in furtherance of the Articles
and Bylaws, as permitted by the Texas Statute and as authorized by the Articles
and the directors of the Company (the "Directors"); and
WHEREAS, in recognition of the Indemnitee's need for substantial protection
against personal liability in order to enhance the Indemnitee's continued
service to the Company in an effective manner, and the Indemnitee's reliance on
the aforesaid provisions of the Articles, and in part to provide the Indemnitee
with specific contractual assurance that the protection promised by such
provisions will be available to the Indemnitee (regardless of, among other
things, any amendment to or revocation of such provisions or any change in the
composition of the Directors or any acquisition or business combination
transaction relating to the Company), the Company wishes to provide in this
Agreement for the indemnification of and the advancement of expenses to the
Indemnitee as set forth in this Agreement and, to the extent insurance is
maintained, for the continued coverage of the Indemnitee under the Company's
directors' and officers' liability insurance policies.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
<PAGE>
1. Indemnification.
---------------
(a) In accordance with the provisions of subsection (b) of this Section 1,
the Company shall hold harmless and indemnify the Indemnitee against any and all
expenses, liabilities and losses (including, without limitation, investigation
expenses and expert witnesses' and attorneys' fees and expenses, judgments,
penalties, fines, ERISA excise taxes and amounts paid or to be paid in
settlement) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
the Company on the Indemnitee's behalf), in connection with any action, suit,
arbitration or proceeding (or any inquiry or investigation, whether brought by
or in the right of the Company or otherwise, that the Indemnitee in good faith
believes might lead to the institution of any such action, suit, arbitration or
proceeding), whether civil, criminal, administrative or investigative, or any
appeal therefrom, in which the Indemnitee is a party, is threatened to be made a
party, is a witness or is participating (a "Proceeding") based upon, arising
from, relating to or by reason of the fact that Indemnitee is, was, shall be or
shall have been a director and/or officer of the Company or is or was serving,
shall serve, or shall have served at the request of the Company as a director,
officer, partner, trustee, employee or agent ("Affiliate Indemnitee") of another
foreign or domestic corporation or non-profit corporation, cooperative,
partnership, joint venture, trust or other incorporated or unincorporated
enterprise.
(b) In providing the foregoing indemnification, the Company shall, with
respect to a Proceeding, hold harmless and indemnify the Indemnitee to the
fullest extent required by the Texas Statute and to the fullest extent permitted
by the Express Permitted Indemnification Provisions (as hereinafter defined) of
the Texas Statute. For purposes of this Agreement, the Express Permitted
Indemnification Provisions of the Texas Statute shall mean indemnification as
permitted by Section 2.02-1 of the Texas Statute or by any amendment thereof or
other statutory provisions expressly permitting such indemnification which is
adopted after the date hereof (but, in the case of any such amendment, only to
the extent that such amendment permits the Company to provide broader
indemnification rights than said law required or permitted the Company to
provide prior to such amendment).
(c) Without limiting the generality of the foregoing, the Indemnitee shall
be entitled to the rights of indemnification provided in this Section 1 for any
expenses actually incurred in any Proceeding initiated by or in the right of the
Company, provided that in the event that the Indemnitee shall have been adjudged
in a final, nonappealable judgment or other final adjudication to be liable to
the Company or shall have been adjudged liable on the basis that personal
benefit was improperly received by the Indemnitee, indemnification (i) is
limited to reasonable expenses actually incurred by the Indemnitee in connection
with the Proceeding; and (ii) shall not be made in respect of any Proceeding in
which the person shall have been found liable for wilful or intentional
misconduct in the performance of his duty to the Company.
2
<PAGE>
(d) If the Indemnitee is entitled under this Agreement to indemnification
by the Company for some or a portion of the Indemnified Amounts (as hereinafter
defined) but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify the Indemnitee for the portion thereof to which
Indemnitee is entitled.
2. Other Indemnification Arrangements. The Texas Statute and the
----------------------------------
Articles permit the Company to purchase and maintain insurance or furnish
similar protection or make other arrangements, including, without limitation,
securing indemnification obligations by granting a security interest or other
lien on the assets of the Company and providing self insurance, a letter of
credit, guaranty or surety bond (collectively, the "Indemnity Arrangements") on
behalf of the Indemnitee against any liability asserted against him or incurred
by or on behalf of him in such capacity as a director or officer of the Company
or as an Affiliate Indemnitee, or arising out of his status as such, whether or
not the Company would have the power to indemnify him against such liability
under the provisions of this Agreement or under the Texas Statute, as it may
then be in effect. The purchase, establishment and maintenance of any such
Indemnity Arrangement shall not in any way limit or affect the rights and
obligations of the Company or of the Indemnitee under this Agreement except as
expressly provided herein, and the execution and delivery of this Agreement by
the Company and the Indemnitee shall not in any way limit or affect the rights
and obligations of the Company or the other party or parties thereto under any
such Indemnity Arrangement. All amounts payable by the Company pursuant to this
Section 2 and Section 1 hereof are herein referred to as "Indemnified Amounts."
3. Advance Payment of Indemnified Amounts.
--------------------------------------
(a) The Indemnitee hereby is granted the right to receive in advance of a
final, nonappealable judgment or other final adjudication of a Proceeding (a
"Final Determination") the amount of any and all expenses, including, without
limitation, investigation expenses, expert witness' and attorneys' fees and
other expenses expended or incurred by the Indemnitee in connection with any
Proceeding or otherwise expended or incurred by the Indemnitee (such amounts so
expended or incurred being referred to as "Advanced Amounts").
(b) In making any written request for the Advanced Amounts, the Indemnitee
shall submit to the Company a schedule setting forth in reasonable detail the
dollar amount expended or incurred and expected to be expended. Each such
listing shall be supported by the bill, agreement or other documentation
relating thereto, each of which shall be appended to the schedule as an exhibit.
In addition, before the Indemnitee may receive Advanced Amounts from the
Company, the Indemnitee shall provide to the Company (i) a written affirmation
of the Indemnitee's good faith belief that the applicable standard of conduct
required for indemnification by the Company has been satisfied by the
Indemnitee, and (ii) a written undertaking by or on behalf of the Indemnitee to
repay the Advanced Amounts if it shall ultimately be determined that the
Indemnitee has not satisfied any applicable standard of conduct. The written
undertaking required from the Indemnitee shall be an unlimited general
obligation of the Indemnitee but need
3
<PAGE>
not be secured. The Company shall pay to the Indemnitee all Advanced Amounts
within ten (10) business days after receipt by the Company of all information
and documentation required to be provided by the Indemnitee pursuant to this
subsection (b).
4. Procedure for Payment of Indemnified Amounts.
--------------------------------------------
(a) To obtain indemnification under this Agreement, the Indemnitee shall
submit to the Company a written request for payment of the appropriate
Indemnified Amounts, including with such request such documentation and
information as is reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent the Indemnitee is entitled to
indemnification. The Secretary of the Company shall, promptly upon receipt of
such a request for indemnification, advise the Directors in writing that the
Indemnitee has requested indemnification.
(b) The Company shall pay the Indemnitee the appropriate Indemnified
Amounts unless it is established that the Indemnitee has not met any applicable
standard of conduct of the Express Permitted Indemnification Provisions. For
purposes of determining whether the Indemnitee is entitled to Indemnified
Amounts, in order to deny indemnification to the Indemnitee the Company has the
burden of proof in establishing that the Indemnitee did not meet the applicable
standard of conduct. In this regard, a termination of any Proceeding by
judgment, order, settlement, conviction, pleading of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment, does not
create a presumption that the Indemnitee did not meet the requisite standard of
conduct.
(c) Any determination that the Indemnitee has not met the applicable
standard of conduct required to qualify for indemnification shall be made (i) by
a majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding; (ii) if such a quorum cannot be obtained, by a
majority vote of a committee of the board of directors, designated to act in the
matter by a majority vote of all directors, consisting solely of two or more
directors who at the time of the vote are not named defendants or respondents in
the proceeding; (iii) by special legal counsel selected by the board of
directors or a committee of the board by vote as set forth in (i) or (ii) of
this section, or, if such a quorum cannot be obtained and such a committee
cannot be established, by a majority vote of all directors; or (iv) by the
shareholders in a vote that excludes the shares held by directors who are named
defendants or respondents in the proceeding.
(d) The Company will use its best efforts to conclude as soon as
practicable any required determination pursuant to subsection (c) above and
promptly will advise the Indemnitee in writing with respect to any determination
that the Indemnitee is or is not entitled to indemnification, including a
description of any reason or basis for which indemnification has been denied.
Payment of any applicable Indemnified Amounts will be made to the Indemnitee
within ten (10) days after any determination of the Indemnitee's entitlement to
indemnification.
4
<PAGE>
(e) Notwithstanding the foregoing, the Indemnitee may, at any time after
sixty (60) days after a claim for Indemnified Amounts has been filed with the
Company (or upon receipt of written notice that a claim for Indemnified Amounts
has been rejected, if earlier) and before three (3) years after a claim for
Indemnified Amounts has been filed, petition a court of competent jurisdiction
to determine whether the Indemnitee is entitled to indemnification under the
provisions of this Agreement, and such court shall thereupon have the exclusive
authority to make such determination unless and until such court dismisses or
otherwise terminates such action without having made such determination. The
court shall, as petitioned, make an independent determination of whether the
Indemnitee is entitled to indemnification as provided under this Agreement,
irrespective of any prior determination made by the Directors or independent
counsel. If the court shall determine that the Indemnitee is entitled to
indemnification as to any claim, issue or matter involved in the Proceeding with
respect to which there has been no prior determination pursuant to this
Agreement or with respect to which there has been a prior determination that the
Indemnitee was not entitled to indemnification hereunder, the Company shall pay
all expenses (including attorneys' fees) actually incurred by the Indemnitee in
connection with such judicial determination.
5. Agreement Not Exclusive; Subrogation Rights, etc.
-------------------------------------------------
(a) This Agreement shall not be deemed exclusive of and shall not diminish
any other rights the Indemnitee may have to be indemnified or insured or
otherwise protected against any liability, loss or expense by the Company, any
subsidiary of the Company or any other person or entity under any charter,
bylaws, law, agreement, policy of insurance or similar protection, vote of
shareholders or Directors, disinterested or not, or otherwise, whether or not
now in effect, both as to actions in the Indemnitee's official capacity, and as
to actions in another capacity while holding such office. The Company's
obligations to make payments of Indemnified Amounts hereunder shall be satisfied
to the extent that payments with respect to the same Proceeding (or part
thereof) have been made to or for the benefit of the Indemnitee by reason of the
indemnification of the Indemnitee pursuant to any other arrangement made by the
Company for the benefit of the Indemnitee.
(b) In the event the Indemnitee shall receive payment from any insurance
carrier or from the plaintiff in any Proceeding against the Indemnitee in
respect of Indemnified Amounts after payments on account of all or part of such
Indemnified Amounts have been made by the Company pursuant hereto, the
Indemnitee shall promptly reimburse to the Company the amount, if any, by which
the sum of such payment by such insurance carrier or such plaintiff and payments
by the Company or pursuant to arrangements made by the Company to Indemnitee
exceeds such Indemnified Amounts; provided, however, that such portions, if any,
of such insurance proceeds that are required to be reimbursed to the insurance
carrier under the terms of its insurance policy, such as deductible or co-
insurance payments, shall not be deemed to be payments to the Indemnitee
hereunder. In addition, upon payment of Indemnified Amounts hereunder, the
Company shall be subrogated to the rights of the Indemnitee receiving such
payments (to the extent thereof) against any insurance carrier (to the extent
permitted under such insurance policies) or
5
<PAGE>
plaintiff in respect of such Indemnified Amounts and the Indemnitee shall
execute and deliver any and all instruments and documents and perform any and
all other acts or deeds which the Company deems necessary or advisable to secure
such rights. Such right of subrogation shall be terminated upon receipt by the
Company of the amount to be reimbursed by the Indemnitee pursuant to the first
sentence of this subsection (b).
6. Continuation of Indemnity. All agreements and obligations of the
-------------------------
Company contained herein shall continue during the period the Indemnitee is a
director or officer of the Company (or is serving at the request of the Company
as an Affiliate Indemnitee) and shall continue thereafter for a period of ten
(10) years from the date the Indemnitee ceases to serve as a director or officer
of the Company or ceases to serve as an Affiliate Indemnitee (whichever is
later).
7. Notice and Defense of Claim. 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 Proceeding
or matter which may be subject to indemnification or advancement of expenses
covered hereunder. Notwithstanding any other provision of this Agreement, with
respect to any such Proceeding or matter as to which Indemnitee notifies the
Company of the commencement thereof:
(a) The Company will be entitled to participate therein at its own
expense.
(b) Except as otherwise provided in this Section 7(b), to the extent it
desires, the Company, jointly with any other indemnifying party similarly
notified, shall be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Company to
Indemnitee of its election to so assume the defense thereof, the Company shall
not be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof other
than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ his own counsel in such Proceeding or
matter, but the fees and expenses of such counsel incurred after notice from the
Company of its assumption of the defense thereof shall be at the expense of
Indemnitee unless (i) the employment of counsel by Indemnitee has been
authorized by the Company; (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and Indemnitee in the
conduct of the defense of such action; or (iii) the Company shall not in fact
have employed counsel to assume the defense of such Proceeding or matter, in
each of which cases the fees and expenses of counsel shall be at the expense of
the Company. The Company shall not be entitled to assume the defense of any
Proceeding or matter brought by or on behalf of the Company or as to which
Indemnitee shall have made the conclusion provided for in (ii) above.
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any Proceeding or matter
affected without its written consent. The Company shall not settle any
Proceeding or matter in any manner that would impose any
6
<PAGE>
penalty or limitation on Indemnitee without Indemnitee's written consent.
Neither the Company nor Indemnitee will unreasonably withhold their consent to
any proposed settlement.
8. Defense Counsel. Indemnitee hereby agrees that in any Proceeding in
---------------
which Indemnitee and other past or present directors or officers of the Company
(or its successor) who are entitled to indemnification from the Company are
named defendants or respondents, Indemnitee and such other past or present
directors or officers shall collectively select one firm of attorneys in any
jurisdiction to defend all such defendants and respondents in such Proceeding
unless counsel for Indemnitee advises that there are issues which may raise
conflicts of interest between Indemnitee and such other persons.
9. Indemnification for Negligence. TO THE EXTENT PERMITTED BY THEN
------------------------------
APPLICABLE LAW AND SUBJECT TO THE PROVISIONS OF THIS AGREEMENT, THE PARTIES
HERETO RECOGNIZE AND ACKNOWLEDGE THAT INDEMNITEE MAY BE INDEMNIFIED IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT IN PROCEEDINGS INVOLVING THE
NEGLIGENCE OF INDEMNITEE.
10. Successors; Binding Agreement. This Agreement shall be binding on and
-----------------------------
shall inure to the benefit of and be enforceable by the Company's successors and
assigns and by the Indemnitee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. The
Company shall require any successor or assignee (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by written agreement in form and
substance reasonably satisfactory to the Company and to the Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession or assignment had taken place.
11. Enforcement. The Company has entered into this Agreement and assumed
-----------
the obligations imposed on the Company hereby in order to induce the Indemnitee
to act as a director or officer, as the case may be, of the Company, and
acknowledge that the Indemnitee is relying upon this Agreement in continuing in
such capacity. In the event the Indemnitee is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is successful
in such action, the Company shall reimburse the Indemnitee for all of the
Indemnitee's fees and expenses in bringing and pursuing such action. The
Indemnitee shall be entitled to the advancement of Indemnified Amounts to the
full extent contemplated by Section 3 hereof in connection with such proceeding.
12. Severability. Each of the provisions of this Agreement is a separate
------------
and distinct agreement independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof, which other provisions shall remain in full
force and effect, and, to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provision held to
7
<PAGE>
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held illegal, invalid or unenforceable.
13. Miscellaneous. No provisions of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by the Indemnitee and either the President and Chief Executive
Officer of the Company or another officer of the Company specifically designated
by the Directors. No waiver by either party at any time of any breach by the
other party of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a wavier of
similar or dissimilar provisions or conditions at the same time or at any prior
or subsequent times. No agreements or representations, oral or otherwise,
express or impled, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Texas, without giving effect to the principles of
conflicts of laws thereof.
14. Notices. For the purposes of this Agreement, notices and all other
-------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Indemnitee:
If to the Company:
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
15. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
16. Effectiveness. This Agreement shall be effective as of the date first
-------------
above written.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
COMPANY
___________________________________
INDEMNITEE
___________________________________
9
<PAGE>
EXHIBIT 10.27
DOSKOCIL MANUFACTURING COMPANY, INC.
1997 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. THE PLAN......................................................................... 1
1.1 Purpose..................................................................... 1
1.2 Administration.............................................................. 1
1.3 Participation............................................................... 2
1.4 Stock Subject to the Plan................................................... 2
1.5 Grant of Options............................................................ 3
1.6 Exercise of Options......................................................... 3
II. OPTIONS.......................................................................... 4
2.1 Grants...................................................................... 4
2.2 Option Price................................................................ 4
2.3 Option Period............................................................... 5
2.4 Exercise of Options......................................................... 5
2.5 Limitations on Grant of Incentive Stock
Options..................................................................... 5
2.6 Option Repricing/Cancellation and
Regrant/Waiver of Restrictions.............................................. 6
2.7 Options in Substitution for Stock Options
Granted by Other Corporations............................................... 6
III. OTHER PROVISIONS................................................................. 7
3.1 Rights of Eligible Persons, Participants
and Beneficiaries........................................................... 7
3.2 Adjustments Upon Changes in Capitalization;
Acceleration; Possible Early Termination of
Options..................................................................... 8
3.3 Termination of Employment................................................... 9
3.4 Securities Laws............................................................. 10
3.5 Government Regulations...................................................... 11
3.6 Tax Withholding............................................................. 12
3.7 Amendment, Termination and Suspension....................................... 13
3.8 Privileges of Stock Ownership;
Nondistributive Intent...................................................... 13
3.9 Effective Date of the Plan.................................................. 14
3.10 Term of the Plan............................................................ 14
3.11 Governing Law............................................................... 14
3.12 Captions.................................................................... 14
IV. DEFINITIONS...................................................................... 15
4.1 Definitions................................................................. 15
</TABLE>
i
<PAGE>
DOSKOCIL MANUFACTURING COMPANY, INC.
1997 STOCK OPTION PLAN
I. THE PLAN.
1.1 Purpose.
-------
The purpose of this Plan is to promote the success of the Company/1/
by providing an additional means to attract, motivate, retain and reward key
personnel through the grant of Options that provide added long-term incentives
for high levels of performance and for significant efforts to improve the
financial performance of the Company.
1.2 Administration.
--------------
(a) This Plan shall be administered by the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or the unanimous written consent of its members. If
action by the Committee is taken by written consent, the action shall be deemed
to have been taken at the time specified in the consent or, if none is
specified, at the time of the last signature. The Committee may delegate
ministerial non-discretionary functions to third parties, including officers or
employees of the Company.
(b) Subject to the express provisions of this Plan, the Committee
shall have the authority to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Participants under this
Plan, to further define the terms used in this Plan, to prescribe, amend and
rescind rules and regulations relating to the administration of this Plan, to
determine the duration and purposes of leaves of absence which may be granted to
Participants without constituting a termination of their employment or
consulting services for purposes of this Plan and to make all other
determinations necessary or advisable for the administration of this Plan. The
determination of the Committee on any of the foregoing matters shall be
conclusive and binding on all parties.
______________________
\1\ For a definition of this and other capitalized terms, see Section 4.1,
Definitions.
1
<PAGE>
(c) Any action taken by, or inaction of, the Company, the Board or the
Committee relating to this Plan shall be within the absolute discretion of that
entity or body. In determining whether to take action under the Plan, the Board
or Committee may rely upon the advice of counsel, accountants, appraisers and
other experts. No member of the Board or Committee, or officer of the Company
shall be liable for any such action or inaction.
(d) Subject to the requirements of Section 4.1(e), the Board, at any
time it so desires, may increase or decrease the number of members of the
Committee, may remove from membership on the Committee all or any portion of its
members, and may appoint such person or persons as it desires to fill any
vacancy existing on the Committee, whether caused by removal, resignation or
otherwise. The Board may also, at any time, assume or change the administration
of this Plan.
1.3 Participation.
-------------
Options may be granted only to those persons that the Committee
determines to be Eligible Persons. An Eligible Person who has been granted an
Option may, if otherwise eligible, be granted additional Options if the
Committee shall so determine. Members of the Board who are not officers or
employees of the Company shall not be eligible to receive Options.
1.4 Stock Subject to the Plan.
-------------------------
The stock to be offered under this Plan shall be shares of the
Corporation's authorized but unissued Common Stock. The Common Stock may be
delivered for any lawful consideration, but not less than minimum lawful
consideration under Texas law. The aggregate amount of Common Stock that may be
issued or transferred pursuant to Options (including Incentive Stock Options)
granted under this Plan shall not exceed the sum of 625,000 Shares, subject to
adjustment as set forth in Section 3.2. The maximum number of Shares which may
be delivered pursuant to Options granted during any one year period to any
individual Participant under this Plan shall not exceed 200,000, subject to
adjustment as set forth in Section 3.2. If any Option shall lapse or terminate
without having been exercised in full, the unpurchased Shares subject thereto
shall again, except to the extent prohibited by law, be available and reserved
for Options under this Plan. The foregoing sentence does not apply to any
Common Stock withheld under Section 3.6.
2
<PAGE>
1.5 Grant of Options.
----------------
Subject to the express provisions of this Plan, the Committee shall
determine from the class of Eligible Persons those individuals to whom Options
under this Plan shall be granted, the terms of Options (which need not be
identical) and the number of Shares subject to each Option. Each Option shall
be evidenced by an Option Agreement, the form of which must be approved by the
Committee, signed by the Corporation, and, if required by the Committee, by the
Participant. The grant of an Option is made on the Grant Date, unless the
Committee specifies a later date. Each Option shall be subject to the terms and
conditions set forth in this Plan and such other terms and conditions
established by the Committee as are not inconsistent with the purpose and
provisions of this Plan and set forth in the applicable Option Agreement.
1.6 Exercise of Options.
-------------------
An Option shall be deemed to be exercised when the Secretary of the
Corporation receives written notice of such exercise from the Participant, which
notice shall specify the number of Shares with respect to which the Option is
being exercised, together with an executed Exercise Agreement in such form as
prescribed by the Committee and payment of the Purchase Price made in accordance
with Section 2.2(a), except to the extent payment may be permitted to be made
following delivery of written notice of exercise in accordance with Section
2.2(b), and any applicable withholding tax in accordance with Section 3.6. The
date on which the Corporation certifies the satisfaction of these conditions by
written acceptance of the notice, which certification shall not be unreasonably
delayed or withheld, shall be deemed to be the exercise date. Notwithstanding
any other provision of this Plan, the Committee may impose, by rule and in
Option Agreements, such conditions upon the exercise of Options (including,
without limitation, conditions limiting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements and
applicable law.
II. OPTIONS.
2.1 Grants.
------
One or more Options may be granted to any Eligible Person. Each
Option so granted shall be designated by the Committee as either a Nonqualified
Stock Option or an Incentive Stock Option. Incentive Stock Options may be
granted to Eligible Persons who are employed by the Corporation or a corporation
that is a "parent" or
3
<PAGE>
"subsidiary" corporation within the meaning of Section 424(e) and 424(f) of the
Code, respectively.
2.2 Option Price.
------------
(a) The Purchase Price per share of Common Stock covered by each
Option shall be determined by the Committee at the time of the grant of the
Option, but in the case of Incentive Stock Options shall not be less than 100%
(110% in the case of a Participant who owns more than 10% of the total combined
voting power of all classes of stock of the Company) of the Fair Market Value of
the Common Stock on the date the Incentive Stock Option is granted. The
Purchase Price of any Shares purchased shall be paid in full at the time of each
purchase in one or a combination of the following methods: (i) in cash or by
check payable to the order of the Corporation, (ii) if authorized by the
Committee or specified in applicable Option Agreement, by a promissory note made
by the Participant in favor of the Corporation, in a form and upon such terms
and conditions as the Committee may require or approve, and secured by the
Common Stock issuable upon exercise in compliance with applicable law
(including, without limitation, state corporate law and federal margin
requirements), or (iii) if authorized by the Committee or specified in the
applicable Option Agreement, by shares of Common Stock of the Company already
owned by the Participant; provided, however, that any Shares delivered which
were initially acquired upon exercise of a stock option must have been owned by
the Participant at least six months as of the date of delivery. Shares used to
satisfy the Purchase Price of an Option shall be valued at their Fair Market
Value on the date of exercise.
(b) In addition to the payment methods described in subsection (a), an
Option Agreement or the Committee may provide that the Option can be exercised
and payment made by delivering a properly executed exercise notice together with
irrevocable instructions to a bank or broker to promptly deliver to the Company
the amount of sale or loan proceeds necessary to pay the Purchase Price and,
unless otherwise provided by the Committee, any applicable tax withholding under
Section 3.6. The Company shall not be obligated to deliver certificates for any
Shares unless and until it receives full payment of the Purchase Price therefor.
2.3 Option Period.
-------------
Each Option and all rights or obligations thereunder shall expire on
such date as shall be determined by the Committee, but not later than 10 years
after the Grant Date, and shall be subject to earlier termination as set forth
in this Plan or the Option Agreement.
4
<PAGE>
2.4 Exercise of Options.
-------------------
Except as otherwise provided in Sections 3.2 and 3.3, an Option shall
become exercisable in whole or in part, on the date or dates specified in the
Option Agreement and thereafter shall remain exercisable until the expiration or
earlier termination of the Option. No Option shall be exercisable for at least
six months after the Grant Date, except in the case of death or Total
Disability. The Committee may, at any time after the grant of an Option and
from time to time, increase the number of Shares purchasable at any time so long
as the total number of Shares subject to the Option is not increased. No Option
shall be exercisable except in respect of whole Shares, and fractional Share
interests shall be disregarded. Not less than 100 Shares may be purchased at
one time unless the number purchased is the total number at the time available
for purchase under the terms of the Option.
2.5 Limitations on Grant of Incentive Stock Options.
-----------------------------------------------
(a) To the extent that the aggregate fair market value of stock with
respect to which incentive stock options first become exercisable by a
Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company, such
options shall be treated as nonqualified stock options. For purposes of
determining whether the $100,000 limit is exceeded, the fair market value of
stock subject to options shall be determined as of the date the options are
awarded. In reducing the number of options treated as incentive stock options
to meet the $100,000 limit, the most recently granted options shall be reduced
first. To the extent a reduction of simultaneously granted options is necessary
to meet the $100,000 limit, the Company may, in the manner and to the extent
permitted by law, designate which Shares are to be treated as Shares acquired
pursuant to the exercise of an incentive stock option.
(b) There shall be imposed in any Option Agreement relating to
Incentive Stock Options such terms and conditions as are required in order that
the Option be an "incentive stock option" as that term is defined in Section 422
of the Code.
(c) No Incentive Stock Option may be granted to any person who, at the
time the Incentive Stock Option is granted, owns shares of outstanding Common
Stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company, unless the Purchase Price of such Option is at least
110% of the Fair Market Value of the stock subject to the Option and such Option
by its terms
5
<PAGE>
is not exercisable after the expiration of five years from the date such Option
is granted.
(d) Any Participant who exercises an Incentive Stock Option shall give
prompt written notice to the Corporation of any sale or other transfer of the
Shares acquired under such Option if such sale or other transfer occurs within
one year after the exercise date or two years after the Grant Date.
2.6 Option Repricing/Cancellation and Regrant/Waiver of Restrictions.
----------------------------------------------------------------
Subject to Section 1.4 and Section 3.7 and the specific limitations on
Options contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Person any
adjustment in the Purchase Price, the vesting schedule, the number of Shares
subject to, the restrictions upon, or the term of, an Option granted under this
Section 2 by cancellation of an outstanding Option and a subsequent regranting
of an Option, by amendment, by substitution of an outstanding Option, by waiver
or by other legally valid means. Subject to Section 1.4 and Section 3.7 and the
specific limitations on Options contained in this Plan, such amendment or other
action may, among other changes, result in a Purchase Price which is higher or
lower than the Purchase Price of the original or prior Option (but subject to
the pricing limit on the date of the change), provide for a greater or lesser
number of Shares subject to the Option, or provide for a longer or shorter
vesting or exercise period.
2.7 Options in Substitution for Stock Options Granted by Other
----------------------------------------------------------
Corporations.
------------
Options may be granted to Eligible Persons under this Plan in
substitution for employee stock options granted by other entities to persons who
are or who will become Eligible Persons in respect of the Company, in connection
with a distribution, merger or reorganization by or with the granting entity or
an affiliated entity, or the acquisition by the Company, directly or indirectly,
of all or a substantial part of the stock or assets of the other entity.
III. OTHER PROVISIONS.
3.1 Rights of Eligible Persons, Participants and Beneficiaries.
----------------------------------------------------------
(a) Status as an Eligible Person shall not be construed as a
commitment that any Option will be made under
6
<PAGE>
this Plan to such Eligible Person or to Eligible Persons generally.
(b) Nothing contained in this Plan (or in Option Agreements or in any
other documents related to this Plan or to Options) shall confer upon any
Eligible Person or Participant any right to continue in the service or employ of
the Company or constitute any contract or agreement of service or employment, or
interfere in any way with the right of the Company to reduce such person's
compensation or other benefits or to terminate the services or employment of
such Eligible Person or Participant, with or without cause, but nothing
contained in this Plan or any document related thereto shall affect any other
contractual right of any Eligible Person or Participant. The Committee may,
however, condition a grant upon a Participant's commitment to future or
continued service.
(c) Amounts payable or shares deliverable pursuant to an Option shall
be paid or delivered only to the Participant or, in the event of the
Participant's death, to the Participant's Beneficiary or, in the event of the
Participant's Total Disability, to the Participant's Personal Representative or,
if there is none, to the Participant. Other than by will or the laws of descent
and distribution or other exception to transfer restrictions expressly
authorized by the Committee in the Option Agreement, no benefit payable or
Shares deliverable under, or interest in, this Plan or in any Option shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge and any such attempted action shall be void. No
such benefit or interest shall be, in any manner, liable for, or subject to,
debts, contracts, liabilities, engagements or torts of any Eligible Person,
Participant or Beneficiary. The Committee shall disregard any attempted
transfer, assignment or other alienation prohibited by this paragraph and shall
pay or deliver such cash or shares of Common Stock in accordance with the
provisions of this Plan. Beneficiary designations authorized by the Committee
are not subject to these restrictions.
(d) No Participant, Beneficiary or other person shall have any right,
title or interest in any fund or in any specific asset (including shares of
Common Stock) of the Corporation by reason of any Option granted hereunder.
Neither the provisions of this Plan (or of any documents related hereto), nor
the creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Corporation and any Participant,
Beneficiary or other person. To the extent that a Participant, Beneficiary or
other person acquires a
7
<PAGE>
right to receive an Option hereunder, such right shall be no greater than the
right of any unsecured general creditor of the Company.
(e) The Articles of Incorporation and By-Laws of the Corporation, as
either of them may be amended from time to time, may provide for additional
restrictions and limitations with respect to the Common Stock (including further
restrictions and limitations on the transfer of Shares). To the extent that
these restrictions and limitations are greater than those provided for in this
Plan, Option Agreements and any other documents related to an Option, such
restrictions and limitations shall apply to Shares acquired pursuant to the
exercise of Options and are incorporated herein by this reference.
3.2 Adjustments Upon Changes in Capitalization; Acceleration; Possible
------------------------------------------------------------------
Early Termination of Options.
----------------------------
(a) If the outstanding shares of Common Stock are changed into or
exchanged for cash or a different number or kind of shares or securities of the
Corporation or of another issuer, or if additional Shares or new or different
securities are distributed with respect to the outstanding shares of Common
Stock, through a reorganization or merger to which the Corporation is a party,
or through a combination, consolidation, recapitalization, reclassification,
stock split, stock dividend, reverse stock split, stock consolidation or other
capital change or adjustment, the Committee shall provide (but only to the
extent it deems equitable and appropriate) for an adjustment in the number and
kind of Shares or other consideration that is subject to or may be delivered
under this Plan and pursuant to outstanding Options and in the Purchase Price
(and other terms, in the discretion of the Committee, necessarily affected by
such change) of outstanding Options.
(b) Upon the occurrence of an Event, 50% of the then unvested portion
of each Option shall become immediately exercisable, unless (i) prior to the
------
Event the Committee determines that, upon its occurrence, there shall be no
acceleration of benefits under Options or designates certain exceptions to or
different time periods in respect of the Event for such acceleration, (ii) the
Option Agreement expressly provides that the Participant will not be entitled to
benefits of acceleration under this Section 3.2(b), or (iii) the Committee has
overridden any limits on acceleration in this Section 3.2(b) by providing in the
Option Agreement for unconditional acceleration. The Committee also may accord
any Participant a right to refuse any acceleration (with such consequences as
the Committee may impose) or may increase the percentage of the unvested
8
<PAGE>
portion of an Option which vested pursuant to the preceding sentence, whether
pursuant to the Option Agreement or otherwise. The Committee may accelerate
vesting and exercisability in anticipation of an Event or on a case-by-case
basis or on any other basis in such circumstances as the Committee deems
appropriate and in the interest of the Corporation.
(c) If an Option is exercisable or the exercisability of an Option (in
whole or in part) has been accelerated pursuant to 3.2(b), and the Option is not
exercised prior to a dissolution of the Corporation, the Committee may terminate
the Option (in its entirety). If an Event occurs, the Committee may provide for
the assumption, substitution, conversion, exchange or other settlement and/or
adjustment (each a "modification") of the Option pursuant to Section 3.2(a) and
for the termination of the Option upon that Event consistent with the terms of
the modification but if no such modification is provided for then, upon
occurrence of the Event, each Option shall terminate and be of no further force
and effect.
3.3 Termination of Employment.
-------------------------
(a) If a Participant's service to or employment by the Company
terminates for any reason other than Retirement, death or Total Disability, the
Participant shall have, subject to earlier termination pursuant to or as
contemplated by Section 2.3, three months or such shorter period as is provided
in such Participant's Option Agreement from the date of termination of services
or employment to exercise any Option to the extent it shall have become
exercisable on the date of termination of employment or services, and any Option
not exercisable on that date shall terminate. Notwithstanding the preceding
sentence, in the event a Participant is terminated for cause, as determined by
the Committee in its sole discretion, all Options of such Participant (whether
or not then vested) shall terminate immediately upon such termination of
services or employment.
(b) If a Participant's service to or employment by the Company
terminates as a result of Retirement or Total Disability, the Participant or the
Participant's Personal Representative, as the case may be, shall have, subject
to earlier termination pursuant to or as contemplated by Section 2.3, 12 months
or such shorter period as is provided in such Participant's Option Agreement
from the date of termination of services or employment to exercise the Option to
the extent it shall have become exercisable by the date of termination of
services or employment and any Option not exercisable on that date shall
terminate.
9
<PAGE>
(c) If a Participant's service to or employment by the Company
terminates as a result of death while the Participant is rendering services to
or is employed by the Company or during the 12 month period referred to in
subsection (b) above, the Participant's Option shall be exercisable by the
Participant's Beneficiary, subject to earlier termination pursuant to or as
contemplated by Section 2.3, during the 12 month period or such shorter period
as is provided in such Participant's Option Agreement following the
Participant's death, as to all or any part of the shares of Common Stock covered
thereby to the extent exercisable on the date of death (or earlier termination).
(d) In the event of a termination of services to or employment with
the Company for any reason, other than discharge for cause, the Committee may,
in its discretion, increase the vested portion of a Participant's Option, upon
such terms as the Committee shall determine.
(e) If an entity ceases to be a Subsidiary, such action shall be
deemed for purposes of this Section 3.3 to be a termination of services or
employment of each consultant or employee of that entity who does not continue
as a consultant or as an employee of another entity within the Company.
(f) If a Participant is not an employee but provides services under an
agreement or arrangement, the Committee shall be the sole judge of whether the
Participant continues to render services to the Company, unless the contract or
Option Agreement otherwise provides. By written notice to the Participant, the
Committee may determine whether a termination of services of such Participant
for purposes of this Plan has occurred. In such event (unless the agreement or
arrangement or Option Agreement otherwise expressly provides), the Participant's
termination of services for purposes of this Section 3.3 shall be the date which
is 10 days after the Committee's mailing of the notice.
3.4 Securities Laws.
---------------
(a) No Participant shall make any disposition of all or any portion of
shares of Common Stock acquired upon exercise of an Option, except in compliance
with applicable federal and state securities laws and unless and until:
(i) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
10
<PAGE>
(ii) such disposition is made in accordance with Rule 144 under
the Securities Act; or
(iii) such Participant notifies the Corporation of the proposed
disposition and furnishes the Corporation with a statement of the
circumstances surrounding the proposed disposition, and if requested
by the Corporation, Participant furnishes the Corporation with an
opinion of counsel acceptable to Corporation's counsel, that such
disposition will not require registration under the Securities Act and
will be in compliance with applicable state securities laws.
Notwithstanding anything else contained herein or in any related
document to the contrary, the Corporation has no obligation to register the
Common Stock or file any registration statement under either federal or
state securities laws, nor does the Corporation make any representation
concerning the likelihood of a public offering of the Common Stock.
(b) Upon exercise of his or her Option (unless the Corporation then
has a class of common stock registered pursuant to Section 12 of the Exchange
Act or waives this requirement), each Participant makes the representations
contained in his or her Exercise Agreement and acknowledges that the
Corporation's reliance on federal and state securities law exemptions from
registration and qualification is predicated, in part, on such representations.
3.5 Government Regulations.
----------------------
This Plan, the granting, vesting, and exercise of Options under this
Plan and the issuance or transfer of shares of Common Stock (and/or the payment
of money) pursuant thereto are subject to all applicable federal and state laws,
rules and regulations and to such approvals by any regulatory or governmental
agency (including, without limitation, "no action" positions of the Commission)
which may, in the opinion of counsel for the Corporation, be necessary or
advisable in connection therewith. Without limiting the generality of the
foregoing, no Options may be granted under this Plan, and no shares shall be
issued by the Corporation, nor cash payments made by the Corporation, pursuant
to or in connection with any such Option, unless and until, in each such case,
all legal requirements applicable to the issuance or payment have, in the
opinion of counsel to the Corporation, been complied with. In connection with
any stock issuance or transfer, the person acquiring the Shares shall, if
requested by the Corporation,
11
<PAGE>
give assurances satisfactory to counsel to the Corporation in respect of such
matters as the Corporation may deem desirable to assure compliance with all
applicable legal requirements (including but not limited to federal and state
securities law matters).
3.6 Tax Withholding.
---------------
(a) Upon the disposition by a Participant or other person of shares of
Common Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of Section 422 of the
Code, or upon the exercise of a Nonqualified Stock Option, the Corporation shall
have the right to (i) require such Participant or such other person to pay by
cash or check payable to the Corporation, the amount of any taxes which the
Corporation may be required to withhold with respect to such transactions or
(ii) deduct from amounts paid in cash the amount of any taxes which the
Corporation may be required to withhold with respect to such cash amounts. The
above notwithstanding, in any case where a tax is required to be withheld in
connection with the issuance or transfer of shares of Common Stock under this
Plan, the Participant may elect, pursuant to such rules as the Committee may
establish, to have the Corporation reduce the number of such shares issued or
transferred by the appropriate number of shares to accomplish such withholding;
provided, the Committee may impose such conditions on the payment of any
withholding obligation as may be required to satisfy applicable regulatory
requirements.
(b) The Committee may, in its discretion, permit a loan from the
Corporation to a Participant in the amount of any taxes which the Corporation
may be required to withhold with respect to shares of Common Stock received
pursuant to a transaction described in subsection (a) above. Such a loan will
be for a term, at a rate of interest and pursuant to such other terms and rules
as the Committee may establish.
3.7 Amendment, Termination and Suspension.
-------------------------------------
(a) The Board may, at any time, terminate or, from time to time,
amend, modify or suspend this Plan, in whole or in part. No Options may be
granted during the suspension of this Plan or after termination of this Plan,
but the Committee shall retain jurisdiction as to Options then outstanding in
accordance with the terms of this Plan.
(b) No amendment to the Plan shall be required to be submitted to the
stockholders of the Corporation for their approval unless such stockholder
approval of the amendment is required pursuant to applicable law.
12
<PAGE>
(c) Without limiting any other express authority of the Committee
under, but subject to the express limits of, this Plan, the Committee by
agreement or resolution may waive conditions of or limitations on Options to
Eligible Persons that the Committee in the prior exercise of its discretion has
imposed, without the consent of a Participant, and may make other changes to the
terms and conditions of Options that do not affect, in any manner materially
adverse to the Participant, his or her rights and benefits under an Option.
(d) Subject to Section 3.7(c), no amendment, suspension or termination
of this Plan or change of or affecting any outstanding Option shall, without
written consent of the Participant, affect in any manner materially adverse to
the Participant any rights or benefits of the Participant or obligations of the
Company under any Option granted under this Plan prior to the effective date of
such change. Changes contemplated by Section 3.2 or 3.3 shall not be deemed to
constitute changes or amendments requiring Participant consent under Section
3.7(c) or Section 3.7(d).
3.8 Privileges of Stock Ownership; Nondistributive Intent.
-----------------------------------------------------
A Participant shall not be entitled to the privilege of stock
ownership as to any shares of Common Stock not actually issued to him or her.
No adjustment will be made for dividends or other rights as a shareholder for
which a record date is prior to the date of delivery of a certificate
representing the Shares. Upon the issuance and transfer of Shares to the
Participant, unless a registration statement is in effect under the Securities
Act and applicable state securities law, relating to such issued and transferred
Common Stock and there is available for delivery a prospectus meeting the
requirements of Section 10 of the Securities Act, the Common Stock may be issued
and transferred to the Participant only if he or she represents and warrants in
writing to the Company that the Shares are being acquired for investment and not
with a view to the resale or distribution thereof. No Shares shall be issued
and transferred unless and until there shall have been full compliance with any
then applicable regulatory requirements (including those of exchanges upon which
any Common Stock of the Company may be listed).
3.9 Effective Date of the Plan.
--------------------------
This Plan shall be effective upon its approval by the Board (the
"EFFECTIVE DATE"), subject to approval by the shareholders of the Company within
twelve months from the date of such Board approval.
13
<PAGE>
3.10 Term of the Plan.
----------------
Unless previously terminated by the Board, this Plan shall terminate
at the close of business on the day before the tenth anniversary of the
Effective Date, and no Options shall be granted under it thereafter. Unless
otherwise expressly provided in this Plan or in the applicable Option Agreement,
any Option theretofore granted may extend beyond such date, and all authority of
the Board and the Committee with respect to Options hereunder, including its
authority to amend an Option, shall continue in respect of outstanding Options
on that date.
3.11 Governing Law.
-------------
This Plan and the documents evidencing Options and all other related
documents shall be governed by, and construed in accordance with, the laws of
the State of Texas. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of this
Plan shall continue to be fully effective.
3.12 Captions.
--------
Captions and headings are given to the sections and subsections of
this Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of this Plan or any provision thereof.
3.13 Non-Exclusivity of Plan.
-----------------------
Nothing in this Plan shall limit or be deemed to limit the authority
of the Board or the Committee to grant awards or to authorize any other
compensation, with or without reference to the Common Stock, under any other
plan or authority.
IV. DEFINITIONS.
4.1 Definitions. Capitalized terms used herein which are not otherwise
-----------
defined shall have the meanings given below:
(a) "Beneficiary" means the person(s) or trust(s) entitled by will or
-----------
the laws of descent and distribution or properly designated by a Participant on
forms and in the manner approved by the Committee to receive the benefits
specified under this Plan if the Participant dies.
(b) "Board" means the Board of Directors of the Corporation.
-----
14
<PAGE>
(c) "Code" means the Internal Revenue Code of 1986, as amended from
----
time to time.
(d) "Commission" means the Securities and Exchange Commission.
----------
(e) "Committee" means the Board or, if designated, a committee
---------
appointed by the Board and consisting of two or more Board members or such
greater number as may be required under applicable law, each of whom, (i) in
respect of any decision at a time when the Participant affected by the decision
may be subject to Section 162(m) of the Code shall be an "outside" director
within the meaning of Section 162(m) of the Code, and (ii) in respect of any
decision affecting a transaction at a time when the Participant involved in the
transaction may be subject to Section 16 of the Exchange Act, shall be a "non-
employee director" within the meaning of Rule 16b-3(b)(3) promulgated under the
Exchange Act.
(f) "Common Stock" means the Common Stock of the Corporation.
------------
(g) "Company" means the Corporation, any Subsidiary, and any other
-------
affiliate of the Corporation designated by the Committee.
(h) "Corporation" means Doskocil Manufacturing Company, Inc., a Texas
-----------
corporation, and its successors.
(i) "Eligible Person" means (i) an officer (whether or not a member of
---------------
the Board) or key employee of the Company; (ii) any individual consultant who
renders or has rendered bona fide services to the Company (other than services
in connection with the offering or sale of securities of the Company in a
capital raising transaction) under an agreement or arrangement with the Company,
and who is selected to participate in this Plan by the Committee; or (iii) a
director of the Corporation or any Subsidiary.
(j) "Event" means any of the following:
-----
(1) Approval by the shareholders of the Corporation of the
dissolution or liquidation of the Corporation;
(2) Approval by the shareholders of the Corporation of an
agreement to merge or consolidate, or otherwise reorganize, with or into
one or more entities other than Subsidiaries, as a result of which less
than 50% of the outstanding voting securities of the surviving or resulting
entity are, or are to be, owned by former shareholders of the Corporation;
or
15
<PAGE>
(3) Approval by the shareholders of the Corporation of the sale of
substantially all of the Corporation's business or assets to a person or
entity which is not a Subsidiary.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Fair Market Value" on any specified date shall mean the fair
-----------------
value of such Shares on such date determined in the following manner:
(1) If the Common Stock is not registered under Section 12 of the
Exchange Act, or the NASD or a similar organization does not furnish the
mean between the bid and asked prices for the Common Stock on such date,
the fair value of the Common Stock as of the date of determination as
determined in the sole discretion of the Committee, based on such factors
as the Committee may deem relevant for such purposes. Such factors may
(and, to the extent required by Section 3.5 shall) include but are not
limited to, the liquidity of the Common Stock and any applicable transfer
and other restrictions on the subject Shares (including call rights of the
Corporation to which the Shares are subject), material developments
subsequent to the end of the period covered by such financial statements,
developments in the Corporation's business, general or specific industry
and economic developments, the price at which the Shares of the Common
Stock recently have traded or been sold or purchased, the frequency and
volume of trades, the price at which securities of reasonably comparable
corporations (if any) in the same industry are being traded (subject to
appropriate adjustments for dissimilarities between the corporations being
compared), and the earnings history, cash flow, book value and prospects of
the Corporation in light of market conditions generally and conditions
specific to the Corporation.
(2) If the Common Stock is registered under Section 12 of the
Exchange Act: (i) if the stock is listed or admitted to trade on a national
securities exchange, the closing price of the stock on the Composite Tape,
as published in the Western Edition of the Wall Street Journal, of the
principal national securities exchange on which the stock is so listed or
admitted to trade, on such date, or, if there is no trading of the stock on
such date, then the closing price of the stock as quoted on such Composite
Tape on the next preceding date on which there was trading in such Shares;
(ii) if the stock is not listed or admitted to trade on a national
securities exchange,
16
<PAGE>
the last price for the stock on such date, as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD is
no longer reporting such information; (iii) if the stock is not listed or
admitted to trade on a national securities exchange and is not reported on
the National Market Reporting System, the mean between the bid and asked
price for the stock on such date, as furnished by the NASD or a similar
organization.
(m) "Grant Date" means the date upon which the Committee took the
----------
action granting an Option or such later date as may be established by the
Committee and set forth in the Option Agreement.
(n) "Incentive Stock Option" means an option which is intended, as
----------------------
evidenced by its designation, as an incentive stock option within the meaning of
Section 422 of the Code, the award of which contains such provisions as are
necessary to comply with that section.
(o) "Nonqualified Stock Option" means an option that is designated as
-------------------------
a nonqualified stock option and shall include any Option intended as an
Incentive Stock Option that fails to meet applicable legal requirements. Any
Option granted hereunder that is not designated as an incentive stock option
shall be deemed to be designated a Nonqualified Stock Option under this Plan and
not an incentive stock option under the Code.
(p) "Option" means an Incentive Stock Option or Nonqualified Stock
------
Option to purchase Common Stock under this Plan.
(q) "Option Agreement" means a writing, approved by the Committee
----------------
setting forth the terms of an Option. Option Agreements for Incentive Stock
Options shall include any terms and conditions required for incentive stock
options under Section 422 of the Code.
(r) "Participant" means an Eligible Person who has been granted an
-----------
Option.
(s) "Personal Representative" means the person or persons who, upon
-----------------------
the disability or incompetence of a Participant, has lawfully acquired on behalf
of the Participant the power to exercise the rights and receive the benefits
specified in this Plan.
(t) "Plan" means this Doskocil Manufacturing Company, Inc. 1997 Stock
----
Option Plan.
17
<PAGE>
(u) "Purchase Price" means the exercise price expressed in dollars
--------------
payable by the Participant to the Corporation upon exercise of an Option in
accordance with the applicable Option Agreement.
(v) "QDRO" means an order requiring the transfer of an Option or
----
portion thereof pursuant to a state domestic relations law to the spouse, former
spouse, child or other dependent of a Participant. Such order must be in a form
substantially identical to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended.
(w) "Retirement" means retirement from employment by, or providing
----------
services to, the Corporation or any Subsidiary after age 65 and, in the case of
employees, in accordance with the retirement policies of the Corporation then in
effect.
(x) "Securities Act" means the Securities Act of 1933, as amended.
--------------
(y) "Shares" means shares of the Common Stock of the Corporation.
------
(z) "Subsidiary" means any corporation or other entity at least 50% of
----------
the outstanding voting stock or voting power of which is beneficially owned
directly or indirectly by the Company, subject to Section 3.5 and (in the case
of Incentive Stock Options) to limitations under Section 422 of the Code.
(aa) "Total Disability" means a "permanent and total disability"
----------------
within the meaning of Section 22(e)(3) of the Code.
18
<PAGE>
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
MICHAEL FARMER
This Employment Agreement is entered into as of this 1st day of November
1996 (the "Effective Date") by and among Michael Farmer ("Executive") and
---------
Dogloo, Inc., a California corporation (the "Company"). The term of this
-------
Agreement shall be one (1) year (the "Term") and shall renew automatically
----
following the expiration date of the previous Term.
In consideration of the mutual covenants herein contained, and in
consideration of the employment of Executive by the Company, the parties agree
as follows:
1. DUTIES AND SCOPE OF EMPLOYMENT. The Company agrees to employ the
Executive and the Executive accepts the position of Executive Vice President of
Sales and Marketing of the Company with the responsibilities set forth in the
Bylaws of the Company or otherwise directed by the Chief Executive Officer.
Executive shall report directly to the Chief Executive Officer of the Company.
Executive's employment shall be "at-will" and may be terminated pursuant to the
provisions of Section 4 of this Agreement.
2. COMPENSATION. During Executive's employment under this Agreement, the
Company agrees to pay the following amounts to Executive as compensation for his
services:
(a) Base Salary. The Company shall pay Executive a minimum base
-----------
salary ("Base Salary") of $13,880 per month ($166,560 for 12 months).
-----------
(b) Bonus. During Executive's employment, Executive shall be eligible
-----
for an annual bonus targeted, but not capped, at thirty-seven percent (37%) of
his Base Salary; provided, that Executive meets mutually agreed to performance
targets which are determined prior to the commencement of each year. The
determination of whether the performance targets have been met shall be made
annually by the Board of Directors of the Company in its sole discretion.
3. EMPLOYEE BENEFITS. During Executive's employment under this
Agreement, Executive shall be eligible to participate in all the benefit plans
offered generally to the Company's employees, subject in each case to the
generally applicable terms and conditions of the plan or program in question.
Executive shall also be entitled to fringe benefits in accordance with the most
favorable policies to executives of the Company in effect at any time during the
term of this Agreement. Executive shall be granted two (2) weeks paid vacation
in addition to the Company's paid holidays.
4. PAYMENTS UPON TERMINATION OF EMPLOYMENT. The Company may terminate
Executive's employment at any time, for any reason or no reason whatsoever, and
Executive shall be entitled to the consideration specified below.
<PAGE>
(a) Termination Without Cause or Resignation for Good Reason. If the
--------------------------------------------------------
Company terminates Executive's employment without Cause (as defined below), or
if, on or before August 31, 1999, Executive resigns for Good Reason (as defined
below), Executive shall be entitled to receive:
(A) Severance Pay. An amount equal to Executive's Base Salary
-------------
for a period of twelve (12) months and a bonus equal to (i) the last annual
bonus paid to Executive or (ii) if greater, the bonus payable based on
performance during the fiscal year of termination. Such payments, other than the
bonus, which shall be paid at the end of the severance pay period, shall be made
in accordance with Company's standard payment practices.
(B) Medical Insurance. Company paid medical insurance as
-----------------
provided to Executive and dependents immediately prior to the date of
termination for a period of twelve (12) months; provided, that such medical
insurance shall cease upon Executive's commencement of employment with a new
employer and Executive's eligibility requirements for medical coverage through
his new employer have been met and new coverage is in effect. At the end of the
twelve (12) month period, Executive shall be eligible for COBRA benefits to the
extent allowed by law.
(b) Termination Without Cause or Resignation for Good Reason on or
--------------------------------------------------------------
before August 31, 1999. If, on or before August 31, 1999, the Company terminates
- ----------------------
Executive's employment without Cause or Executive resigns for Good Reason,
Executive shall also be entitled to receive:
(A) Outplacement Services. Outplacement services at a cost not
---------------------
to exceed fifteen percent (15%) of Executive's Base Salary. If Executive chooses
not to participate in an outplacement program, he will be reimbursed for out-of-
pocket expenses related to a job search or establishment of a business up to
seven and one half percent (7.5%) of his Base Salary in lieu of such service.
(B) Reimbursement of Second Relocation. If Executive is unable
----------------------------------
to secure employment within one year of termination without Cause or resignation
for Good Reason, the Company will reimburse Executive for documented relocation
expenses of any move of more than 100 miles in an amount not to exceed eighty
percent (80%) of Executive's initial move from California to Texas.
(c) Termination Upon Disability. If the Company terminates
---------------------------
Executive's employment for Disability, the Executive shall receive an amount
equal to the Executive's base salary for twelve (12) months, less the number of
months for which the Executive was paid but unable to perform his duties, and a
bonus equal to the last annual bonus paid to Executive. In the event of
Executive's Disability, the Company shall continue medical insurance for
Executive and his dependents as in effect immediately prior to such termination
for twelve (12) months from the date of termination. For all purposes of this
Agreement, "Disability" shall mean that Executive, at the time notice is given,
has been unable to
2
<PAGE>
substantially perform his duties under this Agreement as determined by the
Company's Board of Directors for a period not less than six (6) consecutive
months as the result of his incapacity due to physical or mental illness.
(d) Death. Upon event of Executive's death, Executive's employment
-----
with the Company shall be considered automatically terminated and Executive's
estate shall be entitled to receive the same base salary and bonus as set forth
in Section 4(c) and the Company shall continue medical insurance for Executive's
dependents as in effect immediately prior to such termination for a period of
twelve (12) months.
(e) Termination for Cause. If the Company terminates Executive's
---------------------
employment for Cause, the applicable provisions of Section 4(g) (without regard
to the notice requirement) shall apply. For purpose of this Agreement, "Cause"
shall mean:
(A) A persisting and recurring willful or grossly thereof
negligent failure by Executive to perform his duties hereunder or as an employee
or officer of the Company and Executive has not or cannot correct such failure
within 30 days after the Company has given Executive written notice thereof.
(B) Commission of any act of dishonesty, gross carelessness,
misconduct (including but not limited to illegal or unethical conduct) or
commission of any act or series of acts which have a direct, substantial and
adverse effect on the Company or its business or reputation, or
(C) Executive's habitual misuse of alcohol or any illegal drug
or intoxicant.
(f) Resignation by Executive for Good Reason. If Executive resigns
----------------------------------------
his employment from the Company without Good Reason, the applicable provisions
of Section 4(g) shall apply. For purpose of this Agreement, "Good Reason" shall
mean a reduction in Executive's salary or a demotion in his position or
responsibility other than for Cause.
(g) Voluntary Termination by Executive. Executive may terminate his
----------------------------------
employment by giving the Company at least thirty (30) days' advance notice in
writing. If Executive terminates his employment under the preceding sentence,
no compensation or payments will be paid or provided to the Executive for the
periods following the date when such a termination of employment is effective.
Executive's rights under the Company's benefit plans shall be determined under
the provisions of those plans.
(h) Waiver of Notice. Any waiver of notice under this Section 4 shall
----------------
be valid only if it is made in writing and expressly refers to the applicable
notice requirement in this Section 4.
5. Proprietary Information. Executive has signed a Proprietary
-----------------------
Information and Inventions Agreement in the form attached hereto as Appendix A
and agrees to comply fully
3
<PAGE>
with the Company's policies relating to nondisclosure of trade secrets and
proprietary information and processes.
6. Notice. Notice and all other communication contemplated by this
------
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of Executive, mailed notices
shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters addressed to the
attention of the Corporate Secretary.
7. Miscellaneous Provisions.
------------------------
(a) Waiver. No provisions of this Agreement shall be modified, waived
------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by Executive and by an authorized officer of the Company
(other than Executive) acting pursuant to specific approval by the Board of
Directors. No waiver by either party of any breach of, or of compliance with,
any condition or provision of this Agreement by the other party shall be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.
(b) Whole Agreement. No Agreement, representations or understandings
---------------
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement and its exhibits have been made or entered into by
either party with respect to the subject matter hereof.
(c) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
Texas.
(d) Severability. The invalidity or unenforceability of any provision
------------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(e) ARBITRATION. ANY DISPUTE OR CONTROVERSY ARISING UNDER OR IN
-----------
CONNECTION WITH THIS AGREEMENT SHALL BE DETERMINED BY ARBITRATION IF GOOD FAITH
NEGOTIATIONS AMONG THE PARTIES HERETO, IF ANY, DO NOT RESOLVE SUCH CLAIM,
DISPUTE OR OTHER MATTER. SUCH ARBITRATION SHALL PROCEED IN ACCORDANCE WITH THE
THEN-CURRENT RULES FOR ARBITRATION AS ESTABLISHED BY JUDICIAL ARBITRATION
MEDIATION SERVICES, INC. ("JAMS"), UNLESS THE PARTIES HERETO MUTUALLY AGREE
----
OTHERWISE, AND PURSUANT TO THE FOLLOWING PROCEDURES:
(i) Executive and the Company shall each appoint an arbitrator
from the JAMS panel of retired judges, and those party-appointed arbitrators
shall appoint a third
4
<PAGE>
arbitrator from the JAMS panel of retired judges within ten (10) days. If the
party-appointed arbitrators fail to appoint a third arbitrator within ten (10)
days, such third arbitrator shall be appointed by JAMS in accordance with its
rules.
(ii) Reasonable discovery shall be allowed in arbitration.
(iii) All proceedings before the arbitrators shall be held in
Tarrant County or Dallas County, Texas. The governing law shall be as specified
herein.
(iv) The award rendered by the arbitrators shall be final and
binding, and judgment may be entered in accordance with applicable law and in
any court having jurisdiction thereof.
(v) The Company shall pay Executive's legal costs (not to
exceed ten percent (10%) of Executive's Base Salary) unless the arbitrators
conclude that Executive did not incur such costs in good faith. Under no
circumstances will the Company reimburse Executive's legal costs outside of
arbitration as specified in this Section 7(e)(v). The award rendered by the
arbitrators shall include (A) a provision that the prevailing party in such
arbitration recover its cost relating to the arbitration and reasonable
attorneys' fees from the other party, (B) the amount of such cost and fees, and
(C) an order that the losing party pay the fees and expenses of the arbitrators.
All costs and fees required by JAMS to be deposited during or prior to the JAMS
proceedings shall be advanced by the Company.
(f) No Assignment of Benefits. The rights of any person to payments
-------------------------
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) Employment at Will; Limitations of Remedies. The Company and
-------------------------------------------
Executive acknowledge that Executive's employment is at will, as defined under
applicable law. To the extent permitted by law, if Executive's employment is
terminated for any reason, Executive shall not be entitled to any payments,
benefits, damages, awards or compensation other than expressly provided by this
Agreement; provided, however, termination hereunder shall have no effect on
vested stock options and purchased shares of the Company's Common Stock under
separate agreements except as expressly provided in the agreements governing
such options and purchased shares.
(h) Employment Taxes. All payments made pursuant to this Agreement
----------------
will be subject to withholding of applicable taxes.
(i) Counterparts. This Agreement may be executed in counterparts,
------------
each which shall be deemed an original but all of which together will constitute
one and the same instrument.
5
<PAGE>
(j) Prior Agreements Superseded. This Agreement shall supersede any
---------------------------
employment or consulting agreement, oral or written, entered into between
Executive and the Company prior to the Effective Date of this Agreement.
Specifically, the parties hereto acknowledge that all other employment
agreements previously in existence between the Executive and the Company
(whether oral or written) are terminated and of no further force or effect as of
the Effective Date.
(k) Exercise Price of Dogloo Options. The Company and Executive
--------------------------------
acknowledge and agree that, as of September 22, 1995, the exercise price for
Executive's options to purchase Dogloo Common Stock ("Dogloo Options") is $0.23
--------------
per share.
(l) No Conflict. Executive covenants and represents that he is not a
-----------
party to any agreement or understanding which impairs or prohibits his ability
to enter into, and perform services under, this Agreement.
/s/ MICHAEL FARMER
-------------------------------------------------
Michael Farmer
DOGLOO, INC.,
A CALIFORNIA CORPORATION
By: /s/ ROBERT POLENTZ
----------------------------------------------
Robert Polentz
Chief Financial Officer
6
<PAGE>
APPENDIX A
EMPLOYEE
PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
------------------------
The following confirms an agreement between me and Dogloo, Inc., a
California corporation (the "Company"), which is a material part of the
-------
consideration for my employment by the Company:
1. I understand that the Company possesses and will possess
Proprietary Information which is important to its business. For purposes of
this Agreement, "Proprietary Information" is information that was or will be
developed, created, or discovered by or on behalf of the Company, or which
became or will become known by, or was or is conveyed to the Company, which has
commercial value in the Company's business. "Proprietary Information" includes,
but is not limited to, information about algorithms, trade secrets, computer
programs, designs, technology, ideas, know-how, processes, formulas, data,
techniques, improvements, inventions (whether patentable or not), works of
authorship, business and product development plans, the salaries and terms of
compensation of other employees, customers and other information concerning the
Company's actual or anticipated business, research or development, or which is
received in confidence by or for the Company from any other person. I
understand that my employment creates a relationship of confidence and trust
between me and the Company with respect to Proprietary Information.
2. I understand that the Company possesses or will possess "Company
Materials" which are important to its business. For purposes of this Agreement,
"Company Materials" are documents or other media or tangible items that contain
or embody Proprietary Information or any other information concerning the
business, operations or plans of the Company, whether such documents have been
prepared by me or by others. "Company Materials" include, but are not limited
to, blueprints, drawings, photographs, charts, graphs, notebooks, customer
lists, computer disks, tapes or printouts, sound recordings and other printed,
typewritten or handwritten documents, as well as samples, prototypes, models,
products and the like.
3. In consideration of my employment by the Company and the
compensation received by me from the Company from time to time, I hereby agree
as follows:
a. All Proprietary Information and all title, patents, patent
rights, copyrights, mask work rights, trade secret rights, and other
intellectual property and rights anywhere in the world (collectively "Rights")
------
in connection therewith shall be the sole property of the Company. I hereby
assign to the Company any Rights I may have or acquire in such Proprietary
Information in connection with my employment with the Company. At all times,
both during my employment by the Company and after its termination, I will keep
in confidence and trust and will not use or disclose any Proprietary Information
or anything relating to it without the prior written consent of an officer of
the Company.
A-1
<PAGE>
b. All Company Materials shall be the sole property of the
Company. I agree that during my employment by the Company, I will not remove any
Company Materials from the business premises of the Company or deliver any
Company Materials to any person or entity outside the Company, except as I am
required to do in connection with performing the duties of my employment. I
further agree that, immediately upon the termination of my employment by me or
by the Company for any reason, or during my employment if so requested by the
Company, I will return all Company Materials, apparatus, equipment and other
physical property, or any reproduction of such property, excepting only (i) my
personal copies of records relating to my compensation; (ii) my personal copies
of any materials previously distributed generally to stockholders of the
Company; and (iii) my copy of this Agreement.
c. I will promptly disclose in writing to my immediate
supervisor or to any persons designated by the Company, all "Inventions," (which
term includes improvements, inventions, works of authorship, trade secrets,
technology, algorithms, computer programs, formulas, ideas, designs, processes,
techniques, know-how and data, whether or not patentable) made or conceived or
reduced to practice or developed by me, either alone or jointly with others,
during the term of my employment. I will also disclose to the President of the
Company Inventions related to the business of the Company conceived, reduced to
practice, or developed by me within six (6) months of the termination of my
employment with the Company; such disclosures shall be received by the Company
in confidence (to the extent they are not assigned in (d) below) and do not
extend the assignment made in paragraph (d) below. I will not disclose
Inventions covered by paragraph 3(d) to any person outside the Company unless I
am requested to do so by management personnel of the Company.
d. I agree that all Inventions which I make, conceive, reduce
to practice or develop (in whole or in part, either alone or jointly with
others) during my employment shall be the sole property of the Company to the
maximum extent permitted by Texas law. I hereby assign such Inventions and all
Rights therein to the Company. The Company shall be the sole owner of all Rights
in connection therewith.
e. I agree to perform, during and after my employment, all acts
deemed necessary or desirable by the Company to permit and assist it, at the
Company's expense, in evidencing, perfecting, obtaining, maintaining, defending
and enforcing Rights and/or my assignment with respect to such Inventions in any
and all countries. Such acts may include, but are not limited to, execution of
documents and assistance or cooperation in legal proceedings. I hereby
irrevocably designate and appoint the Company and its duly authorized officers
and agents, as my agents and attorneys-in-fact to act for and in my behalf and
instead of me, to execute and file any documents and to do all other lawfully
permitted acts to further the above purposes with the same legal force and
effect as if executed by me.
f. Any assignment of copyright hereunder includes all rights of
paternity, integrity, disclosure and withdrawal and any other rights that may be
known as or referred to as "moral rights" (collectively "Moral Rights"). To the
------------
extent such Moral Rights
A-2
<PAGE>
cannot be assigned under applicable law and to the extent the following is
allowed by the laws in the various countries where Moral Rights exist, I hereby
waive such Moral Rights and consent to any action of the Company that would
violate such Moral Rights in the absence of such consent. I will confirm any
such waivers and consents from time to time as requested by the Company.
g. I have attached hereto a complete list of all existing
Inventions to which I claim ownership as of the date of this Agreement and that
I desire to specifically clarify are not subject to this Agreement, and I
acknowledge and agree that such list is complete. If no such list is attached to
this Agreement, I represent that I have no such Inventions at the time of
signing this Agreement.
h. During the term of my employment and for one (1) year
thereafter, I will not encourage or solicit any employee or consultant of the
Company to leave the Company for any reason. However, this obligation shall not
affect any responsibility I may have as an employee of the Company with respect
to the bona fide hiring and firing of Company personnel.
i. I agree that during my employment with the Company I will
not engage in any employment, business, or activity that is in any way
competitive with the business or proposed business of the Company, and I will
not assist any other person or organization in competing with the Company or in
preparing to engage in competition with the business or proposed business of the
Company. The provisions of this paragraph shall apply both during normal working
hours and at all other times including, but not limited to, nights, weekends and
vacation time, while I am employed by the Company.
j. I represent that my performance of all the terms of this
Agreement will not breach any agreement to keep in confidence proprietary
information acquired by me in confidence or in trust prior to my employment by
the Company. I have not entered into, and I agree I will not enter into, any
agreement either written or oral in conflict herewith or in conflict with my
employment with the Company.
4. I agree that this Agreement is not an employment contract and
that I have the right to resign and the Company has the right to terminate my
employment at any time, for any reason, with or without cause. I acknowledge and
agree that this Section 4 states the entire agreement between the Company and me
regarding the subject matter of this Section.
5. I agree that this Agreement does not purport to set forth all of
the terms and conditions of my employment, and that as an employee of the
Company, I have obligations to the Company which are not set forth in this
Agreement.
6. I agree that my obligations under paragraph 3(a) through 3(f) and
paragraph 3(h) of this Agreement shall continue in effect after termination of
my employment, regardless of the reason or reasons for termination, and whether
such
A-3
<PAGE>
termination is voluntary or involuntary on my part, and that the Company is
entitled to communicate my obligations under this Agreement to any future
employer or potential employer of mine.
7. I agree that any dispute in the meaning, effect or validity of
this Agreement shall be resolved in accordance with the laws of the State of
California without regard to the conflict of laws provisions thereof. I further
agree that if one or more provisions of this Agreement are held to be illegal or
unenforceable under applicable California law, such illegal or unenforceable
portion(s) shall be limited or excluded from this Agreement to the minimum
extent required so that this Agreement shall otherwise remain in full force and
effect and enforceable in accordance with its terms.
8. This Agreement shall be effective as of the date I execute this
Agreement and shall be binding upon me, my heirs, executors, assigns, and
administrators and shall inure to the benefit of the Company, its subsidiaries,
successors and assigns.
9. This Agreement can only be modified by a subsequent written
agreement executed by the President of the Company.
I HAVE READ THIS AGREEMENT CAREFULLY AND I UNDERSTAND AND ACCEPT THE
OBLIGATIONS WHICH IT IMPOSES UPON ME WITHOUT RESERVATION. NO PROMISES OR
REPRESENTATIONS HAVE BEEN MADE TO ME TO INDUCE ME TO SIGN THIS AGREEMENT. I
SIGN THIS AGREEMENT VOLUNTARILY AND FREELY, IN DUPLICATE, WITH THE UNDERSTANDING
THAT ONE COUNTERPART WILL BE RETAINED BY THE COMPANY AND THE OTHER COUNTERPART
WILL BE RETAINED BY ME.
/s/ MICHAEL FARMER
--------------------------------------------
[Signature of Employee]
Michael Farmer
--------------------------------------------
[Print Name of Employee
Accepted and Agreed to:
DOGLOO, INC.
By: /s/ ROBERT POLENTZ
-----------------------------
Robert Polentz
Chief Financial Officer
A-4
<PAGE>
EXHIBIT 10.29
STOCKHOLDERS' AGREEMENT
-----------------------
This Stockholders' Agreement (this "Agreement"), dated as of July 1,
1997, is by and among the parties listed on the signature pages hereto (together
with persons who become parties hereto pursuant to Section XV.A herein, the
"Stockholders") and Doskocil Manufacturing Company, Inc., a Texas corporation,
and its successors, whether by operation of law or otherwise (the "Company").
RECITALS
--------
WHEREAS, the Company has issued and outstanding shares of its common
stock, no par value ("Common Stock"), including any securities into which such
Common Stock may subsequently be changed by merger, recapitalization, exchange
offer, charter amendment or otherwise ("Company Stock");
WHEREAS, the parties hereto desire to enter into this Agreement for
the purpose of regulating certain aspects of their relationship with regard to
their ownership of Company Stock on and after the date hereof;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
Section I. Authorization.
-------------
Each Stockholder hereby represents and warrants to the Company and
to each other that it has full power and authority to execute, deliver and
perform its obligations under this Agreement. The execution and delivery of this
Agreement has been duly and validly authorized, and all necessary action has
been taken, to make this Agreement a valid and binding obligation of such
Stockholder, enforceable in accordance with its terms, except that the
enforcement hereof may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and to general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
The Company hereby represents and warrants to each Stockholder that
it has full power and authority to execute, deliver and perform its obligations
under this Agreement. The execution and delivery of this Agreement has been duly
and validly authorized, and all necessary action has been taken, to make this
Agreement a valid and binding obligation of the Company, enforceable in
accordance with its terms, except that the enforcement hereof may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and to general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
<PAGE>
Section II. Certain Covenants of the Company.
--------------------------------
If the Company becomes legally required to do so, it will register
the Company Stock under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and will keep effective such registration and will
timely file such information, documents and reports as the Securities and
Exchange Commission (the "Commission") may require or prescribe under Section 13
of the Exchange Act. From and after the effective date of the registration
statement filed by the Company under the Securities Act of 1933, as amended (the
"Act"), the Company will timely file such information, documents and reports as
the Commission may require or prescribe under Section 13 or 15(d) (whichever is
applicable) of the Exchange Act. Immediately upon becoming subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will forthwith upon request furnish any Stockholder (i) a written statement by
the Company that it has complied with such reporting requirements, (ii) a copy
of the most recent annual or quarterly report of the Company, and (iii) such
other reports and documents filed by the Company with the Commission as such
Stockholder may reasonably request. The Company acknowledges and agrees that the
purposes of the requirements contained in this Section II are to enable any such
Stockholder to comply with the current public information requirements contained
in Rule 144 and Rule 144A under the Act, should such Stockholder desire to
dispose of any of the Company Stock without registration under the Act, in
reliance upon Rule 144 or Rule 144A (or any other similar exemptive provision).
Section III. Rights of First Offer.
---------------------
A. Except as provided in Section VII below, before any shares of
Company Stock, or any beneficial interest therein, may be sold, transferred or
assigned (including transfer by operation of law) or pledged, hypothecated or
encumbered by Benjamin Doskocil or Mary Frances Doskocil (for purposes of this
Agreement, Benjamin and Mary Doskocil are referred to, individually and
collectively, as "Doskocil") or any person or party to whom Doskocil or a
transferee of Doskocil sells, transfers or assigns Company Stock, other than
pursuant to an effective registration statement under the Act or Sections IV or
V hereof (a "Doskocil Transferee"), such shares shall first be offered to the
Company as set forth below.
B. Doskocil or a Doskocil Transferee, as applicable, shall deliver
a notice (the "Notice") to the Company and to Enterprise Partners III, L.P., a
Delaware limited partnership ("EPIII"), which notice to EPIII shall be
considered notice to EPIII, Enterprise Partners III Associates, L.P., a Delaware
limited partnership ("EPIIIA"), Enterprise Partners IV, L.P., a Delaware limited
partnership ("EPIV"), Enterprise Partners IV Associates, L.P., a Delaware
limited partnership ("EPIVA"), Enterprise Management Partners Corporation, a
California corporation ("EMPC"), (EMPC, EPIII, EPIIIA, EPIV and EPIVA shall be
referred to collectively herein as "ENTERPRISE PARTNERS"), stating (i) his bona
fide intention to sell or transfer such shares, (ii) the number of shares
proposed to be sold or transferred (the "Noticed Shares"), and (iii) the price
for which he proposes to sell or transfer the Noticed Shares (in the case of a
transfer not involving a sale such price shall be deemed to be fair
2
<PAGE>
market value of the Noticed Shares as determined pursuant to Section III.D
hereof) and the terms of payment of that price and other terms and conditions of
sale. Doskocil and each Doskocil Transferee hereby agrees, except as provided
in Section III.E. below, not to effect, or attempt to effect, any sale or other
transfer for value of Company Stock other than for money, an obligation to pay
money or Marketable Securities "Marketable Securities" means securities (i) of a
class or series listed or traded on the New York Stock Exchange, American Stock
Exchange, or the Nasdaq National Market System and (ii) which, as a matter of
law, shall at the time of acquisition be freely saleable in unlimited quantities
by each person acquiring such securities to the public, either pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(including a current prospectus which is available for delivery), or without the
necessity of such registration. Doskocil or any Doskocil Transferee may not
give a Notice to the Company and EPIII on behalf of Enterprise Partners more
than one time during any period of 12 consecutive months.
C. For a period of fifteen (15) days after receipt of the Notice,
the Company (or its assignee or assignees) shall have the right to purchase all,
but not less than all, of the Noticed Shares. The price per share of the Noticed
Shares purchased by the Company pursuant to this Section III.C shall be, in the
case of a sale, the price per share as set forth in the Notice and, in the case
of a transfer not involving a sale, the fair market value of such shares
determined pursuant to Section III.D hereof, and the purchase shall be on the
same terms and subject to the same conditions as those set forth in the Notice.
If the Company (including its assignee or assignees) elects not to purchase all
the Noticed Shares, it shall give written notice within the 15 day period
following receipt of the Notice, and for a period of 15 days after receipt of
the aforementioned notice from the Company (the "Second Notice Period"),
Enterprise Partners (or the assignee or assignees of any Enterprise Partners
entity) shall have the right to purchase all, but not less than all, of the
Noticed Shares on the same terms and conditions as set forth in the Notice. The
allocation of Noticed Shares among the entities comprising Enterprise Partners
shall be determined by agreement among such entities. The price per share shall
be, in the case of a transfer not involving a sale, the fair market value of
such shares determined pursuant to Section III.D hereof, and the purchase shall
be on the same terms and subject to the same conditions as though set forth in
the Notice. If the Company, Enterprise Partners or its assignee(s) determine to
purchase the Noticed Shares, it shall so notify Doskocil or the Doskocil
Transferee, as applicable, in writing prior to the end of the Second Notice
Period, stating the time and place of closing. The closing of a purchase
pursuant to this Section III.C. shall take place within 20 days after such
notice is first delivered and all consideration shall be payable in cash at a
single closing. Any election of the Company or Enterprise Partners to purchase
or not to purchase any Noticed Shares pursuant to this Section III shall not be
rescinded by the Enterprise Partners without the prior written consent of
Doskocil or a Doskocil Transferee, as the case may be.
D. In the case of a transfer of shares of Company Stock not
involving a sale, the fair market value of the shares shall be determined by
agreement between the Company and the transferor or, if they are unable to
agree, by an independent appraiser of national standing mutually agreed upon by
the parties. The appraiser's determination will be final and binding upon all
parties and persons claiming under or through them. If the parties
3
<PAGE>
are unable to agree upon the selection of an independent appraiser within 15
days after notice by one party that agreement on the fair market value has not
been reached, then within 10 days thereafter the parties shall each select an
appraiser of national standing and within 10 days after such selection, the
appraisers shall mutually agree upon a third appraiser of national standing.
The average of the two appraisals that are the closest to each other shall, in
such case, be the fair market value and such valuation shall be final and
binding upon all parties and persons claiming through them. The cost of any
appraiser mutually selected will be paid by the Company and the transferor and
the cost of any other appraiser used shall be paid by the party selecting such
appraiser. Anything in this Section III.D to the contrary notwithstanding, if
Doskocil or a Doskocil Transferee is not satisfied with the determination of
fair market value, Doskocil or the Doskocil Transferee may elect not to proceed
with the proposed transfer of shares of Company Stock not involving a sale and
retain such shares under this Agreement.
E. If the Company (and/or any assignees of the Company) and/or
Enterprise Partners (and/or any assignees of any Enterprise Partners entity) do
not elect to purchase all of the Noticed Shares of Company Stock to which the
Notice refers as provided in Section III.B hereof, then none of the Noticed
Shares shall be purchased (unless Doskocil or the Doskocil Transferee elects
otherwise), and Doskocil or the Doskocil Transferee, as the case may be, may
sell or transfer all (but not less than all) of the Noticed Shares to any
purchaser or transferee at, in the case of a sale, the price specified in the
Notice or at a higher price, provided that such sale or transfer is consummated
within 120 days after the later of (i) determination by the Company not to
purchase the Noticed Shares to which the Notice refers and (ii) the
determination by Enterprise Partners (or the assignee or assignees of any
Enterprise Partners entity) not to purchase the Noticed Shares to which the
Notice refers.
Section IV. Tag-Along Rights.
----------------
A. If any Stockholder (other than Doskocil or a Doskocil
Transferee) or any of such Stockholders' Affiliates (collectively, the "Selling
Group"), at any time or from time to time, enters into an agreement to transfer,
sell or otherwise dispose of, directly or indirectly (a "Tag-Along Sale"), any
shares of Company Stock or any interest therein, then Doskocil and each Doskocil
Transferee shall, as a group, have the right, but not the obligation, to
participate in such Tag-Along Sale (and to displace the Selling Group to the
extent of such participation) by selling in total up to the number of shares of
Company Stock (the "Doskocil Allotment") equal to the product of (i) the total
number of shares of Company Stock proposed to be sold or otherwise disposed of
by the Selling Group in the Tag-Along Sale multiplied by (ii) a fraction, the
numerator of which shall equal the aggregate number of shares of Company Stock
owned by Doskocil and each then existing Doskocil Transferee immediately prior
to the Tag-Along Sale and the denominator of which shall equal the sum of: (A)
the aggregate number of shares of Company Stock owned by members of the Selling
Group who have elected to participate in such Tag-Along Sale immediately prior
to the Tag-Along Sale; and (B) the aggregate number of shares of Company Stock
owned by
4
<PAGE>
Doskocil and each then-existing Doskocil Transferee immediately prior to the
Tag-Along Sale.
B. Any such sale by Doskocil or any Doskocil Transferee shall be on
the same terms and conditions as the proposed Tag-Along Sale by the Selling
Group; provided, however, that Doskocil or any Doskocil Transferee shall share
-------- -------
pro rata, based upon the number of shares being sold by each (i) in any
- --- ----
indemnity liabilities to the proposed transferee or purchaser in the Tag-Along
Sale (other than representations made by either Doskocil, a Doskocil Transferee
or Seller Group with respect to themselves, including representations as to
unencumbered ownership of and ability to transfer the shares being sold of any
other seller in the Tag-Along Sale, which shall be the sole responsibility of
such other seller) and (ii) in any escrow for the purpose of satisfying any such
indemnity liabilities.
C. The foregoing notwithstanding, Section IV.A shall not apply to
(i) any transfer, sale or other disposition of shares of Company Stock solely
among Enterprise Partners and its Affiliates, (ii) any distribution by
Enterprise Partners or its Affiliates to their partners, or (iii) any merger or
consolidation of Company with or into another corporation or a sale of all or
substantially all of the assets of the Company followed by its dissolution,
provided that, in each case, all shares of Company Stock subject to this
Agreement are treated the same in any such transaction, any then outstanding
shares of the Company's Series A Preferred Stock are not exchanged for or
converted into shares of Preferred Stock with rights, preferences and privileges
superior to those of the existing shares of Series A Preferred Stock and in the
case of (i) and (ii) such transferees shall become parties hereto and be bound
hereby in accordance with Section XIV.
D. The Selling Group members participating in a Tag-Along Sale or a
representative of the Selling Group designated by the Selling Group (the
"Selling Group Representative") shall promptly provide Doskocil with written
notice (the "Tag-Along Sale Notice") not more than 60 nor less than 15 days
prior to the proposed date of the Tag-Along Sale (the "Tag-Along Sale Date").
In order to facilitate the prompt delivery of the Tag-Along Sale Notices, the
Company hereby covenants to provide the Selling Group members participating in a
Tag-Along Sale or the Selling Group Representative, as the case may be, access
to stock record books of the Company. Each Tag-Along Sale Notice shall set
forth: (i) the name and address of each proposed transferee or purchaser of
shares of Company Stock in the Tag-Along Sale; (ii) the name and address of each
Selling Group member participating in the Tag-Along Sale and the number of
shares of Company Stock proposed to be transferred or sold by each such Selling
Group member; (iii) the proposed amount and form of consideration to be paid for
such shares and the terms and conditions of payment offered by each proposed
transferee or purchaser, (iv) the aggregate number of shares of Company Stock
held of record as of the close of business on the date of the Tag-Along Sale
Notice (the "Tag-Along Notice Date") by Doskocil or any Doskocil Transferee and
the aggregate number of shares of Company Stock outstanding on the Tag-Along
Notice Date; (v) the aggregate number of shares of Company Stock held of record
as of the Tag-Along Notice Date by the Selling Group; (vi) the maximum number of
shares of Company Stock that Doskocil and each Doskocil Transferee is entitled
to include in
5
<PAGE>
the Tag-Along Sale assuming Doskocil and each Doskocil Transferee elected to
participate in the Tag-Along Sale and elected to sell the maximum number of
shares of Company Stock allowed; (vii) the number of shares of Company Stock
constituting the Doskocil's Allotment; (viii) confirmation that the proposed
purchase or transferee has been informed of the "Tag-Along Rights" provided for
herein and has agreed to purchase shares of Company Stock in accordance with the
terms hereof; and (ix) the Tag-Along Sale Date.
E. Doskocil or any Doskocil Transferee shall provide written notice
(the "Tag-Along Notice") to the Selling Group Representative, no less than five
(5) days prior to the Tag-Along Sale Date. The Tag-Along Notice shall set forth
the number of shares of Company Stock, if any, that Doskocil or any Doskocil
Transferee desires to include in the Tag-Along Sale (which shall not exceed
Doskocil's Allotment). The Tag-Along Notice shall also specify the aggregate
number of additional shares of Company Stock owned of record as of the Tag-Along
Notice Date by Doskocil or any Doskocil Transferee, if any, which Doskocil or
any Doskocil Transferee desires also to include in the Tag-Along Sale
("Additional Shares") in the event there is an aggregate under subscription for
the Doskocil Allotment. In the event there is an aggregate under subscription
by Doskocil or any Doskocil Transferee for the entire Doskocil Allotment, the
Selling Group member(s) participating in the Tag-Along Sale shall apportion the
unsubscribed shares of Company Stock to Stockholders (other than members of the
Selling Group) whose Tag-Along Notices specified an amount of Additional Shares,
which apportionment shall be on a pro rata basis among such Stockholders in
--- ----
accordance with the number of Additional Shares specified by all such
Stockholders in their Tag-Along Notices.
F. The participating members of the Selling Group shall determine
the aggregate number of shares of Company Stock to be sold by each participating
Stockholder in any given Tag-Along Sale in accordance with the terms hereof, and
the Tag-Along Notices given by Doskocil and each Doskocil Transferee shall
constitute their binding respective agreements to sell such shares on the terms
and conditions applicable to such sale (including the requirements of this
Section IV).
G. If a Tag-Along Notice is not received by the Selling Group
Representative from Doskocil or any Doskocil Transferee prior to the five (5)
day period specified above, the Selling Group members shall have the right to
sell or otherwise transfer the number of shares of Company Stock specified in
the Tag-Along Sale Notice to the proposed purchaser or transferee without any
participation of Doskocil or any Doskocil Transferee, but only on the terms and
conditions stated in such Tag-Along Sale Notice and only if such sale occurs on
a date within five business days of the Tag-Along Sale Date.
H. The provisions of this Section IV shall apply regardless of the
form of consideration received in the Tag-Along Sale.
I. "Affiliate" of a specified person means any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control," when used with respect to
6
<PAGE>
any person, means the power to direct the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise and serving as a general partner of a
limited partnership investment fund shall be presumed to be "control" of that
fund; and the terms "controlling" and "controlled" have meanings correlative to
the foregoing.
Section V. Drag-Along Rights.
-----------------
A. In the event the Stockholders (other than Doskocil or a Doskocil
Transferee) desire to accept an offer from any person (other than any Affiliate
of such parties) to purchase 75% of the outstanding shares of Company Stock then
owned by such Stockholders, then provided such Stockholders at such time own at
least a majority of the Company's then outstanding Common Stock, each of the
other Stockholders shall sell, and shall cause any Affiliate of it to sell all
shares of Company Stock held by it or such Affiliate pursuant to such offer to
purchase (the "Drag-Along Sale"). All holders of Company Stock in such Drag-
Along Sale (i) shall receive the same consideration per share of Company Stock,
shall be subject to the same terms and conditions of sale and shall otherwise be
treated equally or, where appropriate, pro rata based upon the number of shares
--- ----
of Company Stock held by each stockholder and (ii) shall execute such documents
and take such actions as may be reasonably required by the Selling Group
Representative provided that Doskocil and any Doskocil Transferee shall not be
required (i) to make any representation to the buyer other than with respect to
title to their shares, (ii) to participate in any indemnity liabilities to the
purchaser in the Drag Along sale or (iii) in any escrow for the purpose of
satisfying any such indemnity liability or otherwise.
B. The Selling Group Representative shall promptly provide each
Stockholder with written notice (the "Sale Notice") not more than 60 nor less
than 15 days prior to the date of the Drag-Along Sale (the "Drag-Along Sale
Date"). Each Sale Notice shall set forth: (i) the name and address of each
proposed transferee or purchaser of shares of Company Stock in the Drag-Along
Sale; (ii) the proposed amount and form of consideration to be paid for such
shares and the terms and conditions of payment offered by each proposed
transferee or purchaser, (iii) confirmation that the proposed purchaser or
transferee has been informed of the Drag-Along Rights provided for herein and
has agreed to purchase shares of Company Stock in accordance with the terms
hereof; and (iv) the Drag-Along Sale Date.
C. The provisions of this Section V shall apply regardless of the
form of consideration received in the Drag-Along Sale, and if any non-cash
consideration is proposed in the Drag-Along Sale to each member of the Selling
Group, each Stockholder shall accept its pro rata share of such non-cash
--- ----
consideration for the Company Stock based upon its proportional ownership of
shares of Company Stock.
7
<PAGE>
Section VI. Preemptive Rights; AntiDilution.
-------------------------------
The Company shall provide Doskocil (provided Doskocil beneficially
owns at least fifty percent (50%) of the shares of Company Stock owned by
Doskocil on the date hereof (as equitably adjusted for any subsequent stock
split, stock combination or recapitalization), and each other Stockholder who
beneficially owns at least two percent (2%) of the fully diluted Company Stock
(each, an "Eligible Stockholder")) with a written notice (a "Section VI Notice")
of any proposed issuance by the Company of an equity security (Common Stock,
securities convertible into or exchangeable for Common Stock, and option,
warrants and other rights to acquire Common Stock) at least 15 days prior to the
proposed issuance date. Such notice shall specify the price at which the equity
securities are to be issued and the other material terms of the issuance.
EPIIIA and EPIVA each shall be deemed to be an "Eligible Stockholder" for
purposes of this Agreement as long as EPIII or EPIV is an Eligible Stockholder.
Each Eligible Stockholder shall be entitled to purchase, at the price and on the
terms specified in such Section VI Notice, the equity securities proposed to be
issued on a pro rata basis based upon such Eligible Stockholder's Percentage
Ownership (Eligible Stockholder's Percentage Ownership means, with respect to
any Stockholder at any time (i) the number of shares of fully diluted Company
Stock that such Stockholder owns at such time prior to the proposed issuance,
divided by (ii) the total number of shares of fully diluted Company Stock at
such time prior to the proposed issuance). Each Eligible Stockholder may
exercise its rights under this Section VI by delivering written notice of its
election to purchase equity securities to the Company within fifteen (15) days
of receipt of the Section VI Notice. A delivery of such a written notice (which
notice shall specify the number of shares (or amount) of equity securities to be
purchased by each Eligible Stockholder) shall constitute a binding agreement of
such Eligible Stockholder to purchase, at the price and on the terms specified
in the Section VI Notice, the number of shares (or amount) of equity securities
specified in such written notice. The Company shall have one hundred twenty
(120) days from the date of the Section VI Notice to consummate the proposed
issuance of any or all of such equity securities which have not been elected to
be purchased by the Eligible Stockholders in accordance with this Section VI at
the price and upon terms that are substantially the same as those specified in
the Section VI Notice. At the consummation of such issuance, the Company shall
issue certificates representing the equity securities to be purchased by the
Eligible Stockholders receiving a Section VI Notice registered in the name of
such Eligible Stockholders, against payment therefore of the purchase price for
such equity securities. If the Company proposes to issue equity securities
after such 120-day period, it shall again comply with the procedures set forth
in this Section VI.
The first paragraph of this Section VI shall not apply to issuances
of equity securities (i) to employees, directors and consultants of the Company
or any Affiliate or subsidiary of the Company pursuant to employee stock option,
stock purchase or other benefit plans or arrangements (including, without
limitation, the exercise of options) provided that the recipient of such options
or other such rights is not an Affiliate or employee of Enterprise Partners or
its Affiliates (other than the Company), (ii) in connection with an initial
public offering, (iii) in connection with any restructuring of outstanding debt
of the
8
<PAGE>
Company or any Affiliate or subsidiary of the Company that is approved by a
majority of the Board, (iv) in connection with any acquisition of the stock or
substantially all of the assets of a corporation, partnership, limited liability
company, or operating division for strategic business purposes, (v) the
conversion of outstanding convertible securities into shares of Company Stock,
(vi) the exercise or release from escrow of the Warrants (as defined in that
certain Securities Purchase Agreement (herein so called) dated as of July 1,
1997 among the Company and Doskocil Funding, Inc., NationsBridge, L.L.C.,
(Doskocil Funding, Inc. and NationsBridge LLC are referred to herein as the
"Bridge Lenders") and (vii) to lenders other than Enterprise Partners or its
Affiliates in connection with any refinancing of Company indebtedness. The
Company shall not be under any obligation to consummate any proposed issuance of
equity securities, regardless of whether it shall have delivered a Section VI
Notice in respect of such proposed issuance.
In the event that any Warrants issued to any Bridge Lenders or any
of their respective assignees are exercised, the Company shall, as an
antidilution measure for the benefit of Doskocil, promptly thereafter issue to
Doskocil for $1.00, such number of shares of Company Stock as are required to
maintain Doskocil's ownership interest (without regard to the shares of Company
Stock issuable upon the conversion of shares of Series A Preferred Stock
outstanding on the date of Closing of the funding transactions contemplated by
the Securities Purchase Agreement and the Warrants but after taking into account
all shares of Company Stock then outstanding or issuable upon the exercise of
any then outstanding options, stock purchase rights or other convertible
instruments). For example, if on the date of the exercise of such Warrants, the
shares of Company Stock owned by Doskocil represent on such basis of
calculation, a 25% ownership interest in the Company, then the Company would
issue to Doskocil that number of shares of Company Stock that would, after
giving effect to the exercise of such Warrants, maintain a 25% ownership
interest for Doskocil with such ownership calculated on the basis of the
outstanding shares of Company Stock (including shares actually issued upon the
exercise of the Warrants, shares issuable upon the exercise of any then
outstanding options, stock purchase rights or other convertible instruments but
excluding the shares issuable upon the conversion of shares of Series A
Preferred Stock). Notwithstanding the foregoing, the antidilution protection
afforded Doskocil by this paragraph shall terminate and be of no further force
and effect concurrent with and will have no application to the completion by the
Company of an acquisition of or a business combination with another business
principally engaged in supplying products to the pet industry with annual
revenues in excess of $25 million (the "Acquisition").
Section VII. Registration Rights.
-------------------
Each of the Stockholders shall have the registration rights
provided in the Registration Rights Agreement attached hereto as Exhibit A,
which Registration Rights Agreement is hereby incorporated herein as if set
forth in full in this Agreement. Execution and delivery of this Agreement shall,
without further act of any of the parties, constitute execution and delivery of
the Registration Rights Agreement.
9
<PAGE>
Section VIII. Exempt Transfers.
----------------
The provisions of Section III shall not apply to a transfer of any
Company Stock by Doskocil or any Doskocil Transferee, either during his lifetime
or on death by will or intestacy, to (i) his ancestors, descendants, spouse,
brothers, sisters, nephews or nieces or (ii) any custodian or trustee or
executor, administrator or other personal representative for the account or
benefit of such Stockholder or such Stockholder's ancestors, descendants,
spouse, brothers, sisters, nephews or nieces; provided, that the transferee
--------
shall acknowledge and agree, in a writing satisfactory to the Company, to be
bound by the terms of this Agreement and shall execute and deliver to the
Company a joinder as set forth in Exhibit B to such effect.
Section IX. Restriction on Public Sale: Rule 144.
------------------------------------
Anything to the contrary herein notwithstanding, in the event that
at any time the Company files a registration statement with respect to an
underwritten public offering under the Act in which any class of the Company's
equity securities is offered, each Stockholder hereby agrees to be bound by, and
subject to, the same restrictions on the sale or distribution of any shares of
Company Stock (which shares, for the purposes of this Section IX, shall include
any and all voting securities received by such Stockholder as a stock dividend,
stock split or other recapitalization or similar distribution on or in respect
of the shares of Company Stock) or any of the Company's other equity securities,
or of any securities convertible into or exchangeable for such securities, as
required by the underwriters for such offering and agreed to by each of the
Enterprise Partners entities. Enterprise Partners shall give written notice of
such restrictions to the other Stockholders.
If any of the shares of Company Stock are disposed of in
accordance with Rule 144 under the Act, the selling Stockholder shall deliver to
the Company at or prior to the time of such disposition an executed copy of Form
144 (if required by Rule 144) and such other documentation as the Company may
reasonably require in connection with such sale.
Section X. Register of Securities; Removal of Restrictions on Transfer.
-----------------------------------------------------------
A. Register of Securities. The Company or its duly appointed
----------------------
agent shall maintain registers for the shares of Company Stock in which it shall
register the issue and sale of all such shares. The Company may issue stop
transfer instructions to such agent and make similar notations in such register
to ensure that all transfers of such securities are made in accordance with this
Agreement. All transfers of such securities shall be recorded on the register
maintained by the Company or its agent, and the Company shall be entitled to
regard the registered holder of such securities as the actual holder thereof
until the Company or its agent is required to record a transfer of such
Securities on its register. Subject to the other provisions of this Agreement
restricting or prohibiting transfers, the Company or its agent shall be required
to record any such transfer when it receives the security to be transferred
10
<PAGE>
duly and properly endorsed by the registered holder thereof or by its attorney
duly authorized in writing.
B. Removal of Transfer Restrictions. Any legend endorsed on a
--------------------------------
certificate evidencing shares of Company Stock and the stop transfer
instructions and record notations with respect to such shares shall be removed
and the Company shall issue a certificate without such legend to the holder of
such shares of Company Stock (i) if such Shares are registered under the Act, or
(ii) if a notification under Regulation A under the Act is in effect with
respect thereto, or (iii) if such shares may be sold under Rule 144 or Rule 144A
under the Act.
C. Legends. In addition to any legends required by securities
-------
laws, each stock certificate evidencing shares of Company Stock shall bear a
legend in substantially the following form until such legends may be removed in
accordance with this Agreement:
"The shares represented by this certificate are subject to a Stockholders'
Agreement dated as of July 1, 1997, which contains restrictions on
transfer, rights of first offer, tag-along rights, drag-along rights,
certain registration rights and certain lock up agreements. A copy of said
Stockholders' Agreement may be obtained from the Company by the holder of
such certificate."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED BY THE HOLDER SOLELY FOR ITS OWN ACCOUNT FOR THE PURPOSE OF
INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY
DISTRIBUTION OF ANY THEREOF. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 ("ACT") OR STATE SECURITIES LAWS AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT OR AN
EXEMPTION THEREFROM."
Section XI. Board of Directors.
------------------
For so long as Doskocil (and/or trusts for the benefit of their
immediate family) own at least fifty (50%) of the Company Stock owned by
Doskocil on the date hereof (as equitably adjusted for any subsequent stock
split, stock combination or recapitalization), each other Stockholder a party
hereto agrees to vote for the election (or execute a written consent for the
election) of Benjamin Doskocil or Edward J. Doskocil (as determined by Benjamin
Doskocil or in the event of his death, Edward J. Doskocil) as a director of the
Company or its successor.
Section XII. Enforcement.
-----------
The parties acknowledge that the remedy at law for any breach or
violation of the provisions of Sections IV, VI, VII, XI and XII hereof shall be
inadequate and that, in the event of any such breach or violation, the Company
and/or the Stockholders shall be entitled
11
<PAGE>
to injunctive relief in addition to any other remedy, at law or in equity, to
which it may be entitled.
Section XIII. Violation of Transfer Provisions.
--------------------------------
The Company shall not be required (i) to transfer on its books any
shares of Company Stock which shall have been sold, transferred, assigned or
pledged in violation of any of the provisions set forth in this Agreement, or
(ii) to treat as owner of such shares of Company Stock or to accord the right to
vote as such owner or to pay dividends to any transferee to whom such shares
shall have been so transferred.
Section XIV. General Provisions.
------------------
A. After-Acquired Shares. All of the provisions of this
---------------------
Agreement apply to (i) all of the shares of Company Stock now owned or which may
be transferred hereafter to, or owned of record or beneficially by, any
Stockholder and (ii) all securities and instruments (A) received by a
Stockholder as a dividend on or other payment made to holders of Company Stock
with respect to their Company Stock, or (B) issued in connection with a split of
Company Stock or as a result of any exchange for or reclassification of Company
Stock or a reorganization, recapitalization, consolidation or merger. Any person
or entity who does not presently own but subsequently acquires or receives
shares of Company Stock from a Stockholder shall become a party to and be bound
by the Agreement and shall execute a Joinder substantially in the form attached
hereto as Exhibit B. In addition, any person or entity who does not presently
own but subsequently acquires shares of Company Stock may become a party to and
bound by all or any portion of this Agreement by executing a Joinder
substantially in the form attached hereto as Exhibit B.
B. Rights and Obligations of Transferees. If a Stockholder
-------------------------------------
transfers any or all of its shares of Company Stock to any person, such person
(including, but not limited to, partnerships, corporations, limited liability
companies or trusts) and each subsequent transferee shall have, except as
otherwise provided herein, the same rights hereunder (including pursuant to
Exhibit A) as are given to the Stockholder, and shall be subject to the same
obligations as are imposed upon, the Stockholder by the terms hereof (and all
references herein to a Stockholder shall include such transferee), unless
otherwise provided herein. The Company will not record any transfer of Company
Stock that was made in violation of any provision of this Agreement. Doskocil,
and each Doskocil Transferee as a condition to receipt of Company Stock, each
hereby agree to vote for any Acquisition approved by the Board of Directors and
hereby agree not to exercise any dissenter rights they may have with respect to
such Acquisition; provided that the Company has complied with all laws in
connection with such Acquisition.
C. Owner of Stockholder Shares. The person in whose name shares of
---------------------------
Company Stock are registered in the stock books of the Company may be treated as
the owner thereof for all purposes, including without limitation, for the giving
of notices under this Agreement.
12
<PAGE>
D. Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given and made and served either by personal delivery
to the person for whom it is intended or if deposited, postage prepaid,
registered or certified mail, return receipt requested, in the United States
mail:
(1) if to any Stockholder, addressed to such Stockholder at
its address as shown on the stock register maintained by the
Company, or at such other address as such Stockholder may specify by
written notice to the Company; or
(2) if to the Company, Doskocil Manufacturing Company, Inc.,
4209 Barnett, Arlington, Texas 76017, Attention: President
Each such notice, request, consent or other communication shall be deemed to
have been given upon receipt thereof or, if sooner, five (5) business days after
such has been deposited in the mail as described above. The addresses for the
purposes of this Section XV, may be changed by giving written notice of such
change in the manner provided herein for giving notice. Unless and until such
written notice is received, the address provided herein shall be deemed to
continue in effect for all purposes hereunder.
E. Choice of Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws, and not the laws of conflicts of
laws, of the State of Texas.
F. Severability. The parties hereto agree that the terms and
------------
provisions in this Agreement are reasonable and shall be binding and enforceable
in accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
enforceable and valid arrangement which in its economic effect shall be as close
as possible to the unenforceable or invalid term or provision.
G. Parties in Interest. All the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not.
H. Modification, Amendment and Waiver. Except for modifications or
----------------------------------
amendments which make only clarifying changes or which do not increase any
Stockholder's obligations hereunder or deprive any Stockholder of a benefit
hereunder, no modification or amendment of any provision of this Agreement shall
be effective against the Company or any Stockholder unless approved in writing
by each party hereto. The failure at any time to
13
<PAGE>
enforce any of the provisions of this Agreement shall in no way be construed as
a waiver of such provisions and shall not affect the right of any of the parties
thereafter to enforce each and every provision hereof in accordance with its
terms. The parties hereto acknowledge that in connection with the Acquisition
it may be necessary to modify this Agreement so that this Agreement and any
existing shareholder agreement pertaining to the business that is the subject of
the Acquisition work together satisfactorily and, accordingly, the parties
hereto agree to negotiate in good faith mutually acceptable amendments to this
agreement in connection with the Acquisition.
I. Integration. This Agreement, together with Exhibits A and B
-----------
hereto, constitutes the entire agreement of the parties with respect to the
specific subject matter hereof (e.g, transfer restrictions, rights of first
offer, tag-along rights, drag-along rights and registration rights) and thereof
and supersedes all prior agreements and negotiations with respect thereto.
J. Headings and Pronouns. The headings of the sections and
---------------------
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement. Whenever used herein,
words importing the singular shall include the plural and words importing the
masculine shall include the feminine and neuter, and vice versa, unless the
context otherwise requires.
K. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
L. Termination. This Agreement, other than Section VII hereof,
-----------
shall terminate on the earlier to occur of (i) the closing of an underwritten
initial public offering of common stock by the Company (or any successor entity)
of Company Stock pursuant to a registration statement declared effective under
the Act, (ii) the first time at which any equity securities of the Company (or
any successor entity) have been registered under Section 12(b) or 12(g) of the
Exchange Act or (iii) as a result of or at any time after any transfer of the
Company (or any successor entity) Common Stock in connection with a sale of the
Company, whether such sale is effected by merger, consolidation, sale of assets
or sale or exchange of stock representing at least fifty percent (50%) of the
voting power of the stock of the Company (in terms of number of votes for the
election of directors) if, as a result thereof, neither Enterprise Partners nor
any Affiliate of Enterprise Partners retains any Company Stock or (iv) the
foreclosure of the pledge of Company Stock made pursuant to the Credit Agreement
dated as of July 1, 1997 and related loan documents, as amended, modified or
supplemented from time to time or any successor agreements. A merger effected
to reincorporate the Company shall not be considered a sale of the Company and
shall not terminate this Agreement. The provisions of Section VIII hereof shall
terminate on the fifth anniversary of the termination of the other provisions of
this Agreement.
14
<PAGE>
M. Further Restriction on Transfer. Notwithstanding any other
-------------------------------
provision of this Agreement, Doskocil and each Doskocil Transferee hereby agrees
not to make any transfer of Company Stock, including pursuant to Section VII
hereof, for a period of two years from the date hereof unless prior to making
such transfer the independent auditors of DMC have confirmed to DMC that the
proposed transfer to be made will not adversely effect the recapitalization
accounting treatment applied to the transaction that are the subject of that
certain Recapitalization Agreement dated July 1, 1997 by and among Enterprise
Partners, Doskocil, Bed Rock International, Inc. and DMC.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Stockholders' Agreement as of the day and year first above written.
BUYERS:
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
------------------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
------------------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS IV, L.P.
By: Enterprise Management Partners IV, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
------------------------------------------
Charles D. Martin
Its: General Partner
16
<PAGE>
ENTERPRISE PARTNERS IV ASSOCIATES, L.P.
By: Enterprise Management Partners IV, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
-----------------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE MANAGEMENT PARTNERS CORPORATION
By: /s/ CHARLES D. MARTIN
------------------------------------------------
Charles D. Martin
Its: President
SELLERS:
/s/ BENJAMIN L. DOSKOCIL, SR.
---------------------------------------------------
Benjamin L. Doskocil, Sr.
/s/ MARY FRANCES DOSKOCIL
---------------------------------------------------
Mary Frances Doskocil
17
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DOSKOCIL MANUFACTURING COMPANY, INC.
By: /s/ DONALD J. FRITSCHEN
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Name: Donald J. Fritschen
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Title: Vice President
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Exhibit A
REGISTRATION RIGHTS AGREEMENT
Section 1. Definitions.
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Terms defined in the foregoing Stockholders' Agreement (the
"Agreement") are used as therein defined unless otherwise defined in this
Exhibit A. As used herein, the following terms shall have the meanings
indicated:
"Commission" means the Securities and Exchange Commission, or any
other federal agency then administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in affect from time to time.
Section 2. Piggy-Back Registration.
-----------------------
If at any time the Company proposes to register (other than a
registration (1) on Form S-8 or any successor form thereto; (2) of debt or
convertible debt securities of the Company; (3) of preferred stock of the
Company; (4) of securities for the purpose of consummating any acquisition by
the Company including a registration on Form S-4 (or any successor form thereto)
or (5) shares of Company Stock pursuant to the exercise of demand registration
rights with respect to the Warrants) any public offering of shares of its
capital stock solely for cash under the Securities Act, the Company will give
written notice to each Stockholder of its intention to do so at least 15 days
prior to the anticipated filing date of such registration statement.
A. In the event of an underwritten public offering identified
above:
(1) The Company shall provide written notice and shall afford
each Stockholder an opportunity to elect to include in such
registration all or any part of the shares of Company Stock then
owned by such Stockholder. Each Stockholder shall have 10 days after
receipt of the Company's notice to notify the Company in writing of
the number of shares of Company Stock (the "Elected Shares") which
such Stockholder elects to include in the offering, which number may
not be subsequently changed (regardless of the reason) unless the
Company permits a change in its sole and absolute discretion. The
Elected Shares shall be included in the registration to the extent
permitted by the managing underwriter in its sole discretion, after
consultation with the Company; provided, however, that the managing
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underwriter may prohibit all or a portion of the Elected Shares from
being included in the proposed offering if it determines that the
inclusion of such shares would adversely
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effect the marketing of the primary shares being offered by the
Company; and provided, further, that if the Company agrees to
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increase the number of shares included in the offering for any
Stockholder, it must offer to increase the number of shares included
for all Stockholders, pro rata as their interests may appear. If the
aggregate number of Elected Shares that each such electing
Stockholder and any other holders of securities of the Company
possessing registration rights desire to include in such filing
exceeds the number of Shares allowed by the managing underwriter
(the "Permissible Secondary Shares"), then such Stockholder shall be
entitled to include that number of shares of Company Stock that
bears the same ratio to the number of Permissible Secondary Shares
as the number of Elected Shares of Company Stock that Stockholder
desires to include bears to the number of Elected Shares that all
eligible holders of securities desire to include. Such
representative may increase or decrease the number of Permissible
Secondary Shares at any time until all shares of Company Stock
included in such registration shall have been sold by such
underwriters.
(2) The inclusion in such filing of shares of Company Stock
shall be upon the condition that such electing Stockholder sells his
shares of Company Stock to the underwriters on the same terms and
conditions as the other selling holders.
(3) The Company shall afford each Stockholder the right to
participate in each underwritten registration.
B. To include any shares of Company Stock in any such
registration, each Stockholder shall:
(1) cooperate with the Company in preparing each such
registration and execute all such customary agreements as any
representative of the underwriters may deem reasonably necessary in
favor of the underwriters;
(2) promptly supply the Company with all information,
documents, and customary representations and agreements as the
underwriters or the Company may deem reasonably necessary in
connection with such registration; and
(3) agree in writing not to sell or transfer any shares of the
capital stock of the Company not included in such registration
during such period beginning prior to the filing and ending after
the effective date of such registration without the underwriters' or
the Company's consent as is reasonably requested by the
underwriters' provided that Doskocil and each Doskocil Transferee
hereby agrees to be bound by any such restriction as is agreed to by
each of the Enterprise Partner entities participating in the
offering.
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C. Anything herein to the contrary notwithstanding, the Company
shall not, other than with respect to the Demand Registration, have any
obligation to the Stockholders if the Board of Directors of the Company
determines, for any reason, not to complete any proposed public offering of its
securities.
Section 3. Demand Registration.
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A. Request for Registration. If the Company has consummated an
initial public offering (the "IPO") pursuant to the Securities Act, Doskocil or
any Doskocil Transferee may on or after the first anniversary of the IPO make a
written request for registration under the Securities Act ("DEMAND
REGISTRATION") of all or part of such Stockholder's shares of Company Stock;
provided that (i) the fair market value of the shares of Company Stock proposed
to be registered has a value (based on the closing average closing price of the
Company Stock during the twenty trading days prior to notice of the demand) in
excess of $5,000,000, (ii) the Company Stock proposed to be registered may not,
in the opinion of counsel to the Company, be sold under Rule 144 (as such rule
may be amended from time to time) without a limitation as to volume or with a
volume limitation that exceeds the shares of Company Stock proposed to be sold,
and (iii) the Company shall not be obligated to effect more than one Demand
Registration. Such request will specify the number of shares of Company Stock
proposed to be sold and will also specify the intended method of disposition
thereof. Within 15 days after receipt of such request, the Company will give
written notice of such registration request to all other Stockholders and other
security holders of the Company entitled to participate in such registration and
include in such registration all shares of Company Stock with respect to which
the Company has received written requests for inclusion therein from
Stockholders or other shareholders thereof within 15 days after receipt by such
Stockholder or other security holders of the Company's notice. Each such
request will also specify the aggregate number of shares of Company Stock to be
registered and the intended method of disposition thereof.
B. Effective Registration and Expenses. A registration will not
count as the Demand Registration until it has become effective (unless the
Stockholders demanding such registration withdraw the Shares of Company Stock to
be registered, in which case such demand will count as a Demand Registration
unless the Stockholders of such Registrable Securities agree to pay all
Registration Expenses (as hereinafter defined)).
Section 4. Expenses.
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Except as provided in Section 3 above, the costs and expenses (other
than underwriting discounts or commissions and fees for counsel to the
Stockholders, if any) of all registrations and qualifications under the
Securities Act incurred pursuant to this Registration Rights Agreement, and of
all other actions that the Company is required to take or effect pursuant to the
registration rights granted hereby , shall be paid by the Company (including,
without limitation, all registration and filing fees, printing expenses, costs
of special audits
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incident to or required by any such registration, fees and disbursements of
counsel for the Company and blue sky fees and expenses).
Section 5. Registration Procedures.
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Whenever Doskocil or a Doskocil Transferee has requested that any
shares of Company Stock be registered pursuant to Section 3 hereof, the Company
will use all reasonable efforts to effect the registration of such shares of
Company Stock as promptly as reasonably practicable, and in connection with any
such request, the Company will as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement on any form for which the Company then qualifies or which counsel
for the Company shall deem appropriate and which form shall be available
for the sale of the shares of Company Stock to be registered thereunder,
and use all reasonable efforts to cause such filed registration statement
to become effective as promptly as reasonably practicable; provided that if
the Company shall furnish to Doskocil or the Doskocil Transferee requesting
registration a certificate signed by the Chief Executive Officer of the
Company stating that in his good-faith judgment it would be significantly
disadvantageous to the Company or its shareholders for such a registration
statement to be filed as expeditiously as reasonably possible, the Company
shall have a period of not more than 180 days within which to file such
registration statement measured from the date of receipt of the request in
accordance with Section 3; and provided (i) that before filing a
registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to counsel selected by Doskocil or the
Doskocil Transferee requesting registration copies of all such documents
proposed to be filed, which documents will be subject to the review of such
counsel, and (ii) that after the filing of the registration statement, the
Company will promptly notify Doskocil and any Doskocil Transferee
participating in the offering of any stop order issued or threatened by the
Commission and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered;
(b) 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 effective for a period of not less than 270 days or such shorter
period which will terminate when all shares of Company Stock covered by
such registration statement have been sold (but not before the expiration
of the 90-day period referred to in Section 4(3) of the Securities Act and
Rule 174 thereunder, if applicable) and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the
intended methods of disposition set forth in such registration statement;
(c) furnish to Doskocil and each Doskocil Transferee
participating in the offering, prior to filing the registration statement
or prospectus or any
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amendment or supplement thereto, if requested, copies of such registration
statement as proposed to be filed, and thereafter furnish to Doskocil and
each Doskocil Transferee participating in the offering such number of
copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto), the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as Doskocil and each Doskocil
Transferee participating in the offering may reasonably request in order to
facilitate the disposition of the shares of Company Stock owned by Doskocil
and each Doskocil Transferee participating in the offering.
(d) use all reasonable efforts to register or qualify such
shares of Company Stock under such other securities or blue sky laws of
such jurisdictions in the United States as reasonably (in light of the
intended plan of distribution) requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable Doskocil
and each Doskocil Transferee participating in the offering to consummate
the disposition in such jurisdictions of the shares of Company Stock owned
by Doskocil and each Doskocil Transferee participating in the offering;
provided that the Company will not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (d), (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service of process in any
such jurisdiction;
(e) use all reasonable efforts to cause such shares of Company
Stock to be registered with or approved by such other governmental agencies
or authorities as may be necessary by virtue of the business and operations
of the Company, any Affiliate or any subsidiary to enable Doskocil or the
Doskocil Transferee participating in the offering thereof to consummate the
disposition of such shares of Company Stock;
(f) notify Doskocil and Doskocil Transferee participating in the
offering, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the occurrence of an event requiring
the preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Shares of Company Stock,
such prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading and promptly make available
to Doskocil or the Doskocil Transferee participating in the offering any
such supplement or amendment;
(g) make available for inspection by Doskocil and any Doskocil
Transferee participating in the offering and any attorney, accountant or
other professional retained by Doskocil and any Doskocil Transferee
participating in the offering (collectively, the "INSPECTORS"), all
financial and other records, pertinent corporate documents and properties
of the Company, any Affiliate and any subsidiary (collectively, the
"RECORDS") as shall be reasonably necessary to enable them to
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exercise their due diligence responsibility, and cause the officers,
directors and employees of the Company and its subsidiaries to supply all
information reasonably requested by any such Inspectors in connection with
such registration statement. Records which the Company determines, in good
faith, to be confidential and any Records which it notifies the Inspectors
are confidential shall not be disclosed by the Inspectors unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction. Doskocil and each Doskocil Transferee
participating in the offering agree that information obtained by them as a
result of such inspections shall be deemed confidential and shall not be
used by it as the basis for any market transactions in the securities of
the Company, its Affiliates or its subsidiaries unless and until such
information is made generally available to the public. Doskocil and each
Doskocil Transferee participating in the offering further agree that they
will, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company at
its expense, to undertake appropriate action to prevent disclosure of the
Records deemed confidential; and
(h) otherwise use all reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as reasonably practicable, an
earnings statement covering a period of twelve months, beginning within
three months after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
The Company may require Doskocil and each Doskocil Transferee
participating in the offering to promptly furnish in writing to the Company such
information regarding the distribution of the shares of Company Stock as it may
from time to time reasonably request and such other information as may be
legally required or reasonably requested in connection with such registration.
Doskocil and each Doskocil Transferee participating in the offering
agree that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 5(f) hereof, they will forthwith
discontinue disposition of shares of Company Stock pursuant to the registration
statement covering such shares of Company Stock until receipt of the copies of
the supplemented or amended prospectus contemplated by Section 5(f) hereof, and,
if so directed by the Company, will deliver to the Company all copies, other
than permanent file copies then in their possession, of the most recent
prospectus covering such shares of Company Stock at the time of receipt of such
notice. In the event the Company shall give such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective by the number of days during the period from and including the date of
the giving of notice pursuant to Section 5(f) hereof to and excluding the date
when the Company shall make available to the Doskocils and any
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Doskocil Transferee participating in the offering the prospectus supplemented or
amended to conform with the requirements of Section 5(f) hereof.
Section 6. Indemnification and Contribution.
--------------------------------
(a) In the event of any registration under the Securities Act of
any offering including shares of Company Stock, the Company hereby agrees to
indemnify and hold harmless each Stockholder, and each other person or entity
that controls such Stockholder and each such Stockholder's officers, directors
and employees, against any losses, claims, damages or liabilities, joint or
several, to which such Stockholder and/or person or entity may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or proceedings in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which shares of Company Stock were
registered under the Securities Act, in any preliminary prospectus or final
prospectus contained therein or any amendment or supplement thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(iii) any failure or alleged failure of the Company to comply with any
applicable statute, rule or regulation in connection with the registration
statement or the offering, and will reimburse such Stockholder and/or such
person or entity for any legal or other expenses reasonably incurred by such
Stockholder and/or such person or entity as such expenses are incurred in
connection with investigating or defending any such loss, claim, damage,
liability or proceeding; provided, that the Company will not be liable in any
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such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, said
preliminary or final prospectus or said amendment or supplement in reliance upon
and in strict conformity with written information furnished by such Stockholder
specifically for use in the preparation thereof.
(b) In the event of any registration under the Securities Act of
any offering including shares of Company Stock, each Stockholder, severally and
not jointly, hereby agrees to indemnify and hold harmless the Company, and each
other person, if any, who controls the Company within the meaning of the
Securities Act and each other person (including each underwriter, and each other
person, if any, who controls such underwriter) who participates in the offering
of such Company Stock against any losses, claims, damages or liabilities, joint
or several to which the Company, such controlling person or such participating
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or proceedings in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which an offering of such Company Stock was registered under the
Securities Act, in any preliminary prospectus or final prospectus contained
therein, or in any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material
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fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse the Company and each such controlling person
or participating person for any legal or other expenses reasonably incurred by
the Company or such controlling person or participating person as such expenses
are incurred in connection with investigating or defending any such loss, claim,
damage, liability or proceeding; provided that each Stockholder will be liable
--------
in any such case only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
said preliminary or final prospectus or said amendment or supplement in reliance
upon and in strict conformity with written information furnished by such
Stockholder in his capacity as such specifically for use in the preparation
thereof.
(c) If the indemnification provided for in this Section 6 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to indemnified parties in connection with the
actions which resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified parties shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(c) 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.
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.
(d) Whenever a claim shall arise for indemnification under this
Section 6, the indemnified party shall promptly notify the indemnifying party of
such claim and, when known, the facts constituting the basis for such claim. In
the event of any such claim for indemnification resulting from or in connection
with a claim or legal proceeding by a third party, the indemnifying party may,
at its sole cost and expense, assume the defense thereof. If an indemnifying
party assumes the defense of any such claim or legal proceeding, the
indemnifying party shall be entitled to select counsel reasonably acceptable to
the indemnified party and take all steps necessary in the defense thereof;
provided, however, that no settlement shall be made without the prior written
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consent of the indemnified party, which
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shall not be unreasonably withheld (it being understood that the indemnified
party may not withhold consent to any settlements involving only a monetary
payment where the indemnifying party is ready, willing and able to pay such
amount); and provided, further, that the indemnified party may, at its own
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expense, participate in any such proceeding with the counsel of its choice. If
the indemnifying party does not assume the defense of any such claim or
litigation in accordance with the terms hereof, the indemnified party may defend
against such claim or litigation in such manner as it may deem appropriate,
including, without limitation, settling such claim or litigation (after giving
notice of the same to the indemnifying party) on such terms as the indemnified
party may deem appropriate, and the indemnifying party will promptly indemnify
the indemnified party in accordance with the provisions of this Section 6.
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Exhibit B
JOINDER
Reference is made to the Stockholders' Agreement (the "Agreement")
dated as of May __, 1997, among Enterprise Partners III, L.P., and certain other
parties listed on the signature page thereto. All capitalized terms used but
not otherwise defined herein shall have the meanings ascribed to such terms in
the Agreement.
The undersigned is the holder of [______ SHARES OF COMMON STOCK]
(the "Securities"). The undersigned hereby joins the Agreement as a party
thereto with respect to Company Stock, entitled to the rights and benefits of,
and subject to the obligations of, a party thereto with respect to Company
Stock.
The undersigned's address for notices is _____________
________________________________________________________________.
Dated this ____ day of _________, 19__.
By:_________________________________
Name:_______________________________
Its:________________________________
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EXHIBIT 10.30
FIRST AMENDMENT TO STOCKHOLDERS' AGREEMENT
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This First Amendment to Stockholders' Agreement (this "Amendment") is
entered into as of the 19th day of September, 1997, by and among the parties
listed on the signature pages hereto, and Doskocil Manufacturing Company, Inc.,
a Texas corporation, and its successors, whether by operation of law or
otherwise (the "Company").
RECITALS
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WHEREAS, certain stockholders of the Company and the Company are
parties to a Stockholder' Agreement (the "Stockholders' Agreement") dated July
1, 1997;
WHEREAS, Dogloo, Inc., a California corporation ("Dogloo"), plans to
merge with and into the Company with the Company as the surviving corporation
(the "Merger") and, in connection with the Merger, Westar Capital, a California
limited partnership ("Westar Capital"), Westar Capital II, LLC, a Delaware
limited liability company ("Westar LLC"), and HBI Financial Inc., a Washington
corporation ("HBI"), shall become owners of shares of Company Stock (as defined
in the Stockholders' Agreement); and
WHEREAS, all the parties hereto desire to enter into this Amendment
for the purpose of amending the Stockholders' Agreement, such amendment to be
effective concurrent with the consummation of the Merger;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
1. Definitions.
-----------
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Stockholders' Agreement.
2. Change to Preamble.
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The reference in the first paragraph of the Stockholders' Agreement to
Section XV.A is hereby changed to XIV.A.
3. Change to General Provisions--Termination.
-----------------------------------------
The reference in the last sentence of Section XIV.L ("General Provisions--
Termination") to Section VIII is hereby changed to VII.
<PAGE>
4. Joinder by Westar Capital and Westar LLC.
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In connection with the transactions contemplated by the Merger, Westar
Capital, Westar LLC and HBI shall receive shares of Company Stock and, on the
receipt of such shares and the effectiveness of this Amendment, Westar Capital,
Westar LLC, and HBI shall be deemed to have become a party to and be bound by
the Stockholders' Agreement, as amended hereby. Westar Capital, Westar LLC and
HBI shall, in accordance with Section XIV of the Stockholders' Agreement, upon
receipt of shares of Company Stock execute a joinder in the form of Exhibit B
to the Stockholders' Agreement further evidencing their agreement to be a party
to and bound by the Stockholders' Agreement.
5. Preemptive Rights.
-----------------
Each of the entities comprising the Enterprise Partners, Westar Capital,
Westar LLC and HBI hereby agree that their respective preemptive rights, if any,
shall be governed by that certain Amended and Restated Securityholders Agreement
(the "Amended and Restated Securityholders Agreement") to which each of the
entities comprising Enterprise Partners, Westar Capital, Westar LLC and HBI are
parties, rather than by the Stockholders' Agreement.
6. Rights of First Offer.
---------------------
Each of the entities comprising the Enterprise Partners, Westar Capital and
Westar LLC hereby agree that any shares of Company Stock offered for sale to
Enterprise Partners, Westar Capital or Westar LLC pursuant to Section III of the
Stockholders' Agreement shall be allocated among Westar Capital, Westar LLC, and
HBI and the entities comprising Enterprise Partners based on their pro rata
--------
ownership of shares of Company Stock at the time of such offer. EMPC, EPIII,
EPIIIA, EPIV and EPIVA hereby further acknowledge and agree that this Section 6
of this Amendment shall constitute the "agreement among such entities" regarding
allocation of the Noticed Shares referenced in Section III.C of the
Stockholders' Agreement.
7. Tag-Along Rights.
----------------
Doskocil acknowledges that pursuant to the Amended and Restated
Securityholders Agreement, the entities comprising the Enterprise Partners,
Westar Capital, Westar LLC and HBI have granted to certain other stockholders of
Dogloo certain tag-along rights. Notwithstanding the provisions of Section IV
of the Stockholders' Agreement, Doskocil and each Doskocil Transferee hereby
acknowledges and agrees that in the event of a transfer sale or other
disposition of shares of Company Stock following the Merger by any stockholder
of the Company (other than Doskocil or a Doskocil Transferee) to which the pro
rata sharing provisions of Section IV of the Stockholders' Agreement would
otherwise apply, the number of shares that Doskocil and the Doskocil Transferees
shall be permitted to sell in such transaction shall be determined in accordance
with Section 4.3 of the Amended and Restated Securityholders Agreement as if
Doskocil and the Doskocil Transferees were treated as an
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"Other Securityholder" under that Agreement. The remaining other provisions of
Section IV of the Stockholders' Agreement with regard to a tag-along rights
shall continue to apply.
8. Piggy-Back Registration.
-----------------------
Doskocil acknowledges that the parties to the Amended and Restated
Securityholders Agreement have certain registration rights as set forth therein
in the event of an underwritten public offering of the Company's capital stock.
Accordingly, notwithstanding Section 2.A. of the Registration Rights Agreement
which is attached as Exhibit A to the Stockholders' Agreement, Doskocil and each
Doskocil Transferee hereby acknowledges and agrees that in the event of an
underwritten public offering in which the Company and holders of Company Stock
elect to register a greater number of shares than allowed by the managing
underwriter, then the number of shares that Doskocil and each Doskocil
Transferee shall be permitted to register in such transaction shall be
determined in accordance with Section 5.2 of the Amended and Restated
Securityholders Agreement, as if Doskocil were treated as a "Securityholder"
under that Agreement. Thus, Doskocil and each Doskocil Transferee will have the
following registration rights in the event of a public offering:
If a registration pursuant to Section 5.1 of the Amended and Restated
Securityholders Agreement involves an Underwritten Public Offering (as
defined in the Amended and Restated Securityholders Agreement) and the
managing underwriter advises the Company that, in its view, the number of
shares of Common Stock which the Company and any holder of Registrable
Stock (as defined in the Amended and Restated Securityholders Agreement)
intend to include in such registration exceeds the largest number of
securities which can be sold without having an adverse effect on such
offering, including the price at which such securities can be sold (the
"Maximum Offering Size"), the Issuer will include in such registration, in
the following priority, up to the Maximum Offering Size:
(i) first, so much of the Common Stock proposed to be sold by the
Company as would not cause the offering to exceed the Maximum
Offering Size;
(ii) second, all Registrable Stock requested to be included in such
registration by any holder thereof pursuant to Section 5.1 of the
Amended and Restated Securityholders Agreement (allocated if
necessary for the offering not to exceed the Maximum Offering
Size, pro rata among such holders on the basis of the relative
number of shares of Registrable Stock so requested to be included
in such registration).
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9. Condition of Effectiveness of this Amendment.
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This Amendment will become effective concurrent with the closing of the
Merger. This Amendment shall terminate and have no further force and effect if
the Merger is not consummated on or before November 30, 1997.
10. Effect of this Amendment on the Remaining terms of the Stockholders'
--------------------------------------------------------------------
Agreement.
---------
Except as set forth herein, the Stockholders' Agreement remains unmodified
and in full force and effect.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the day and year first above written.
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
-----------------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
-----------------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS IV, L.P.
By: Enterprise Management Partners IV, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
-----------------------------------------
Charles D. Martin
Its: General Partner
5
<PAGE>
ENTERPRISE PARTNERS IV ASSOCIATES, L.P.
By: Enterprise Management Partners IV, L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
----------------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE MANAGEMENT PARTNERS CORPORATION
By: /s/ CHARLES D. MARTIN
----------------------------------------------
Charles D. Martin
Its: President
6
<PAGE>
DOSKOCILS:
/s/ BENJAMIN L. DOSKOCIL, SR.
--------------------------------------------------
Benjamin L. Doskocil, Sr.
/s/ MARY FRANCES DOSKOCIL
--------------------------------------------------
Mary Frances Doskocil
DOSKOCIL MANUFACTURING COMPANY, INC.
By: /s/ LARRY E. REMBOLD
-----------------------------------------------
Name: Larry E. Rembold
Title: President and
Chief Executive Officer
7
<PAGE>
WESTAR CAPITAL, L.P.
By: Westar Capital Associates, a limited
partnership
Its General Partner
By: /s/ JOHN W. CLARK
-----------------------------------------
John W. Clark
Title: General Partner
WESTAR CAPITAL II, LLC
By: Westar Capital Associates II, LLC
Its: Member
By: /s/ JOHN W. CLARK
-----------------------------------------
John W. Clark
Its: Member
8
<PAGE>
EXHIBIT 10.31
DOSKOCIL MANUFACTURING COMPANY, INC.
AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 DEFINITIONS................................................ 2
1.1 Definitions................................................ 2
ARTICLE 2 CORPORATE GOVERNANCE....................................... 5
2.1 Board of Directors......................................... 5
2.2 Removal.................................................... 5
2.3 Termination of Rights and Obligation....................... 6
ARTICLE 3 RESTRICTIONS ON TRANSFER................................... 6
3.1 General.................................................... 6
3.2 Legend on Securities....................................... 6
3.3 Permitted Transferees...................................... 7
ARTICLE 4 PREEMPTIVE RIGHTS; RIGHTS OF FIRST
OFFER; RIGHTS TO JOIN IN SALE;
REPURCHASE RIGHT AND DRAG ALONG
RIGHTS..................................................... 7
4.1 Preemptive Rights.......................................... 7
4.2 Rights of First Offer on Transfer of Equity Securities..... 9
4.3 Right to Join in Sale...................................... 11
4.4 Repurchase Right........................................... 11
4.5 Right to Compel Participation in Certain Transactions...... 12
4.6 Mandatory Repurchase....................................... 13
4.7 Improper Transfer and Termination of Article 4 Provisions.. 14
ARTICLE 5 REGISTRATION RIGHTS........................................ 14
5.1 Incidental Registration.................................... 14
5.2 Holdback Agreements........................................ 15
5.3 Registration Procedures.................................... 16
5.4 Indemnification by the Issuer.............................. 18
5.5 Indemnification by Participating Holders................... 18
5.6 Conduct of Indemnification Proceedings..................... 19
5.7 Contribution............................................... 20
5.8 Participation in Public Offering........................... 21
5.9 Size of Initial Public Offering............................ 21
5.10 Form S-3 Registrations..................................... 21
ARTICLE 6 CONVERSION OF SERIES B AND SERIES C
PREFERRED STOCK............................................ 22
6.1 Right to Convert........................................... 22
6.2 Mechanics of Conversion.................................... 24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 7 MISCELLANEOUS.............................................. 24
7.1 Debt Approval Right........................................ 24
7.2 Transaction and Advisory Fees.............................. 25
7.3 Termination of Prior Agreements............................ 25
7.4 Entire Agreement........................................... 25
7.5 Binding Effect; Benefit.................................... 25
7.6 Assignability.............................................. 25
7.7 Amendment; Waiver; Termination............................. 26
7.8 Notices.................................................... 26
7.9 Headings................................................... 27
7.10 Counterparts............................................... 28
7.11 Applicable Law............................................. 28
7.12 Specific Enforcement....................................... 28
7.13 Arbitration................................................ 28
7.14 Receipt of Information..................................... 29
7.15 Distributions.............................................. 29
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT
THIS AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT (the "Agreement")
---------
is entered into as of September 19, 1997, by and among Doskocil Manufacturing
Company, Inc., a Texas corporation (the "Issuer"), Dogloo, Inc., a California
------
corporation ("Dogloo"), Westar Capital, a California limited partnership
------
("Westar Capital"), Westar Capital II, LLC, a Delaware limited liability company
--------------
("Westar LLC"), HBI Financial Inc. a Washington corporation ("HBI" and together
---------- ---
with Westar Capital and Westar LLC, "Westar"), Enterprise Partners III, L.P., a
------
Delaware limited partnership ("Enterprise III"), Enterprise Partners III
--------------
Associates, L.P., a Delaware limited partnership ("Enterprise III Associates"),
-------------------------
Enterprise Partners IV, L.P., a Delaware limited partnership ("Enterprise IV"),
-------------
Enterprise Partners IV Associates, L.P., a Delaware limited partnership
("Enterprise IV Associates" and together with Enterprise III, Enterprise III
------------------------
Associates and Enterprise IV, "Enterprise Funds"), Aurelio F. Barreto III
----------------
("Barreto"), and the other securityholders of the Issuer who are or become
-------
parties hereto (the "Other Securityholders"). Westar Capital, Westar LLC,
---------------------
Enterprise III, Enterprise III Associates, Enterprise IV, Enterprise IV
Associates and HBI are sometimes hereinafter referred to individually as an
"Investor" and collectively as the "Investors."
-------- ---------
R E C I T A L S
WHEREAS, pursuant to the Stock Purchase and Exchange Agreement dated
as of September 22, 1995 among certain of the parties hereto and Darrell R.
Paxman (the "Stock Purchase Agreement"), Westar, Enterprise III, Enterprise III
------------------------
Associates, Enterprise IV, Enterprise IV Associates and HBI, acquired securities
of Dogloo;
WHEREAS, certain of the Other Securityholders had previously entered
into Common Stock Subscription Agreements, Repurchase Agreements and Buy-Sell
Agreements (collectively, the "Security Agreements") with Dogloo and desired to
-------------------
terminate such Security Agreements and supersede them with a Securityholders
Agreement in consideration for the execution and delivery of the Stock Purchase
Agreement and a Securityholders Agreement dated September 22, 1995 by Dogloo and
the Investors and the consummation of the transactions contemplated therein by
the parties thereto and such transactions were consummated and the
Securityholders Agreement was executed;
WHEREAS, certain of the parties hereto and Benjamin L. Doskocil, Sr.
and Mary Frances Doskocil (collectively, the "Doskocils") are parties to a
---------
Stockholders Agreement (the "DMC Stockholders Agreement") dated as of July 1,
--------------------------
1997, as amended, that was entered into at the same time as was that certain
Recapitalization Agreement by and among Enterprise III, Enterprise III
Associates, Enterprise IV, Enterprise IV Associates, Enterprise Management
Partners Corporation, Enterprise Partners Texas Company, L.L.C., the Doskocils,
Bed Rock International, Inc., Issuer and Spectrum Polymers, Ltd.; and
<PAGE>
WHEREAS, Dogloo plans to merge with and into Issuer with Issuer as the
surviving corporation (the "Merger") and all of the parties hereto desire to
------
enter into this Agreement to amend and restate the existing Securityholders
Agreement dated September 22, 1995 and to govern certain of their rights, duties
and obligations in respect of the capital stock of the Issuer after consummation
of the Merger;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. (a) The following terms, used herein, have the
-----------
following meanings (except as modified by any provision of this Agreement):
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person; provided, that no securityholder of the Issuer shall be deemed an
Affiliate of any other securityholder solely by reason of any investment in the
Issuer. For the purpose of this definition, the term "control" (including with
correlative meanings, the terms "controlling" "controlled by" and "under common
control with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"Articles of Incorporation" means the articles of incorporation of the
Issuer, as amended from time to time.
"Board" means the board of directors of the Issuer.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Texas are authorized by law to close.
"Bylaws" means the Bylaws of the Issuer, as amended from time to time.
"Common Stock" shall mean the common stock of the Issuer.
"Equity Securities" means Common Stock, securities convertible into or
exchangeable for Common Stock, and options, warrants and other rights to acquire
Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2
<PAGE>
"Fully Diluted" means, with respect to Common Stock and without
duplication, all outstanding shares of, and all shares issuable in respect of
securities convertible into or exchangeable for, Common Stock, stock
appreciation rights or options, warrants and other irrevocable rights to
purchase or subscribe for Common Stock or securities convertible into or
exchangeable for Common Stock and any Person shall be deemed to own such number
of Fully Diluted shares of Common Stock as such Person has the right to acquire
from any other Person (including the Issuer).
"Indebtedness" means any indebtedness for borrowed money created,
incurred, assumed or guaranteed by the Issuer, whether now existing or hereafter
arising, under any working capital or other credit agreement or facility with a
commercial bank, insurance company or other recognized financial institution or
incurred in connection with any past or future acquisitions by the Issuer,
including, without limitation, any sale/leaseback financing on equipment or real
property of the Issuer.
"Initial Public Offering" means the initial firmly underwritten public
offering after the date hereof of Common Stock pursuant to an effective
registration statement under the Securities Act.
"Percentage Ownership" means, with respect to any Securityholder or
any group of Securityholders at any time, (i) the number of shares of Fully
Diluted Common Stock that such Securityholder or group of Securityholders owns
at such time, divided by (ii) the total number of shares of Fully Diluted Common
Stock at such time.
"Person" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Registrable Stock" means all shares of Common Stock owned by any
Securityholder until (i) a registration statement covering such shares of Common
Stock has been declared effective by the SEC and such shares have been disposed
of pursuant to such effective registration statement or (ii) such shares are
sold under circumstances in which all of the applicable conditions of Rule 144
(or any similar rule then in force) under the Securities Act are met or such
shares may be sold pursuant to Rule 144(k) (or any similar rule then in force.
"Registration Expenses" means (i) all registration and filing fees,
(ii) fees and expenses of compliance with securities or blue sky laws, (iii)
printing expenses, (iv) reason-able fees and disbursements of one counsel for
the Issuer and the Selling Securityholder(s) and customary fees and expenses for
independent certified public accountants retained by the Issuer, (v) fees and
expenses in connection with any review of underwriting arrangements by the
National Association of Securities Dealers, Inc. (the "NASD") and (vi) fees and
----
disbursements of underwriters customarily paid by issuers or sellers of
securities, but shall not include any underwriting fees, discounts or
commissions attributable to the sale of
3
<PAGE>
Registrable Stock, or any out-of-pocket expenses of the holders of Registrable
Stock or any fees and expenses of underwriter's counsel.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholder" means each Person (other than the Issuer) who shall
be a party to this Agreement, whether in connection with the execution and
delivery hereof as of the date hereof, pursuant to Section 7.6 or otherwise so
long as such Person shall "beneficially own" (as such term is defined in Rule
13d-3 under the Exchange Act) any Equity Securities of the Issuer.
"Series B Preferred Stock" means the Series B Preferred Stock of the
Issuer, such shares representing shares of Dogloo Series A Preferred Stock that
were converted into shares of Series B Preferred Stock as part of the Merger.
"Series C Preferred Stock" means the Series C Preferred Stock of the
Issuer, such shares representing shares of Dogloo Series B Preferred Stock that
were converted into shares of Series C Preferred Stock of the Issuer as part of
the Merger.
"Shareholders' Equity" means an amount equal to (i) total assets of
the Issuer, less (ii) total liabilities of the Issuer as set forth in the most
recent financial statements of the Issuer.
"Third Party" means a prospective purchaser of shares from a
Securityholder in a bona-fide, arm's-length transaction.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
Term Section
- -------------------------------------------------------------
<S> <C>
Advisory Fee 7.2
beneficially own 1.1(a)
Call Period 4.4
control 1.1(a)
Disposing Securityholder 4.3(a)
Doskocils Recitals
Doskocil Transferees 3.1(b)
Drag Along Sellers 4.5(a)
EBITDA 4.4(a)
EBITDA Multiple 4.4(a)
Eligible Securityholder 4.1
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
First Delivery Date 4.4(b)
First Offer Terms 4.2(a)
Indemnified Party 5.6
Indemnifying Party 5.6
Mandatory Repurchase Notice 4.6(a)
Maximum Offering Size 5.1(b)
Merger Recitals
NASD 1.1(a)
Notice of Intention 4.2(a)
Notice of Issuer's Exercise 4.2(b)
Notice of Offeree Securityholder Exercise 4.2(b)
Offered Securities 4.2(a)
Other Securityholders Preamble
Participating Holder 4.3(b)
Permitted Transferee 3.3
Private Transaction 3.1(b)
Repurchase Price 4.4(a)
Restriction Termination 3.1(a)
Sale Proposal 4.2(a)
Second Delivery Date 4.4(b)
Section 4.1 Notice 4.1
Section 4.5 Transaction 4.5
Section 4.5 Sale Price 4.5
Security Agreements Recitals
Selling Securityholder 4.2(a)
Senior Debt 6.1
Series C Redemption Price 6.1
Stock Purchase Agreement Recitals
Subordinated Debt 6.1
Transfer 3.1(a)
</TABLE>
ARTICLE 2
CORPORATE GOVERNANCE
2.1 Board of Directors. Subject to Section 2.3, each Securityholder
------------------
entitled to vote for the election of directors to the Board agrees that he or it
will vote his or its securities or execute consents, as the case may be, and
take all other necessary action (including causing the Issuer to call a special
meeting of shareholders) to ensure that Aurelio F. Barreto is elected to the
Board of Directors of the Issuer.
2.2 Removal. Each Securityholder agrees that if, at any time during
-------
the term of this Agreement, it is then entitled to vote for the removal of
directors of the Issuer, it will not vote any of its securities in favor of the
removal of Mr. Barreto unless Mr.
5
<PAGE>
Barreto shall have consented to such removal in writing or the rights of Mr.
Barreto to a Board seat have been terminated in accordance with Section 2.3
hereof.
2.3 Termination of Rights and Obligation. The right of Barreto to be
------------------------------------
a member of the Board pursuant to this Agreement shall terminate at such time as
Barreto ceases to own at least ten percent (10%) of the Fully Diluted Common
Stock of the Issuer.
ARTICLE 3
RESTRICTIONS ON TRANSFER
3.1 General. (a) Subject to subsection (b) below, until the earlier
-------
of (i) March 1, 2001 or (ii) consummation of an Initial Public Offering (the
earlier of (i) or (ii) is hereinafter referred to as the "Restriction
-----------
Termination"), Barreto may not, directly or indirectly, sell, assign, transfer,
- -----------
grant a participation in, pledge or otherwise dispose of ("Transfer") any Equity
--------
Securities, except transfers permitted by Section 3.3.
(b) Prior to the consummation of an Initial Public Offering, no
Securityholder may transfer any Equity Securities except (i) transfers permitted
by Section 3.3, (ii) transfers upon exercise of registration rights pursuant to
Article 5, and (iii) subject to Sections 4.2 and 4.3, transfers to any other
Person in any Private Transaction; provided, that no Equity Securities may be
transferred pursuant to clauses (i) or (iii) hereof to any Person, other than
Doskocil or a Doskocil Transferee (as those terms are defined in the DMC
Stockholders Agreement as it may be amended from time to time), unless such
Person shall have agreed in writing to be bound by the terms of this Agreement.
As used herein, "Private Transaction" means any transfer not covered by clause
-------------------
(i) or (ii) above.
(c) No Securityholder may transfer any Equity Securities at any time
except in compliance with applicable federal and state securities laws.
3.2 Legend on Securities. (a) In addition to any other legend that
--------------------
may be required, each certificate for Equity Securities or any other securities
of the Issuer that is issued to any Securityholder shall bear a legend
addressing the restrictions imposed on transfer of the shares in substantially
the form set forth below or that is otherwise satisfactory in form to the
Issuer. To the extent that the share certificates have an existing legend that
requires modification, the securityholder shall surrender the certificate to the
Issuer so that an appropriate legend may be placed on the certificate or a new
certificate issued with such legend.
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
SUCH SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION OR NO-ACTION LETTER
6
<PAGE>
ISSUED BY THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH REGISTRATION IS
NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. THIS
SECURITY IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET
FORTH IN THE SECURITYHOLDERS AGREEMENT, COPIES OF WHICH MAY BE OBTAINED
UPON REQUEST FROM DOSKOCIL MANUFACTURING COMPANY, INC. AND ANY SUCCESSOR
THERETO."
(b) If any Equity Securities or other securities of the Issuer cease
to be subject to any and all restrictions on transfer set forth in this
Agreement, the Issuer shall, upon the written request of the holder thereof,
issue to such holder without charging therefor a new certificate evidencing such
Equity Securities or other securities of the Issuer without the second sentence
of the legend required by Section 3.2(a) endorsed thereon.
3.3 Permitted Transferees. Notwithstanding anything in this
---------------------
Agreement to the contrary, any Securityholder may at any time transfer any or
all of its Equity Securities to one or more of its Permitted Transferees without
the consent of the Board or any other Securityholder or group of Securityholders
and without compliance with Sections 4.2 and 4.3, so long as (i) such Permitted
Transferee shall have agreed in writing to be bound by the terms of this
Agreement, including, with respect to the Other Securityholders, Section 4.4,
and (ii) the transfer to such Permitted Transferee is not in violation of
applicable federal or state securities laws. For purposes of this Section 3.3,
"Permitted Transferee" means (A) the Issuer, (B) with respect to any Investor,
--------------------
any Affiliate or partner thereof, (C) (x) a Securityholder's spouse or (y) a
Securityholder's siblings or lineal descendants, so long as the Securityholder
retains the right to vote the Equity Securities being transferred, (D) a Person
who acquires Equity Securities from any Securityholder pursuant to a will or the
laws of descent and distribution, and (E) any trust the beneficiaries of which
consist only of a Securityholder and/or such Securityholder's spouse, siblings
and lineal descendants, so long as such Securityholder retains the right to vote
such Equity Securities, (F) any Investor, and (G) Doskocil or a Doskocil
Transferee (as those terms are defined in the DMC Stockholders' Agreement as it
may be amended from time to time).
ARTICLE 4
PREEMPTIVE RIGHTS; RIGHTS OF FIRST OFFER;
RIGHTS TO JOIN IN SALE; REPURCHASE RIGHT AND
DRAG ALONG RIGHTS
4.1 Preemptive Rights. The Issuer shall provide to each
-----------------
Securityholder who beneficially owns at least ten percent (10%) (5% in the case
of Barreto) of the Fully Diluted Common Stock (an "Eligible Securityholder")
-----------------------
with a written notice (a "Section 4.1 Notice") of any proposed issuance by the
------------------
Issuer of Equity Securities at least fifteen (15) days prior to the proposed
issuance date. Such notice shall specify the price at which the Equity
Securities are to be issued and the other material terms of the issuance. Each
of Enterprise
7
<PAGE>
III Associates, Enterprise IV and Enterprise IV Associates shall be deemed to be
an "Eligible Securityholder" for purposes of this Agreement as long as
-----------------------
Enterprise Funds own sufficient shares of Equity Securities to qualify as an
Eligible Securityholder. Each of Westar Capital, Westar LLC and HBI shall be
deemed to be an "Eligible Securityholder" for purposes of this Agreement as long
-----------------------
as Westar own sufficient shares of Equity Securities to qualify as an Eligible
Securityholder. Each Eligible Securityholder shall be entitled to purchase, at
the price and on the terms specified in such Section 4.1 Notice, the Equity
Securities proposed to be issued on a pro rata basis based upon such Eligible
Securityholder's Percentage Ownership. Each Eligible Securityholder may
exercise its rights under this Section 4.1 by delivering written notice of its
election to purchase Equity Securities to the Issuer within fifteen (15) days of
receipt of the Section 4.1 Notice. A delivery of such a written notice (which
notice shall specify the number of shares (or amount) of Equity Securities to be
purchased by each Eligible Securityholder) shall constitute a binding agreement
of such Eligible Securityholder to purchase, at the price and on the terms
specified in the Section 4.1 Notice, the number of shares (or amount) of Equity
Securities specified in such written notice. The Issuer shall have one hundred
twenty (120) days from the date of the Section 4.1 Notice to consummate the
proposed issuance of any or all of such Equity Securities which have not been
elected to be purchased by the Eligible Securityholders in accordance with this
Section 4.1 at the price and upon terms that are not materially less favorable
to the Issuer than those specified in the Section 4.1 Notice. At the
consummation of such issuance, the Issuer shall issue certificates representing
the Equity Securities to be purchased by the Eligible Securityholders receiving
a Section 4.1 Notice registered in the name of such Eligible Securityholders,
against payment thereby of the purchase price for such Equity Securities. If the
Issuer proposes to issue Equity Securities after such 120-day period, it shall
again comply with the procedures set forth in this Section 4.1.
This Section 4.1 shall not apply to issuances of Equity Securities (i)
to employees, directors and consultants of the Issuer or any Affiliate or
subsidiary of the Issuer pursuant to employee stock option, stock purchase or
other benefit plans or arrangements approved by the Board (including, without
limitation, upon the exercise of employee stock options), (ii) in connection
with an Initial Public Offering, (iii) in connection with any bona fide, arm's-
length restructuring of outstanding debt of the Issuer or any Affiliate or
subsidiary of the Issuer, (iv) in connection with any transaction the purpose of
which is other than to raise financing, or (v) in connection with any bona fide,
arm's-length direct or indirect merger, acquisition, purchase of assets or
similar transaction, unless, with respect to (iii), (iv) and (v) above, any
Investor will, in connection with such transactions, acquire Equity Securities,
(vi) the exercise or release from escrow of the Warrants (as defined in that
certain Securities Purchase Agreement (herein so called) dated as of July 1,
1997 among the Issuer and Doskocil Funding, Inc., NationsBridge, L.L.C.,
(Doskocil Funding, Inc. and NationsBridge LLC are referred to herein as the
"Bridge Lenders") and (vii) to lenders other than Westar or Enterprise Funds or
--------------
their Affiliates in connection with any refinancing of Issuer indebtedness. In
any instance in which Barreto has delivered written notice electing to purchase
Equity Securities pursuant to this Section 4.1, Barreto shall be entitled to pay
the purchase price of such Equity Securities by exchanging shares of Series B
Preferred Stock then held by Barreto and which are subject to redemption on the
next Series B Redemption
8
<PAGE>
Date or Dates, valued at the then existing Series B Redemption Price (as defined
in the Articles of Incorporation), less all accrued and unpaid dividends with
respect to such Series B Preferred Stock to be exchanged (which shall be paid to
Barreto on the immediately succeeding dividend payment date); provided, that
Barreto shall have no right to pay the purchase price of such Equity Securities
in connection with the exercise of his preemptive rights pursuant to this
Section 4.1 by exchanging Subordinated Debt (as defined in Section 6.1 below)
received in exchange for the Series B Preferred Stock held by Barreto. The
Issuer shall not be under any obligation to consummate any proposed issuance of
Equity Securities, regardless of whether it shall have delivered a Section 4.1
Notice in respect of such proposed issuance.
4.2 Rights of First Offer on Transfer of Equity Securities. (a)
------------------------------------------------------
Except for the transfer of Equity Securities to a Permitted Transferee, if at
any time any Securityholder shall desire to sell or otherwise dispose of
(including by gift) Equity Securities (such Securityholder being referred to
herein as a "Selling Securityholder"), such Selling Securityholder shall deliver
----------------------
written notice of its desire to sell Equity Securities (a "Notice of
---------
Intention"), accompanied by a copy of a proposal relating to such sale (the
- ---------
"Sale Proposal"), to each Eligible Securityholder as well as the Issuer, setting
-------------
forth such Selling Securityholder's desire to make such sale, the number and
class of Equity Securities proposed to be transferred (the "Offered Securities")
------------------
and the cash price (or the non-cash consideration) at which such Selling
Securityholder proposes to sell the Offered Securities and other terms
applicable thereto (the "First Offer Terms").
-----------------
(b) Upon receipt of the Notice of Intention, the Issuer shall have
the first right to purchase in whole but not in part, all of the Offered
Securities on the First Offer Terms by delivering a written notice ("Notice of
---------
Issuer's Exercise") to the Selling Securityholder within fifteen (15) days after
- -----------------
receipt of the Notice of Intention and the Eligible Securityholders receiving
the Sale Proposal (the "Offeree Securityholders") each shall have the right to
-----------------------
offer to purchase on the First Offer Terms up to its pro rata share of the
Offered Securities or in such other proportion as the Offeree Securityholders
may agree by delivering written notice ("Notice of Offeree Securityholder
--------------------------------
Exercise") to the Selling Securityholder and the Issuer within fifteen (15) days
- --------
of receipt of the Notice of Intention. In the event the Issuer does not exercise
its right to purchase the Offered Securities pursuant to this Section 4.2(b),
those Offeree Securityholders which have delivered a Notice of Offeree
Securityholder Exercise within fifteen (15) days of their receipt of the Notice
of Intention electing to purchase their pro rata share of the Offered Securities
shall be entitled to purchase their pro rata shares (based upon the Fully
Diluted Common Stock held by each such electing Offeree Securityholder compared
to the Fully Diluted Common Stock held by all such electing Offeree
Securityholders). The Issuer shall not purchase any Offered Securities if at
such time the Issuer has not redeemed for any reason all shares of Series B
Preferred Stock then required to have been redeemed by it or the Issuer is not
then current on Subordinated Debt received in exchange for shares of Series B
Preferred Stock.
(c) In the event that the Issuer exercises its rights to purchase all
of the Offered Securities or any Offeree Securityholder exercises its rights to
purchase any or all of
9
<PAGE>
the Offered Securities in accordance with Section 4.2(b) then the Selling
Securityholder must sell the Offered Securities to the Issuer or such Offeree
Securityholder within thirty (30) days from the date of delivery of the Notice
of Issuer Exercise or the last Notice of Offeree Exercise timely received, as
applicable; provided, that the Selling Securityholder shall not be required to
sell the Offered Securities unless the Issuer and the Offeree Securityholders
acquire all of the Offered Securities.
(d) If all notices required to be given pursuant to Subsections
4.2(a) through (c) have been duly given and the Issuer and the Offeree
Securityholders determine not to exercise their respective options to purchase
the Offered Securities on the First Offer Terms or determine to purchase less
than all of the Offered Securities, then the Selling Securityholder shall have
the right, for a period of ninety (90) calendar days from the expiration of the
applicable option period pursuant to Section 4.2(b) with respect to such Sale
Proposal to sell to any Third Party the Offered Securities on terms not
materially less favorable to the Selling Securityholder than those specified in
the First Offer Terms.
(e) Upon the consummation of any such purchase and sale pursuant to
Section 4.2(c), the Selling Securityholder shall deliver certificates evidencing
the Offered Securities sold duly endorsed, or accompanied by written instruments
of transfer in form satisfactory to the purchaser thereof duly executed by the
Selling Securityholder, free and clear of any liens, against delivery of the
purchase price provided in the First Offer Terms payable in the manner specified
in the First Offer Terms.
(f) In the event that the Issuer and the Offeree Securityholders do
not exercise their options to purchase the Offered Securities, and the Selling
Securityholder shall not have sold all of the Offered Securities to a Third
Party Purchaser for any reason before the expiration of the ninety (90) day
period described above, such Selling Securityholder shall not give another
Notice of Intention pursuant to Section 4.2(a) for a period of ninety (90)
calendar days after such ninety (90) day period.
(g) In the event the Selling Securityholder (other than Benjamin
Doskocil) proposes to sell or otherwise dispose of (including by gift) any part
of the Offered Securities for consideration other than cash, the Sale Proposal
shall include the fair market value of the securities or the proposed non-cash
consideration (as determined in good faith by the Board) and the Issuer or any
Offeree Securityholder which exercises its option to purchase Offered Securities
pursuant to Section 4.2(b), shall be entitled to pay the purchase price in
either cash or a non-cash consideration equivalent to the value or the non-cash
consideration described in the Sale Proposal.
(h) In consideration of this Agreement and acknowledgment of the
Issuer's offer to purchase the shares of Dogloo Common Stock held by certain
minority stockholders of Dogloo in connection with the Merger, each of parties
hereto hereby waives any and all rights of first offer to purchase such shares
which it may have had under the Securityholders Agreement dated as of September
22, 1995.
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<PAGE>
4.3 Right to Join in Sale. (a) Notwithstanding anything to the
---------------------
contrary contained herein, if any Eligible Securityholder proposes to sell,
dispose of or otherwise transfer Equity Securities pursuant to Section 4.2
(other than a transfer to a Permitted Assignee) (a "Disposing Securityholder"),
------------------------
such Disposing Securityholder shall refrain from effecting the consummation
thereof, each Other Securityholder shall have been afforded the opportunity to
join in such sale on a pro rata basis, as hereinafter provided. For purposes of
this Section 4.3, Barreto shall be deemed to be an Eligible Securityholder for
so long as he continues to hold any Equity Securities, provided, that in the
event Barreto holds less than five percent (5%) of the Fully Diluted Common
Stock and elects to join in such sale, the Disposing Securityholder shall have
the right to purchase or otherwise sell in a transaction effected pursuant to
this Section 4.3, all Equity Securities then held by Barreto. In addition, for
purposes of this Section 4.3, Doskocil and each Doskocil Transferee (as those
terms are defined in the DMC Stockholders Agreement as it may be amended from
time to time) shall be deemed to be "Other Securityholders" and entitled to the
---------------------
benefits of this Section 4.3.
(b) Prior to the transfer pursuant to Section 4.3(a) of any Equity
Securities held by a Disposing Securityholder, the Other Securityholders may
elect to participate in the contemplated transfer by delivering written notice
to the Disposing Securityholder and the Issuer within thirty (30) calendar days
after receipt of the offer from the Disposing Securityholder. If any Other
Securityholder has elected to participate in such sale (each a "Participating
-------------
Holder"), the Disposing Securityholder and each Participating Holder will be
- ------
entitled to sell in the contemplated sale Equity Securities equal to the product
of (i) the Fully Diluted Common Stock represented by the Equity Securities held
by such Disposing Securityholder or such Participating Holder, as the case may
be, divided by the Fully Diluted Common Stock held by the Disposing
Securityholder and all Participating Holders times (ii) the Fully Diluted Common
Stock to be sold in the contemplated sale. The Disposing Securityholder agrees
to use its best efforts to obtain the agreement of the prospective transferee to
the participation of the Participating Holders in the contemplated transfer and
agrees not to transfer any Securities to the prospective transferee if such
prospective transferee declines to allow such participation. Such purchase
shall be made at the same price and on such other terms and conditions as the
prospective transferee has offered the Disposing Securityholder; provided, that
the purchase price with respect to any warrant shall be equal to such purchase
prices less the exercise price then applicable upon exercise of such warrant
under the term thereof.
4.4 Repurchase Right. (a) If any Other Securityholder (other than
----------------
Barreto) who is an employee of the Issuer shall cease to be an employee of the
Issuer (whether as a result of resignation, retirement, death, permanent
disability or termination by the Company for any reason or no reason
whatsoever), the Issuer shall have the right during a sixty (60) day period
after such cessation or termination (the "Call Period") to repurchase, and such
-----------
Other Securityholder or its Permitted Transferees shall be obligated to sell to
the Issuer, all Equity Securities held by such Other Securityholder or which
have been transferred by such Other Securityholder to a Permitted Transferee at
a price equal to the Repurchase Price (as defined below). The right of the
Issuer to repurchase such Equity Securities pursuant to this Section 4.4 shall
terminate upon the expiration of the Call Period. If the Issuer elects to
11
<PAGE>
exercise its repurchase rights pursuant to this Section 4.4, such repurchase
shall be consummated immediately upon payment of the Repurchase Price by check
or promissory note pursuant to Section 4.4(b) below. For purposes of this
Agreement, "Repurchase Price" means the greater of:
----------------
1. The product of (A) the quotient of (i) the EBITDA Multiple less
the principal amount of Indebtedness outstanding and the aggregate redemption
values of all then outstanding series of preferred stock divided by (ii) the
number of Shares of Fully Diluted Common Stock, and (B) the number of Equity
Securities held by the Other Securityholder; and
2. An amount (including principal and interest) which the Other
Securityholder would have received if he or she had invested the Original Price
(as defined in the Stock Purchase Agreement) at seven percent (7%) compounded
(on an annual basis) interest for the time that such Other Securityholder held
his or her Equity Securities.
For purposes of this Section 4.4, "EBITDA" means net income of the Issuer
------
for the Issuer's most recent fiscal year for which audited financial statements
are available plus interest expense, income tax expense, depreciation expense
and amortization expense as set forth in such audited financial statements. The
EBITDA shall be determined by the Issuer's independent public accountants, whose
determination shall be conclusive, absent manifest error. For purposes of this
Section 4.4, "EBITDA Multiple" means EBITDA multiplied by a factor of five (5).
---------------
(b) If the amount due to any Other Securityholder or its Permitted
Transferees for the repurchase of Equity Securities pursuant to this Section 4.4
exceeds fifty thousand dollars ($50,000), the Issuer may, in its discretion,
elect to pay such amount in three (3) equal annual installments, the first
installment to be made within thirty (30) days of the date of delivery of the
certificates representing the repurchased Equity Securities (the "First Delivery
--------------
Date"), the second installment to be paid on the first anniversary date of the
- ----
First Delivery Date (the "Second Delivery Date") with interest accruing from the
--------------------
First Delivery Date at the prime rate of the Issuer's primary bank lender, and
the third installment to be paid on the second anniversary of the First Delivery
Date, with interest accruing from the Second Delivery Date at the prime rate of
the Issuer's primary bank lender.
4.5 Right to Compel Participation in Certain Transactions. (a) If a
-----------------------------------------------------
majority in interest (based upon ownership of Fully Diluted Common Stock by the
Eligible Securityholders) of the Eligible Securityholders (the "Drag Along
----------
Seller(s)") should propose to transfer all shares of Common Stock that they own
- ---------
or have the right to acquire to any Third Party, or propose to consummate a
combination transaction with a Third Party by means of any transaction or series
of transactions (including, without limitation, any reorganization, merger or
consolidation), or propose to sell all or substantially all of the Issuer's
assets to a Third Party (any such stock sale, combination transaction or asset
sale, a "Section 4.5 Transaction"), the Drag Along Seller(s) may require all but
-----------------------
not less than all Other Securityholders (other than Barreto) to participate in
such stock transfer and/or to vote
12
<PAGE>
their shares in favor of such transaction. The Drag Along Seller(s) shall
provide written notice of such Section 4.5 Transaction to all other
Securityholders (a "Section 4.5 Notice") and a copy of the agreement pursuant to
------------------
which such transaction is to be effected. The Section 4.5 Notice shall identify
the Third Party, and, in the case of a stock sale, the number of shares of
Common Stock subject to the Section 4.5 Transaction, the consideration per share
of Common Stock for which a transfer is proposed to be made (the "Section 4.5
-----------
Sale Price") and all other material terms and conditions of the Section 4.5
- ----------
Transaction. In the case of a stock sale, each Securityholder shall be required
to participate in the Section 4.5 Transaction on the terms and conditions set
forth in the Section 4.5 Notice and to tender all of his, her or its Securities
as set forth below. The price of such transfer shall be the Section 4.5 Sale
Price in the case of shares of Common Stock, and in the case of securities
convertible into Common Stock shall be the Section 4.5 Sale Price multiplied by
the number of shares of Common Stock into which such securities are convertible.
In the case of a stock sale, within ten (10) Business Days following the date of
the Section 4.5 Notice, each Securityholder shall deliver to a representative of
the Drag Along Seller(s) designated in the Section 4.5 Notice certificates or
other documents representing all Securities held by such Securityholders, duly
endorsed, together with all other documents required to be executed in
connection with such Section 4.5 Sale or, if such delivery is not permitted by
applicable law, an unconditional agreement to deliver such securities pursuant
to this Section 4.5(a) at the closing for such Section 4.5 Sale against delivery
to Securityholder of the consideration therefor. If any Securityholder should
fail to deliver such certificates or other documents to the Drag Along
Seller(s), the Issuer shall cause the books and records of the Issuer to show
that such Securities are bound by the provisions of this Section 4.5(a) and that
such Securities shall be transferred to the Third Party immediately upon
surrender for transfer.
(b) In the case of a stock sale, promptly after the consummation of
the transfer of Securities of the Drag Along Seller(s), and all other
Securityholders, the Drag Along Seller(s) shall give notice thereof to the other
Securityholders, shall remit to such Securityholders who have surrendered their
certificates or other documents, as the case may be, the total consideration for
the Securities transferred pursuant hereto and shall furnish such other evidence
of the completion and time of completion of such transfer and the terms thereof
as may be reasonably requested.
4.6 Mandatory Repurchase.
--------------------
(a) Subject to the terms and conditions of this Agreement, the Issuer
agrees to repurchase the Securities held by the Other Securityholders in
accordance with the terms of this Section 4.6. Each Other Securityholder who
desires to exercise his or her rights under this Section 4.6 must elect to
effectuate such repurchase by giving the Issuer written notice thereof (the
"Mandatory Repurchase Notice") no earlier than January 1, 2000, and not later
- ----------------------------
than June 30, 2000 with respect to Other Securityholders as of the date hereof
and, with respect to any persons who become parties hereto after the date hereof
the application and timing of the provisions of this Section 4.6 shall be
specified by agreement between the Issuer and such persons.
13
<PAGE>
(b) The price per share to be paid by the Issuer shall be the
Repurchase Price; provided, that for purposes of this Section 4.6, EBITDA
Multiple shall mean EBITDA multiplied by a factor of five (5).
(c) The Issuer's obligation to repurchase the Securities held by the
Other Securityholders who exercise their right hereunder is subject to the
following conditions precedent: (i) the Securities shall not be subject to any
lien, encumbrance, pledge, or other interest of any third party, and shall not
have been transferred in violation of applicable law, or the restrictions on
transfer imposed by this Agreement; (ii) the repurchase of such Securities shall
not violate any loan covenant or other provision of any document or agreement
evidencing Indebtedness existing on or after the date hereof; and (iii) the
repurchase shall not violate applicable laws restricting corporate distributions
to shareholders.
(d) The closing of the mandatory repurchase shall be no earlier than
thirty (30) and no later than ninety (90) days following June 30, 2000. The
Repurchase Price shall be paid in cash at the closing. Each Other
Securityholder exercising its rights hereunder shall surrender the original
certificate evidencing the Securities and shall sign such stock assignments and
other documents as the Issuer may reasonably request in order to effectuate the
transfer.
4.7 Improper Transfer and Termination of Article 4 Provisions. Any
---------------------------------------------------------
attempt to transfer any securities of the Issuer not in compliance with this
Agreement shall be null and void and neither the Issuer nor any transfer agent
shall give any effect in the Issuer's records to such attempted transfer. The
provisions of this Article 4 shall terminate upon the consummation of an Initial
Public Offering.
ARTICLE 5
REGISTRATION RIGHTS
5.1 Incidental Registration. (a) If the Issuer proposes to register
-----------------------
any of its Common Stock under the Securities Act (other than a registration, (A)
on Form S-8 or S-4 or any successor or similar forms, (B) relating to Common
Stock issuable upon exercise of employee stock options, employee stock purchases
or in connection with any employee benefit or similar plan of the Issuer or (C)
in connection with a direct or indirect merger, acquisition or other similar
transaction) whether or not for sale for its own account, it will each such
time, subject to the provisions of Section 5.1(b) hereof, give prompt written
notice at least thirty (30) days prior to the anticipated filing date of the
registration statement relating to such registration to each holder of
Registrable Stock, which notice shall set forth such holders rights under this
Section 5.1 and shall offer all such holders of Registrable Stock the
opportunity to include in such registration statement such number of shares of
Registrable Stock as each such holder may request. Upon the written request of
any such holder of Registrable Stock made within fifteen (15) days after the
receipt of notice from the Issuer (which request shall specify the number of
shares of Registrable Stock intended to be disposed of by such holder), the
Issuer will use its best efforts to effect the registration under
14
<PAGE>
the Securities Act of all Registrable Stock which the Issuer has been so
requested to register by such holders, to the extent requisite to permit the
disposition of the Registrable Stock so to be registered; provided, that (i) if
such registration involves an Underwritten Public Offering, all such holders
requesting to be included in the Issuer's registration must sell their
Registrable Stock to the underwriters selected as provided in Section 5.3(f) on
the same terms and conditions as apply to the Issuer, and (ii) if, at any time
after giving written notice of its intention to register any stock pursuant to
this Section 5.1(a) and prior to the effective date of the registration
statement filed in connection with such registration, the Issuer shall determine
for any reason not to register such stock, the Issuer shall give written notice
to all such holders and, thereupon, shall be relieved of its obligation to
register any Registrable Stock in connection with such registration. The Issuer
will pay all Registration Expenses in connection with each registration of
Registrable Stock requested pursuant to this Section 5.1. In addition, for
purposes of this Section 5.1, Doskocil and each Doskocil Transferee (as those
terms are defined in the DMC Stockholders Agreement as it may be amended from
time to time) shall be deemed to be a "Securityholder" (and thus a holder of
"Registrable Stock" to the extent such person or persons own Common Stock) and
entitled to the benefits of this Section 5.1.
(b) If a registration pursuant to this Section 5.1 involves an
Underwritten Public Offering and the managing underwriter advises the Issuer
that, in its view, the number of shares of Common Stock which the Issuer and any
holder of Registrable Stock intend to include in such registration exceeds the
largest number of securities which can be sold without having an adverse effect
on such offering, including the price at which such securities can be sold (the
"Maximum Offering Size"), the Issuer will include in such registration, in the
---------------------
following priority, up to the Maximum Offering Size:
(i) first, so much of the Common Stock proposed to be registered by
the Issuer as would not cause the offering to exceed the Maximum Offering
Size;
(ii) second, all Registrable Stock requested to be included in such
registration by any holder thereof pursuant to this Section 5.1 (allocated,
if necessary for the offering not to exceed the Maximum Offering Size, pro
rata among such holders on the basis of the relative number of shares of
Registrable Stock so requested to be included in such registration).
5.2 Holdback Agreements. If any registration of Registrable Stock
-------------------
shall be in connection with an Underwritten Public Offering, each holder of
Registrable Stock hereby agrees not to effect any public sale or distribution,
including any sale pursuant to Rule 144, or any successor provision, under the
Securities Act, of any Registrable Stock, and not to effect any such public sale
or distribution of any other Common Stock of the Issuer or of any stock
convertible into or exchangeable or exercisable for any Common Stock of the
Issuer (in each case, other than as part of such Underwritten Public Offering)
during the fourteen (14) days prior to the effective date of such registration
statement (except as part of such registration) or during the period after such
effective date that such managing underwriter and the Issuer shall agree.
15
<PAGE>
5.3 Registration Procedures. Whenever holders of Registrable Stock
-----------------------
request that any Registrable Stock be registered pursuant to Section 5.1 hereof
(or if Barreto exercises his rights pursuant to Section 5.10 hereof), the Issuer
will, subject to the provisions of such Section, use its best efforts to effect
the registration and the sale of such Registrable Stock in accordance with the
intended method of disposition thereof as quickly as practicable, and in
connection with any such request:
(a) The Issuer will as expeditiously as possible prepare and file
with the SEC a registration statement on any form for which the Issuer then
qualifies (other than registrations pursuant to Section 5.10 which shall be on
Form S-3) or which counsel for the Issuer shall deem appropriate and which form
shall be available for the sale of the Registrable Stock to be registered
thereunder in accordance with the intended method of distribution thereof, and
use its best efforts to cause such filed registration statement to become and
remain effective for a period of not less than ninety (90) days (or such shorter
period in which all of the Registrable Stock of the holders thereof included in
such registration statement shall have actually been sold thereunder) and not
more than one hundred eighty (180) days.
(b) The Issuer will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to each
holder of Registrable Stock and each underwriter, if any, of the Registrable
Stock covered by such registration statement copies of such registration
statement as proposed to be filed, and thereafter the Issuer will furnish to
such holder and underwriter, if any, such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such holder or underwriter may
reasonably request in order to facilitate the disposition of the Registrable
Stock owned by such holder.
(c) After the filing of the registration statement, the Issuer will
promptly notify each holder holding Registrable Stock covered by such
registration statement of any stop order issued or threatened by the SEC and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered.
(d) The Issuer will use its best efforts to (i) register or qualify
the Registrable Stock covered by such registration statement under such other
securities or blue sky laws of such jurisdictions in the United States as any
holder holding such Registrable Stock reasonably (in light of such holder's
intended plan of distribution) requests and (ii) cause such Registrable Stock to
be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Issuer and do any and all other acts and things that may be reasonably necessary
or advisable to enable such holder to consummate the disposition of the
Registrable Stock owned by such holder; provided, that the Issuer will not be
required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to
16
<PAGE>
qualify but for this paragraph (d), (B) subject itself to taxation in any such
jurisdiction or (C) consent to general service of process in any such
jurisdiction.
(e) The Issuer will immediately notify each holder holding such
Registrable Stock covered by such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the occurrence of an event requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Stock, such prospectus will not contain an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and promptly
prepare and make available to each such holder and file with the SEC any such
supplement or amendment.
(f) The Issuer may select, in its sole discretion, the underwriter or
underwriters in connection with any Underwritten Public Offering as it may deem
appropriate. The Issuer will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Stock, including the engagement of a "qualified independent
underwriter" in connection with the qualification of the underwriting
arrangements with the NASD.
(g) The Issuer will otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
shareholders, as soon as reasonably practicable, an earnings statement covering
a period of twelve (12) months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of the Securities Act.
The Issuer may require each holder of Registrable Stock included in a
registration statement to promptly furnish in writing to the Issuer such
information regarding the distribution of the Registrable Stock as the Issuer
may from time to time reasonably request and such other information as may be
legally required in connection with such registration.
Each such holder agrees that, upon receipt of any notice from the
Issuer of the happening of any event of the kind described in Section 5.3(e)
hereof, such holder will forthwith discontinue disposition of Registrable Stock
pursuant to the registration statement covering such Registrable Stock until
such holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 5.3(e) hereof, and, if so directed by the Issuer, such
holder will deliver to the Issuer all copies, other than any permanent file
copies then in such holder's possession, of the most recent prospectus covering
such Registrable Stock at the time of receipt of such notice. In the event that
the Issuer shall give such notice, the Issuer shall extend the period during
which such registration statement shall be maintained effective (including the
period referred to in Section 5.3(a) hereof) by the number of days during the
period from and including the date of the giving of notice pursuant to Section
5.3(e) hereof to the date when the Issuer shall make available to such holder a
17
<PAGE>
prospectus supplemented or amended to conform with the requirements of Section
5.3(e) hereof.
5.4 Indemnification by the Issuer. The Issuer agrees to indemnify
-----------------------------
and hold harmless each holder holding Registrable Stock covered by a
registration statement, its officers, directors and agents, and each Person, if
any, who controls such holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Stock (as amended or supplemented if the
Issuer shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by 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, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission so made in strict conformity with
information furnished in writing to the Issuer by such holder or on such
holder's behalf expressly for use therein; provided that with respect to any
untrue statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, or in any prospectus, as the case may be, the indemnity
agreement contained in this paragraph shall not apply to the extent that any
such loss, claim, damage, liability or expense results from the fact that a
current copy of the prospectus (or, in the case of a prospectus, the prospectus
as amended or supplemented) 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 Registrable Stock concerned to such Person if it
is determined that the Issuer has provided such prospectus and it was the
responsibility of such holder to provide such Person with a current copy of the
prospectus (or such amended or supplemented prospectus, as the case may be) and
such current copy of the prospectus (or such amended or supplemented prospectus,
as the case may be) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. The Issuer also agrees to indemnify any
underwriters of the Registrable Stock, their officers and directors and each
person who controls such underwriters on substantially the same basis as that of
the indemnification of the holders provided in this Section 5.4.
5.5 Indemnification by Participating Holders. (a) Subject to
----------------------------------------
Section 5.5(b), each holder holding Registrable Stock included in any
registration statement agrees, severally but not jointly, to indemnify and hold
harmless the Issuer, its officers, directors and agents and each Person, if any,
who controls the Issuer within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Issuer to such holder, but only (i) with respect to
information furnished in writing by such holder or on such holder's behalf
expressly for use in any registration statement or prospectus relating to the
Registrable Stock, or any amendment or supplement thereto, or any preliminary
prospectus or (ii) to the extent that any loss, claim, damage, liability or
expense described in Section 5.4 results from the fact that a current copy of
the prospectus (or, in the case of a prospectus, the prospectus as amended or
supplemented) was not sent or given to-the Person asserting any such loss,
claim, damage,
18
<PAGE>
liability or expense at or prior to the written confirmation of the sale of the
Registrable Stock 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 (or such amended or supplemented prospectus, as the case may be) and
such current copy of the prospectus (or such amended or supplemented prospectus,
as the case may be) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. Subject to Section 5.5(b), each such holder also
agrees to indemnify and hold harmless underwriters of the Registrable Stock,
their officers and directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Issuer
provided in this Section 5.5. As a condition to including Registrable Stock in
any registration statement filed in accordance with Article 5 hereof, the Issuer
may require that it shall have received an undertaking reasonably satisfactory
to it from any underwriter to indemnify and hold it harmless to the extent
customarily provided by underwriters with respect to similar securities.
(b) No holder of Registrable Stock shall be liable under Section
5.5(a) for any damage thereunder in excess of the net proceeds realized by such
holder in the sale of the Registrable Stock of such holder.
5.6 Conduct of Indemnification Proceedings. In case any proceeding
--------------------------------------
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to this Article 5,
such Person (an "Indemnified Party") shall promptly notify the Person against
-----------------
whom such indemnity may be sought (the "Indemnifying Party") in writing and the
------------------
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party, and shall assume the
payment of all fees and expenses; provided that the failure of any Indemnified
Party so to notify the Indemnifying Party shall not relieve the Indemnifying
Party of its obligations hereunder except to the extent that the Indemnifying
Party is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in the
reasonable judgment of such Indemnified Party representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by the Indemnified
Parties. The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent, or if there be a final judgment for the plaintiff, the Indemnifying
Party shall indemnify and hold harmless such Indemnified Parties from and
against any and all losses, claims, damages, liabilities and expenses or
liability (to the extent stated above) by reason of such settlement or judgment.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending or threatened
19
<PAGE>
proceeding in respect of which any Indemnified Party is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability arising out of such proceeding.
5.7 Contribution. If the indemnification provided for in this
------------
Article 5 is held by a court of competent jurisdiction to be unavailable to the
Indemnified Parties in respect of any losses, claims, damages or liabilities
referred to herein, then each such Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (i)
as between the Issuer and the holders holding Registrable Stock covered by a
registration statement on the one hand and the underwriters on the other, in
such proportion as is appropriate to reflect the relative benefits received by
the Issuer and such holders on the one hand and the underwriters on the other,
from the offering of the Registrable Stock, or if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits but also the relative fault of the Issuer and such
holders on the one hand and of such underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations and (ii) as
between the Issuer on the one hand and each such holder on the other, in such
proportion as is appropriate to reflect the relative fault of the Issuer and of
each such holder in connection with such statements or omissions, as well as any
other relevant equitable considerations. The relative benefits received by the
Issuer and such holders on the one hand and such underwriters on the other shall
be deemed to be in the same proportion as the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by the Issuer and such holders bear to the total underwriting discounts
and commissions received by such underwriters, in each case as set forth in the
table on the cover page of the prospectus. The relative fault of the Issuer and
such holders on the one hand and of such underwriters on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuer and such holders
or by such underwriters. The relative fault of the Issuer on the one hand and
of each such holder on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Issuer and the holders of Registrable Stock agree that it would
not be just and equitable if contribution pursuant to this Section 5.7 were
determined by pro rata allocation (even if the underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages or liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in
20
<PAGE>
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5.7, no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Stock underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no holder shall be
required to contribute any amount in excess of the amount by which the net
proceeds realized on the sale of the Registrable Stock of such holder exceeds
the amount of any damages which 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 shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Each holder's obligation to contribute pursuant to this
Section 5.7 is several in the proportion that the proceeds of the offering
received by such holder bears to the total proceeds of the offering received by
all such holders and not joint.
5.8 Participation in Public Offering. No Person may participate in
--------------------------------
any Underwritten Public Offering hereunder unless such Person (a) agrees to sell
such Person's 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, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements and consistent with the provisions of this
Agreement in respect of registration rights.
5.9 Size of Initial Public Offering. The Issuer agrees that in the
-------------------------------
event of any Initial Public Offering, Issuer shall use its reasonable best
efforts to cause the proceeds of the Initial Public Offering to be sufficient in
amount to allow the Series B Preferred Stock to be redeemed in full and, to the
extent sufficient to do so, redeem (or prepay in the case of Subordinated Debt)
the Series B Preferred Stock.
5.10 Form S-3 Registrations. (a) In case the Issuer shall receive a
----------------------
written request from Barreto that the Issuer effect a registration on Form S-3
with respect to the Registrable Stock owned by Barreto or his Permitted
Transferees, the Issuer will, as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of
Barreto's Registrable Stock as is specified in such request, together with all
or such portion of the Registrable Stock of any other holder or holders joining
in such request as are specified in a written request given within fifteen (15)
days after receipt of written notice from the Issuer; provided, that the Issuer
shall not be obligated to effect any such registration, qualification or
compliance pursuant to this Section 5.10: (i) if Form S-3 is not available for
such offering; (ii) if Barreto or his Permitted Transferees, collectively,
propose to sell Registrable Stock at an aggregate price to the public (net of
any underwriters' discounts or commissions) of less than Five Million Dollars
($5,000,000); (iii) if the Issuer shall furnish to Barreto a certificate signed
by the President of the Issuer stating that in the good faith judgment of the
Board, it would be seriously detrimental to the Issuer and its shareholders for
such Form S-3 registration to be effected at such time, in which event the
21
<PAGE>
Issuer shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than 120 days after receipt of the request of
Barreto under this Section 5.10; provided, that the Issuer shall not utilize the
right set forth in this clause (iii) more than once in any twelve (12) month
period; (iv) if the Issuer has, within the twelve (12) month period preceding
the date of such request, already effected one (1) registration on Form S-3 for
Barreto pursuant to this Section 5.10; or (v) in any particular jurisdiction in
which the Issuer would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance; or (vi) prior to the expiration of the lockup
period following the Issuer's Initial Public Offering.
(b) Subject to the foregoing, the Issuer shall file a Form S-3
registration statement covering the Registrable Stock so requested to be
registered as soon as practicable after receipt of the request or requests of
Barreto and the other holders of Registrable Stock. All expenses in excess of
Thirty Thousand Dollars ($30,000), which shall be paid by Barreto and the other
holders of Registrable Stock participating in such registration, incurred in
connection with the registrations effected pursuant to this Section 5.10 (other
than underwriting discounts and commissions), including, without limitation, all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for Barreto and the holders of
Registrable Stock and counsel for the Issuer, shall be paid by the Issuer.
ARTICLE 6
CONVERSION OF SERIES B AND SERIES C PREFERRED STOCK
6.1 Right to Convert. Subject to (i) the terms and conditions of any
----------------
loan covenant or other provision for the benefit of the holders of Senior Debt
contained in any document or agreement evidencing or otherwise related to Senior
Debt, (ii) the right of setoff set forth in Section 9.4 of the Stock Purchase
Agreement, and (iii) all applicable laws (including, without limitation, the
Texas Business Corporation Act), shares of Series B Preferred Stock and Series C
(provided that, for purposes of the Series C Preferred Stock only, all holders
thereof must consent) shall be convertible, in whole or in part, at the option
of the holder thereof, at any time after the date of issuance of such shares and
on or prior to the date notice is received from the Issuer of the redemption
thereof, at the office of the Issuer or any transfer agent for such stock, into
subordinated debt ("Subordinated Debt") in the original aggregate principal
-----------------
amount, in the case of the conversion of Series B Preferred Stock, equal to the
product of (a) the Series B Redemption Price (as defined in the Articles of
Incorporation) (less the accrued and unpaid dividends per share other than any
dividends in arrears) and (b) the number of shares of Series B Preferred Stock
to be so converted, and in the case of the Series C Preferred Stock, equal to
the product of (x) the Series C Redemption Price (as defined in the Articles of
Incorporation) (less the accrued and unpaid dividends per share other than any
dividends in arrears) and (y) the number of shares of Series C Preferred Stock
to be so converted. Holders of Series B or C Preferred Stock shall provide each
other holder of Series B or C Preferred Stock fifteen (15) days prior written
notice prior to converting shares of Series C Preferred Stock pursuant to this
Section 6.1.
22
<PAGE>
Any such Subordinated Debt shall accrue simple interest at the rate of ten
percent (10%) per annum and shall be evidenced by the Subordinated Promissory
Notes in the forms attached hereto as Appendix A-2 (for the conversion of Series
B Preferred Stock) and A-3 (for the conversion of Series C Preferred Stock).
Installments of principal and accrued interest in respect of the Subordinated
Debt shall be due and payable thereon on the same terms and conditions as the
payment of dividends and redemption payments on the Series B Preferred Stock and
the Series C Preferred Stock as the case may by would otherwise have been paid
with respect to such Preferred Stock upon redemption thereof. Any accrued and
unpaid dividends which are not in arrears at the time of any conversion of
Series C Preferred Stock or Series C Preferred Stock pursuant to this Section
6.1 shall be converted to accrued interest to become due and payable on the date
of the first installment of principal and interest under the applicable
promissory note evidencing the Subordinated Debt. The Subordinated Debt shall
be and by exercising its rights under this Section 6.1 the holder of Series A
Preferred Stock or Series C Preferred Stock, as the case may be, agrees that
such Subordinated Debt shall be subordinate and junior in all respects,
including, without limitation, to right of payment and security to Senior Debt.
For purposes of this Section 6.1 "Senior Debt" shall mean all principal of,
-----------
premium and interest (including, without limitation, any interest which accrues
(or which would accrue but for such case, proceeding or other action) after the
commencement of any case, proceeding or other action relating to the bankruptcy,
insolvency or reorganization of Issuer (whether or not such interest is allowed
or allowable as a claim in such case, proceeding or other action)) on any
indebtedness created, incurred, assumed or guaranteed by Issuer and its
subsidiaries (present or future), whether now existing or hereafter arising, due
or to become due, absolute or contingent, liquidated or unliquidated, determined
or undetermined, under any working capital or other credit agreement or facility
with a commercial bank, insurance company, other recognized financial
institution, any debt issued to the public pursuant to a private placement or
registration statement filed with and declared effective by the Securities and
Exchange Commission, any debt incurred in connection with any past or future
acquisitions by the Issuer and its subsidiaries (present and future), and any
sale/leaseback financing on equipment or real property of the Issuer or its
subsidiaries (present and future) and, solely in the case of the conversion of
Series C Preferred Stock, "Senior Debt" shall include, in addition to the above
described "Senior Debt," any debt of Issuer resulting from time to time from the
conversion of Series B Preferred Stock. Without limiting the generality of the
foregoing, "Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other amounts owing in respect of, the Issuer's Senior Subordinated
Notes due 2007 issued pursuant to the Indenture between the Issuer and the
trustee, including any debt securities issued in exchange for such notes (the
"Senior Subordinated Notes") and shall also include such amounts owing
(including principal, premium, if any, interest (including interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law)) under the credit agreement by and among the Issuer,
NationsBanc Capital Markets, Inc. and Donaldson, Lufkin & Jenrette, as arrangers
and syndication agents, certain
23
<PAGE>
lending parties thereto, and NationsBank of Texas, N.A., as agent, as it may be
amended from time to time (the "Senior Credit Facility").
6.2 Mechanics of Conversion. Before any holder of Series B Preferred
-----------------------
Stock or Series C Preferred Stock shall be entitled to convert shares of Series
B Preferred Stock or Series C Preferred Stock into Subordinated Debt, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Issuer or of any transfer agent for Series B Preferred
Stock or Series C Preferred Stock, respectively, and shall give written notice
to the Issuer at its principal corporate office, of the election to convert the
same. The Issuer shall, as soon as practicable thereafter, execute and deliver
to such holder or to the nominee or nominees of such holder, all documents
reasonably requested by such holder evidencing the Subordinated Debt with such
additional terms, if any, as are reasonably agreed upon by the Issuer and such
holder; provided, that such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series B Preferred Stock or Series C Preferred Stock to be converted.
In the event of a conversion of their shares of Series B Preferred Stock or
Series C Preferred Stock pursuant to this Article 6, the holder of the Series B
Preferred Stock or Series C Preferred Stock being converted shall enter into
such agreements and other documents as may be required by the holders of Senior
Debt, on or after the date of conversion, in order to evidence the subordination
of the Subordinated Debt to the Senior Debt as a condition to the conversion
thereof. In the event that the holder or holders of Series B and/or Series C
Preferred Stock elect to convert shares of Series B or Series C Preferred Stock,
as the case may be, and (i) the assets or retained earnings of the Issuer shall
be insufficient to permit the conversion of all such shares, or (ii) Issuer is
otherwise restricted from converting all such shares, the Issuer shall first
convert the maximum number of shares of Series B Preferred Stock that it is
otherwise permitted to convert (the "Convertible B Shares") and second shall
--------------------
convert the maximum number of Series B Preferred Stock that it is otherwise
permitted to convert (the "Convertible C Shares"). Each holder of Series B or
--------------------
Series C Preferred Stock shall be entitled to convert his or its pro rata share
of the Convertible B or Convertible C shares, as the case may be, based on the
number of shares of Series B or Series C held by such Securityholder compared to
the total number of shares of Series A or Series B Preferred Stock outstanding.
Notwithstanding anything else set forth in this Article 6, no holder of Series B
or Series C Preferred Stock shall have the right to convert shares of Series B
or Series C Preferred Stock more than once in any three (3) month period.
ARTICLE 7
MISCELLANEOUS
7.1 Debt Approval Right. Subject to that certain Agreement, executed
-------------------
by Barreto as of May 27, 1997, by and among Dogloo, Barreto, Westar, Enterprise
III, Enterprise III Associates and HBI, (the "Barreto Agreement"), so long as
-----------------
Barreto continues to hold any shares of Series B Preferred Stock or Subordinated
Debt issued upon the conversion of Series B Preferred Stock with an aggregate
principal amount in excess of Two Million Two Hundred Thousand Dollars
($2,200,000), the Issuer shall not, without the prior
24
<PAGE>
written consent of Barreto, incur any additional Indebtedness which would cause
the Debt to Equity Ratio to exceed three point five (3.5).
7.2 Transaction and Advisory Fees. The parties to this Agreement
-----------------------------
hereby acknowledge and agree that Westar shall be permitted to charge the Issuer
a monthly advisory fee (the "Advisory Fee"), which may be determined and
------------
modified from time to time by the Board.
7.3 Termination of Prior Agreements. With the exception of the
-------------------------------
Barreto Agreement, which will remain in full force and effect, upon the
consummation of the Merger and not before then, any prior subscription
agreement, buy-sell agreement, repurchase agreement or other agreement
pertaining to the purchase and sale of shares of the Issuer or Dogloo after the
date hereof between such Securityholder and the Issuer, Dogloo or any other
party, including that certain Securityholders Agreement dated September 22,
1995, shall be deemed to be terminated and this Agreement shall be effective and
shall be deemed to have superseded such agreements.
7.4 Entire Agreement. With the exception of the Barreto Agreement,
----------------
which will remain in full force and effect, this Agreement constitutes the
entire agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
7.5 Binding Effect; Benefit. This Agreement shall inure to the
-----------------------
benefit of and be binding upon the parties hereto and their respective heirs,
successors, legal representatives and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any Person other than
the parties hereto and their respective heirs, successors, legal representatives
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, except that, for purposes of Sections 4.3 and 5.1,
herein, the Doskocils and each Doskocil Transferee (as those terms are defined
in the DMC Stockholders' Agreement as it may be amended from time to time) are
intended beneficiaries.
7.6 Assignability. Neither this Agreement nor any right, remedy,
-------------
obligation or liability arising hereunder or by reason hereof shall be
assignable by the Issuer or any Securityholder provided that this provision
shall not preclude or prohibit any successor entity from succeeding to the
benefits and obligations hereof. Any Securityholder who ceases to beneficially
own any Equity Securities shall cease to be bound by the terms hereof; provided,
that any Person acquiring Equity Securities who is required by the terms of this
Agreement to become a party hereto shall execute and deliver to Issuer an
agreement to be bound by this Agreement and shall henceforth be a
"Securityholder." Any Securityholder who ceases to beneficially own any Equity
Securities shall cease to be bound by the terms hereof (other than Sections 5.5,
5.6, and 5.7).
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<PAGE>
7.7 Amendment; Waiver; Termination. (a) No provision of this
------------------------------
Agreement may be waived except by an instrument in writing executed by the party
against whom the waiver is to be effective. No provision of this Agreement may
be amended or otherwise modified except by an instrument in writing executed by
the Issuer with the approval of the Board and Securityholders holding or having
the right to acquire at least a majority of the Fully Diluted Common Stock.
Sections 3.1, 3.3, 4.3 and 5.1 herein may not be amended or otherwise modified
to adversely affect the Doskocils or any Doskocil Transferee (as those terms are
defined in the DMC Stockholders' Agreement as it may be amended from time to
time) without the written consent of the Doskocils or such Doskocil Transferee.
(b) This Agreement, other than Article V hereof, shall terminate on
the earlier to occur of (i) the closing of an underwritten initial public
offering of common stock by the Issuer (or any successor entity) of Company
Stock pursuant to a registration statement declared effective under the Act,
(ii) the first time at which any equity securities of the Company (or any
successor entity) have been registered under Section 12(b) or 12(g) of the
Exchange Act, (iii) as a result of or at any time after any transfer of Issuer
(or any successor entity) Common Stock in connection with a sale of the Issuer,
whether such sale is effected by merger, consolidation, sale of assets or sale
or exchange of stock representing at least fifty percent (50%) of the voting
power of the stock of the Issuer (in terms of number of votes for the election
of directors), or (iv) unless otherwise consented to by the lenders, the
foreclosure of the pledge of Issuer's Common Stock made pursuant to the Credit
Agreement dated July 1, 1997 and related loan documents, as amended. A merger
effected to reincorporate the Issuer shall not be considered a sale of the
Issuer and shall not terminate this Agreement. The provisions of Article V
hereof shall terminate on the third anniversary of the termination of the other
provisions of this Agreement.
(c) In addition, any amendment, modification or termination of any
provisions of this Agreement that would materially adversely affect any
Investor, Barreto or any other Securityholder may be effected only with the
consent of such effected party.
7.8 Notices. All notices and other communications given or made
-------
pursuant hereto or pursuant to any other agreement among the parties, unless
otherwise specified, shall be in writing and shall be deemed to have been duly
given or made if sent by fax (with confirmation in writing), delivered
personally or sent by registered or certified mail (postage prepaid, return
receipt requested) to the parties at the fax number or address set forth below
or at such other addresses as shall be furnished by the parties by like notice,
and such notice or communication shall be deemed to have been given or made upon
receipt:
If to the Issuer: Doskocil Manufacturing Company, Inc.
4209 Barnett
Arlington, Texas 76017
Attention: President
Fax: (817)
26
<PAGE>
If to Westar, to: Westar Capital
Westar LLC
950 South Coast Drive
Suite 165
Costa Mesa, California 92626
Attention: John W. Clark, General Partner
Fax: (714) 434-5166
If to Enterprise III, IV
or Enterprise III or IV
Associates: Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Enterprise Partners IV, L.P.
Enterprise Partners IV Associates, L.P.
5000 Birch Street, Suite 6200
Newport Beach, California 92660
Attention: Charles D. Martin, General Partner
Fax: (714) 833-3650
If to HBI, to: HBI Financial, Inc.
c/o Bogle & Gates
Two Union Square
601 Union Street
Suite 4700
Seattle, Washington 98101
Erwin L. Treiger, Esq.
Fax: (206) 621-2660
With a copy, in each case,
to: O'Melveny & Myers LLP
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Attention: J. Jay Herron, Esq.
Fax: (714) 669-6994
If to Barreto, to: Aurelio F. Barreto, III
20455 Somma Drive
Lake Matthews, CA 92570
Any Person who becomes a Securityholder shall provide its address and fax number
to the Issuer, which shall promptly provide such information to each other
Securityholder.
7.9 Headings. The headings contained in this Agreement are for
--------
convenience only and shall not affect the meaning or interpretation of this
Agreement.
27
<PAGE>
7.10 Counterparts. This Agreement may be executed any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
7.11 Applicable Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of Texas, without regard to
the conflicts of law rules of such state.
7.12 Specific Enforcement. Each party hereto acknowledges that the
--------------------
remedies at law of the other parties for a breach or threatened breach of this
Agreement would be inadequate and, in recognition of this fact, any party to
this Agreement, without posting any bond, and in addition to all other remedies
which may be available, shall be entitled to obtain equitable relief in the form
of specific performance, a temporary restraining order, a temporary or permanent
injunction or any other equitable remedy which may then be available.
7.13 Arbitration. All claims, disputes and other matters in question
-----------
arising out of, or relating to, this Agreement or the performance thereof shall
be submitted to, and determined by, arbitration if good faith negotiations among
the parties hereto, if any, does not resolve such claim, dispute or other
matter. Such arbitration shall proceed in accordance with the then-current
rules for arbitration as established by Judicial Arbitration Mediation Services,
Inc./ENDISPUTE ("JAMS"), unless the parties hereto mutually agree otherwise, and
----
pursuant to the following procedures:
(a) The parties to the dispute shall each appoint an arbitrator from
the JAMS panel of retired judges, and those party-appointed arbitrators shall
appoint an arbitrator from the JAMS panel of retired judges within ten (10)
days. If the party-appointed arbitrators fail to appoint an arbitrator within
ten (10) days, such arbitrator shall be appointed by JAMS in accordance with its
rules.
(b) Reasonable discovery shall be allowed in arbitration.
(c) All proceedings before the arbitrators shall be held in Orange
County, California. The governing law shall be as specified in Section 7.11.
(d) The award rendered by the arbitrators shall be final and
binding, and judgment may be entered in accordance with applicable law and in
any court having jurisdiction thereof.
(e) The award rendered by the arbitrators shall include (i) a
provision that the prevailing party in such arbitration recover its costs
relating to the arbitration and reasonable attorneys' fees from the other party,
(ii) the amount of such costs and fees, and (iii) an order that the losing party
pay the fees and expenses of the arbitrators.
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<PAGE>
7.14 Receipt of Information. The Other Securityholders acknowledge
----------------------
and agree that the Issuer has afforded each Other Securityholder and his or her
advisors (i) full and complete access to all information with respect to the
Issuer, its business and financial condition to the extent that such information
was possessed by the Issuer or could be acquired by the Issuer without
unreasonable effort or expense, that such Other Securityholder and his or her
advisors deem necessary in order to evaluate the merits and risks of the
transactions contemplated by this Agreement and (ii) an opportunity to ask
questions of the Issuer's officers and representatives regarding the Issuer, its
business and financial condition and this Agreement.
7.15 Distributions. Each of the Investors and Barreto and Paxman (as
-------------
investors and holders of Common Stock and Preferred Stock) and each of the Other
Securityholders hereby consents and approves the "distributions to its
shareholders" (as such term is defined in Section 166 of the California General
Corporation Law and Section 1.02 A(8) of the Texas Business Corporations Act) to
be made by Issuer as part of the transactions contemplated by the Merger,
including purchases of Dogloo Common Stock, cash payments made in connection
with the cancellation of certain Dogloo stock options, and the redemption of
Issuer Common Stock, Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock.
29
<PAGE>
COUNTERPART SIGNATURE PAGE TO AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
DOSKOCIL MANUFACTURING COMPANY, INC.,
a Texas corporation
By: /s/ LARRY E. REMBOLD
-------------------------------------
Larry E. Rembold
Its: President and Chief Executive Officer
DOGLOO, INC.,
a California corporation
By: /s/ MICHAEL J. FARMER
-------------------------------------
Michael J. Farmer
Its: Executive Vice President
WESTAR CAPITAL
By: Westar Capital Associates,
a limited partnership
Its: General Partner
By: /s/ JOHN W. CLARK
-------------------------------------
John W. Clark
Its: General Partner
WESTAR CAPITAL II, LLC
By: Westar Capital Associates II, LLC
Its: Member
By: /s/ JOHN W. CLARK
-------------------------------------
John W. Clark
Its: Member
30
<PAGE>
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III,
L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
-----------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: ENTERPRISE MANAGEMENT PARTNERS III,
L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
-----------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS IV, L.P.
By: Enterprise Management Partners IV,
L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
-----------------------------------
Charles D. Martin
Its: General Partner
ENTERPRISE PARTNERS IV ASSOCIATES, L.P.
By: ENTERPRISE MANAGEMENT PARTNERS IV,
L.P.
Its: General Partner
By: /s/ CHARLES D. MARTIN
-----------------------------------
Charles D. Martin
Its: General Partner
<PAGE>
HBI FINANCIAL, INC.
By: /s/ CHARLES E. PACKARD
-----------------------------------
Charles E. Packard
Its: Executive Vice President
/s/ AURELIO F. BARRETO III
-----------------------------------------
Aurelio F. Barreto III
OTHER SECURITYHOLDERS:
_______________________________________________________
Michael J. Farmer
Garcia Family Trust
By: _________________________________________________
Enrique A.J. Garcia, Trustee
_______________________________________________________
John C. Gonzalez
_______________________________________________________
Beverly A. Poirer
<PAGE>
_______________________________________________________
Sonia Tongson
_______________________________________________________
Vicki L. Wedworth
_______________________________________________________
Patrick H. Wilson
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of ______________ has read and hereby approves
the Amended and Restated Securityholders Agreement. The undersigned hereby
agrees to be bound by the terms and conditions of such Agreement, including,
without limitation, the right of the Issuer and the Securityholders to purchase
any and all interest or right the undersigned may have in Securities of the
Issuer pursuant to community property laws, marital property rights or other
laws. All capitalized terms not otherwise defined herein shall have the
meanings set forth in the Amended and Securityholders Agreement.
DATED: _________, 1997 _____________________________________________
[Print Name]
_____________________________________________
[Signature]
<PAGE>
Appendix A-2
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, OR TRANSFERRED EXCEPT
IN COMPLIANCE THEREWITH.
DOSKOCIL MANUFACTURING COMPANY, INC.
SUBORDINATED NOTE
Arlington, Texas
$__________________ _________________
FOR VALUE RECEIVED, Doskocil Manufacturing Company, Inc., a Texas
corporation ("DMC"), promises to pay to the order of _________________
---
("________"), his, her or its registered successors and assigns (the "Holder"),
------
in lawful money of the United States of America, the principal sum of
___________________________________ ($________), or such lesser amount as shall
then equal the outstanding principal amount hereof, with simple interest
(computed on the basis of a 365-day year) on the unpaid principal balance hereof
accruing from the date hereof (the "Effective Date") at ten percent (10%) per
--------------
annum simple interest both principal and interest to be payable as provided
herein.
It is the intent of DMC and Holder in the making and acceptance of this
Note to contract in strict compliance with the usury laws of the State of Texas
(including any superseding federal law), if and to the extent applicable. In
the event Holder shall collect monies which are deemed to constitute interest in
excess of that permitted to be charged by the laws of the State of Texas
(including any superseding federal law), if and to the extent applicable, all
such sums so deemed to constitute interest in excess of the maximum lawful
interest rate shall be credited as of the date of collection to the payment of
principal. Any sums collected by Holder which exceed the amount of the
remaining principal and accrued interest hereunder shall be returned to DMC.
This Note is one of the Subordinated Promissory Notes into which the Series
B Preferred Stock of DMC may be converted as referred to in Section 6.1 of that
Amended and Restated certain Securityholders Agreement (the "Agreement") entered
---------
into as of ____________, 1997, by and among DMC, Westar Capital, Westar LLC,
Enterprise Partners III, L.P., Enterprise Partners III Associates, Enterprise
Partners IV, L.P., Enterprise Partners III Associates, L.P., HBI Financial,
Inc., Aurelio F. Barreto III, Darrell R. Paxman and the other securityholders
party thereto. The original principal amount of this Note shall be determined
in accordance with the provisions of Section 6.1 of the Agreement.
1
<PAGE>
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees:
1. Definitions
-----------
The following terms shall have the following respective meanings:
"Bankruptcy Law" means Title 11, United States Code or any similar
--------------
Federal or State law for the relief of debtors.
"Corporate Transactions" means (a) the combination of DMC with another
----------------------
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation); or (b) a sale
of all or substantially all of the assets of DMC; unless DMC's shareholders of
------
record as constituted immediately prior to such combination or sale will,
immediately after such acquisition or sale (by virtue of securities issued as
consideration for this corporation's acquisition or sale or otherwise) hold at
least 50% of the voting power of the surviving or acquiring entity.
"Custodian" means any receiver, trustee, assignee, liquidator or
---------
similar official under any Bankruptcy Law.
"Senior Debt" means all principal of, premium and interest (including,
-----------
without limitation, any interest which accrues (or which would accrue but for
such case, proceeding or other action) after the commencement of any case,
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of DMC (whether or not such interest is allowed or allowable as a
claim in such case, proceeding or other action)) on any indebtedness created,
incurred, assumed or guaranteed by DMC and its subsidiaries (present or future),
whether now existing or hereafter arising, due or to become due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, under any
working capital or other credit agreement or facility with a commercial bank,
insurance company, other recognized financial institution, any debt issued to
the public pursuant to a private placement or a registration statement filed
with and declared effective by the Securities and Exchange Commission, any debt
incurred in connection with any past or future acquisitions by DMC and its
subsidiaries (present or future), and any sale/leaseback financing on equipment
or real estate of DMC. Without limiting the generality of the foregoing,
"Senior Debt" shall also include the principal of, premium, if any, interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all other amounts owing in respect of, DMC's Senior Subordinated Notes due 2007
issued pursuant to the Indenture between DMC and the trustee, including any debt
securities issued in exchange for such notes (the "Senior Subordinated Notes")
and shall also include such amounts owing (including principal, premium, if any,
interest (including interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law)) under
the credit agreement by and among DMC, NationsBanc Capital Markets, Inc. and
Donaldson, Lufkin & Jenrette, as arrangers and syndication agents,
2
<PAGE>
certain lending parties thereto, and NationsBank of Texas, N.A., as agent, as it
may be amended from time to time (the "Senior Credit Facility").
2. Payments.
--------
2.1 Payments of Principal and Interest.
----------------------------------
(a) Subject to the terms and conditions of this Note, the
principal then outstanding hereunder, together with all accrued and unpaid
interest thereon, shall be due and payable upon the consummation of (i) a
Corporate Transaction or (ii) an initial public offering of DMC's Common Stock.
(b) Interest payments shall be paid on March 1 of each year
commencing March 1, ____ at the sole discretion of the Board of Directors of
DMC.
2.2 Place of Payments. All payments required to be made hereunder to
-----------------
the Holder shall be made on the due date by crediting before 11:00 a.m. Texas
time, by federal funds bank wire transfer, such bank account in such bank in the
United States as the Holder may previously have designated in writing to DMC.
If any day upon which principal and/or interest of this Note is payable is a day
other than a business day (being a day other than a Saturday, Sunday, or a day
on which banking institutions in Dallas, Texas are authorized or obligated by
law or executive order to close), payment of the principal and/or interest then
due may be made on the next succeeding business day with the same force and
effect as if it had been made on the due date; provided, that this Note shall
continue to bear interest at the contractual rate until the actual date of
payment.
2.3 Optional Prepayments. The principal amount of this Note may be
--------------------
prepaid at any time in whole or in part without penalty or premium; provided,
that all interest accrued and unpaid to the prepayment date is paid
simultaneously therewith; and, provided further, that no prepayment can be made
unless all of the Series B and Series C Preferred Stock has been redeemed and
the debt issued upon the conversion of the Series A Preferred Stock, if any, has
been paid in full. DMC shall notify the Holder of its intention to prepay this
Note, in whole or in part, by giving notice at least two (2) business days
before the proposed payment date and any such notice, once given, shall be
irrevocable. Any payment made pursuant to this Section 2.3 shall be applied,
first, to interest accrued and unpaid to the date of such prepayment and,
second, to the then outstanding principal amount of this Note.
3. Events of Default and Remedies.
------------------------------
3.1 Events of Default. Each of the following events shall constitute
-----------------
an event of default (individually, an "Event of Default"; collectively, "Events
---------------- ------
of Default"):
- ----------
(a) DMC shall default in the due and punctual payment of all or
any part of the principal of this Note, or accrued interest thereon when and as
such principal and interest shall become due and payable, whether by
acceleration or otherwise, and such default
3
<PAGE>
shall continue for a period of ten (10) business days after the Holder has given
DMC written notice of such default;
(b) DMC, pursuant to or within the meaning of any Bankruptcy
Law, (i) files a voluntary petition in bankruptcy or a petition or answer
seeking reorganization, to effect a plan or other arrangement with creditors or
any other relief; (ii) consents to the entry of an order for relief against it
in an involuntary case; (iii) consents to the appointment of a Custodian of it
or for all or substantially all of its property; or (iv) makes a general
assignment for the benefit of its creditors; or
(c) A court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (i) is for relief against DMC in an involuntary
case; (ii) appoints a Custodian of DMC for all, or substantially all its
property; or (iii) orders the liquidation of DMC, and in any such case the order
or decree remains in effect for ninety (90) days.
3.2 Remedies. If an Event of Default shall occur and be continuing,
--------
the Holder or Holders of this Note may, subject to Section 4 below, declare, by
notice in writing given to DMC, the entire unpaid principal amount of this Note
together with interest accrued thereon, to be immediately due and payable, in
which case this Note shall become immediately due and payable, both as to
principal and interest, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived.
3.3 Suits for Enforcement. Subject to Section 4 below, at any time
---------------------
after this Note is declared to be due and payable, the Holder of this Note may
proceed to protect and enforce its rights either by suit in equity or by action
at law, or both, whether for specific performance of any covenant or agreement
contained in this Note, or the Holder of this Note may proceed to enforce any
other legal or the equitable right as the Holder of such Note. No remedy is
intended to be exclusive, and each remedy shall be cumulative.
4. Subordination.
-------------
4.1 Payment of Note Subordinated to Senior Debt. DMC and the Holder
-------------------------------------------
agree for the benefit of the Senior Debt that all indebtedness evidenced by this
Note, including principal, premium, if any, and interest, and all other amounts
payable to the Holder hereunder (collectively, the "Subordinated Debt") shall,
-----------------
to the extent hereinafter set forth, be subordinate and junior to all Senior
Debt in all respects.
4.2 No Payments With Respect to Note in Certain Circumstances.
---------------------------------------------------------
Unless and until all principal of, premium, if any, and interest on, and all
other obligations of DMC under, any Senior Debt shall have been paid in full and
all commitments to extend Senior Debt shall have terminated, neither DMC nor any
of its subsidiaries or affiliates shall make, and the Holder shall not demand,
accept or receive, or attempt to collect or commence any legal proceedings to
collect, any direct or indirect payment (in cash or property or by setoff,
exercise of contractual or statutory rights or otherwise) of or on account of
any amount payable on or with respect to this Note (excluding the accrual of
interest hereon) or any interest herein; provided that this Section 4.2 shall
not prevent the payment in cash of principal and interest on this Note
4
<PAGE>
(excluding the accrual of interest hereon), but only if (i) both before and
after giving effect to such payment, no default ("Payment Default") in payment
---------------
of any principal of or premium or interest on any Senior Debt or payment of
dividends on Series B or Series C Preferred Stock or redemption of Series B
Preferred Stock shall have occurred and be continuing and (ii) (A) so long as
any Senior Debt remains outstanding, the holders thereof shall have not
determined (and notified DMC of its determination) that there has occurred a
material adverse change, or development involving a prospective change, in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of DMC and its subsidiaries, taken as a whole, since the
respective dates as of which such Senior Debt is incurred; and (B) DMC shall not
have received written notice from holders of any Senior Debt that a default
(other than a Payment Default) under any Senior Debt shall have occurred and be
continuing, or that such payment on this Note would result in such a default,
permitting such holders to accelerate the maturity thereof; provided, that in
the case of this clause (ii), the period (a "Payment Blockage Period") during
-----------------------
which such payments on this Note shall be prohibited shall commence on the date
of receipt of such notice and end on the earliest of (x) 179 days thereafter,
(y) the date on which such default shall have been waived in writing or cured
and (z) the date on which the benefits of this clause (ii) shall have been
waived in writing by such Senior Debt lender or lenders. Notwithstanding
anything in clause (ii) to the contrary, in no event will a Payment Blockage
Period extend beyond 179 days from the date payment on this Note was due. Any
payment under this Note not permitted by this Section 4.2 to be paid shall be
deemed to not have been due and payable on such date and the failure to make
such payment shall not constitute an Event of Default hereunder.
4.3 Initiation of Actions. Unless and until all principal of,
---------------------
premium, if any, and interest on, and all other obligations of DMC under, the
Senior Debt shall have been paid in full and all commitments to extend Senior
Debt shall have terminated, the Holder will not commence or maintain any action,
suit or any other legal or equitable proceeding against DMC, or join with any
creditor in any such proceeding, under any insolvency, bankruptcy, receivership,
liquidation, reorganization or other similar law, unless the holders of Senior
Debt shall also join in bringing such proceeding; provided, that the foregoing
shall not prohibit the Holder from filing a proof of claim or otherwise
participating in any such proceeding not commenced by it.
4.4 Note Subordinated on Dissolution, Liquidation, Reorganization,
--------------------------------------------------------------
Etc. In the event of any insolvency or bankruptcy proceedings, and any
- ----
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to DMC or its creditors, in their capacity as
creditors of DMC, or to substantially all of its property, and in the event of
any proceedings for voluntary liquidation, dissolution or other winding up of
DMC, whether or not involving insolvency or bankruptcy, then:
(a) The holders of the Senior Debt shall first be entitled to
receive payment in full of the principal thereof, premium, if any, interest and
all other amounts payable thereon (accruing before and after the commencement of
the proceedings, whether or not allowed or allowable as a claim in such
proceedings) before the Holder is entitled to receive any payment on account or
in respect of Subordinated Debt; and
5
<PAGE>
(b) Any payment or distribution of assets of any kind or
character, whether in cash, property or securities to which the Holder would be
entitled, but for the provisions of this Note, shall be paid or distributed by
the liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or other trustee or agent, directly to the holders of Senior Debt and any other
representative on behalf of the holders of Senior Debt to the extent necessary
to make payment in full of all amounts of Senior Debt remaining unpaid, after
giving effect to any concurrent payment or distribution to the holders of the
Senior Debt.
4.5 Payment Over to Senior Debt. Should any payment or distribution
---------------------------
or security or the proceeds of any thereof be collected or received by the
Holder in respect to the Subordinated Debt, at a time when the payment thereof
by DMC is prohibited by the terms of this Note, the Holder will forthwith
deliver the same to a representative on behalf of the holders of Senior Debt for
the equal and ratable benefit of the holders of the Senior Debt in precisely the
form received (except for the endorsement or the assignment of or by the Holder
where necessary) for application to payment of all Senior Debt in full, after
giving effect to any concurrent payment or distribution to the holders of Senior
Debt and, until so delivered, the same shall be held in trust by the Holder as
the property of the holders of the Senior Debt.
4.6 Subrogation to Rights of Holders of Senior Debt. The Holder
-----------------------------------------------
shall not be subrogated to the rights of the holders of the Senior Debt to
receive payments or distributions of assets of DMC until all amounts payable
with respect to the Senior Debt shall be paid in full, and, for the purposes of
such subrogation, no payments or distributions to the holders of the Senior Debt
of any cash, property or securities to which the Holder would be entitled except
for these provisions shall, as between DMC, its creditors other than the holders
of the Senior Debt, and the Holder of this Note, be deemed to be a payment by
DMC to or on account of the Senior Debt. The subordination provisions of this
Note are and are intended solely for the purpose of defining the relative rights
of the Holder, on the one hand, and the holders of the Senior Debt, on the other
hand. Subject to the payment in full of all of the Senior Debt, the Holder of
this Note shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of DMC
applicable to the Senior Debt until all amounts owing on the Subordinated Debt
shall be paid in full. For purposes of such subrogation, no payments or
distributions to the Holder of cash, property, securities or other assets by
virtue of the subrogation herein provided which otherwise would have been made
to the holders of the Senior Debt shall, as between DMC, its creditors other
than the holders of Senior Debt and the Holder of this Note, be deemed to be a
payment to or on account of the Subordinated Debt. The Holder agrees that, in
the event that all or any part of any payment made on account of the Senior Debt
is recovered from the holders of Senior Debt as a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law, any
payment or distribution received by the Holder on account of the Subordinated
Debt at any time after the date of the payment so recovered, whether pursuant to
the right of subrogation provided for in this Note or otherwise, shall be deemed
to have been received by the Holder in trust as the property of the holders of
the Senior Debt and the Holder shall forthwith deliver the same to a
representative on behalf of the holders of the Senior Debt for the equal and
ratable benefit of the holders of the Senior Debt for application to payment of
all Senior Debt in full.
6
<PAGE>
4.7 Waiver of Notice. The Holder of this Note hereby waives any and
----------------
all notice in respect of the Senior Debt, present or future, and agrees and
consents that without notice to or assent by any holder or holders of the
Subordinated Debt:
(a) the obligations and liabilities of DMC or any other party
or parties for or upon the Senior Debt (or any promissory note, security
document or guaranty evidencing or securing the same) may, from time to time, in
whole or in part, be renewed, extended, modified, amended, restated,
accelerated, compromised, supplemented, terminated, sold, exchanged, waived or
released;
(b) the holders of the Senior Debt may exercise or refrain from
exercising any right, remedy or power granted by or in connection with any
agreements relating to the Senior Debt; and
(c) any balance or balances of funds with any holders of the
Senior Debt at any time standing to the credit of DMC may, from time to time, in
whole or in part, be surrendered or released;
all as the holders of the Senior Debt may deem advisable and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Subordinated Debt to the Senior Debt provided for herein.
4.8 Provisions Solely to Define Relative Rights. Nothing contained
-------------------------------------------
in the subordination provisions of this Note is intended to or shall impair, as
between DMC, its creditors other than the holders of the Senior Debt, and the
Holder, the obligation of DMC, which is absolute and unconditional, to pay to
the Holder the principal of, premium, if any, and interest on this Note, as and
when the same shall become due and payable (except as otherwise provided in this
Note) in accordance with its terms, or is intended to or shall affect the
relative rights of the Holder and other creditors of DMC other than the holders
of the Senior Debt.
4.9 Reliance by Holders of Senior Debt. The Holder of this Note
----------------------------------
acknowledges and agrees that the holders of the Senior Debt have relied upon and
will continue to rely upon the subordination provided for herein in entering
into the agreements relating to Senior Debt and in extending credit to DMC
pursuant thereto. No present or future holder of Senior Debt shall be
prejudiced in its right to enforce the subordination contained herein in
accordance with the terms hereof by any act or failure to act on the part of DMC
or the Holder. The subordination provisions contained herein are for the
benefit of the holders of the Senior Debt from time to time and, so long as any
Senior Debt is outstanding under any agreement, may not be rescinded, cancelled
or modified in any way without the prior written consent thereto of holders of a
majority in aggregate principal amount of Senior Debt.
4.10 Court Order. Notwithstanding anything to the contrary in this
-----------
Note, upon any payment or distribution of assets of DMC in any proceedings for
reorganization, insolvency, liquidation, dissolution or other winding up, the
Holder shall be entitled to rely upon any final order or decree made by any
court of competent jurisdiction in which any such proceedings are pending for
the purpose of ascertaining the persons entitled to participate in such payment
or
7
<PAGE>
distribution, the holders of the Senior Debt and other debt of DMC, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto.
4.11 Binding Upon Successors and Assigns. The subordination
-----------------------------------
provisions hereof shall be binding upon any holder of Subordinated Debt and upon
the successors and assigns of the Holder; and all references herein to the
Holder shall be deemed to include any successor or successors, whether immediate
or remote, to the Holder.
4.12 Undertaking. By its acceptance of this Note, the Holder hereof
-----------
agrees to execute and deliver such documents as may be reasonably requested from
time to time by DMC or the holders of any Senior Debt in order to implement the
foregoing provisions of this Section 4.
5. Miscellaneous
-------------
5.1 Waiver. DMC hereby waives diligence, presentment, demand,
------
protest and any other notices of any kind in the enforcement of this Note, save
as otherwise specifically provided herein.
5.2 Notices. All notices and waivers hereunder shall be in writing
-------
and shall be given, in the case of DMC, at Doskocil Manufacturing Company, Inc.,
c/o Westar Capital, 949 South Coast Drive, Suite 600, Costa Mesa, California
92626, Attention John W. Clark (or such other address as may have been notified
to the Holder in accordance with the provisions of this section) and, in the
case of the Holder, to Holder at _____________________________ ______________
(or such other address as it may have notified to DMC in accordance with the
provisions of this section).
5.3 No Course of Dealing. No course of dealing between DMC and the
--------------------
Holder of this Note or any delay on the part of the Holder in exercising any
rights under this Note shall operate as a waiver thereof.
5.4 Severability. If any one or more of the provisions contained in
------------
this Note shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired.
5.5 Governing Law. The terms of this Note shall be governed by the
-------------
laws of the State of California applicable to agreements entered into, to be
wholly performed in and among residents exclusively of, Texas.
8
<PAGE>
5.6 Waiver and Amendment. Any provision of this Note may be amended,
--------------------
waived, or modified upon the written consent of DMC and the holder of this Note.
DOSKOCIL MANUFACTURING COMPANY, INC.
By: ________________________________________
[ ]
Its: President
9
<PAGE>
Appendix A-3
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, OR TRANSFERRED EXCEPT
IN COMPLIANCE THEREWITH.
DOSKOCIL MANUFACTURING COMPANY, INC.
SUBORDINATED NOTE
Arlington, Texas
$__________________ _________________
FOR VALUE RECEIVED, Doskocil Manufacturing Company, Inc., a Texas
corporation ("DMC"), promises to pay to the order of _________________
---
("________"), his, her or its registered successors and assigns (the "Holder"),
------
in lawful money of the United States of America, the principal sum of
___________________________________ ($________), or such lesser amount as shall
then equal the outstanding principal amount hereof, with simple interest
(computed on the basis of a 365-day year) on the unpaid principal balance hereof
accruing from the date hereof (the "Effective Date") at ten percent (10%) per
--------------
annum simple interest both principal and interest to be payable as provided
herein.
It is the intent of DMC and Holder in the making and acceptance of this
Note to contract in strict compliance with the usury laws of the State of Texas
(including any superseding federal law), if and to the extent applicable. In
the event Holder shall collect monies which are deemed to constitute interest in
excess of that permitted to be charged by the laws of the State of Texas
(including any superseding federal law), if and to the extent applicable, all
such sums so deemed to constitute interest in excess of the maximum lawful
interest rate shall be credited as of the date of collection to the payment of
principal. Any sums collected by Holder which exceed the amount of the
remaining principal and accrued interest hereunder shall be returned to DMC.
This Note is one of the Subordinated Promissory Notes into which the Series
C Preferred Stock of DMC may be converted as referred to in Section 6.1 of that
certain Amended and Restated Securityholders Agreement (the "Agreement") entered
---------
into as of ____________, 1997, by and among DMC, Westar Capital, Westar LLC,
Enterprise Partners III, L.P., Enterprise Partners III Associates, L.P., HBI
Financial, Inc., Aurelio F. Barreto III, Darrell R. Paxman and the other
securityholders party thereto. The original principal amount of this Note shall
be determined in accordance with the provisions of Section 6.1 of the Agreement.
1
<PAGE>
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees:
1. Definitions
-----------
The following terms shall have the following respective meanings:
"Bankruptcy Law" means Title 11, United States Code or any similar
--------------
Federal or State law for the relief of debtors.
"Corporate Transactions" means (a) the combination of DMC with another
----------------------
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation); or (b) a sale
of all or substantially all of the assets of DMC; unless DMC's shareholders of
------
record as constituted immediately prior to such combination or sale will,
immediately after such acquisition or sale (by virtue of securities issued as
consideration for this corporation's acquisition or sale or otherwise) hold at
least 50% of the voting power of the surviving or acquiring entity.
"Custodian" means any receiver, trustee, assignee, liquidator or
---------
similar official under any Bankruptcy Law.
"Senior Debt" means all principal of, premium and interest (including,
-----------
without limitation, any interest which accrues (or which would accrue but for
such case, proceeding or other action) after the commencement of any case,
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of DMC (whether or not such interest is allowed or allowable as a
claim in such case, proceeding or other action)) on any indebtedness created,
incurred, assumed or guaranteed by DMC and its subsidiaries (present or future),
whether now existing or hereafter arising, due or to become due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, under any
working capital or other credit agreement or facility with a commercial bank,
insurance company, other recognized financial institution, any debt issued to
the public pursuant to a private placement or a registration statement filed
with and declared effective by the Securities and Exchange Commission, any debt
incurred in connection with any past or future acquisitions by DMC and its
subsidiaries (present or future), and any sale/leaseback financing on equipment
or real estate of DMC. Without limiting the generality of the foregoing,
"Senior Debt" shall also include the principal of, premium, if any, interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all other amounts owing in respect of, DMC's Senior Subordinated Notes due 2007
issued pursuant to the Indenture between DMC and the trustee, including any debt
securities issued in exchange for such notes (the "Senior Subordinated Notes")
and shall also include such amounts owing (including principal, premium, if any,
interest (including interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law)) under
the credit agreement by and among DMC, NationsBanc Capital Markets, Inc. and
Donaldson, Lufkin & Jenrette, as arrangers and syndication agents,
2
<PAGE>
certain lending parties thereto, and NationsBank of Texas, N.A., as agent, as it
may be amended from time to time (the "Senior Credit Facility").
2. Payments.
--------
2.1 Payments of Principal and Interest.
----------------------------------
(a) Subject to the terms and conditions of this Note, the
principal then outstanding hereunder, together with all accrued and unpaid
interest thereon, shall be due and payable upon the consummation of (i) a
Corporate Transaction or (ii) an initial public offering of DMC's Common Stock.
(b) Interest payments shall be paid on March 1 of each year
commencing March 1, ____ at the sole discretion of the Board of Directors of
DMC.
2.2 Place of Payments. All payments required to be made hereunder to
-----------------
the Holder shall be made on the due date by crediting before 11:00 a.m. Texas
time, by federal funds bank wire transfer, such bank account in such bank in the
United States as the Holder may previously have designated in writing to DMC.
If any day upon which principal and/or interest of this Note is payable is a day
other than a business day (being a day other than a Saturday, Sunday, or a day
on which banking institutions in Dallas, Texas are authorized or obligated by
law or executive order to close), payment of the principal and/or interest then
due may be made on the next succeeding business day with the same force and
effect as if it had been made on the due date; provided, that this Note shall
continue to bear interest at the contractual rate until the actual date of
payment.
2.3 Optional Prepayments. The principal amount of this Note may be
--------------------
prepaid at any time in whole or in part without penalty or premium; provided,
that all interest accrued and unpaid to the prepayment date is paid
simultaneously therewith; and, provided further, that no prepayment can be made
unless all of the Series B and Series C Preferred Stock has been redeemed and
the debt issued upon the conversion of the Series B Preferred Stock, if any, has
been paid in full. DMC shall notify the Holder of its intention to prepay this
Note, in whole or in part, by giving notice at least two (2) business days
before the proposed payment date and any such notice, once given, shall be
irrevocable. Any payment made pursuant to this Section 2.3 shall be applied,
first, to interest accrued and unpaid to the date of such prepayment and,
second, to the then outstanding principal amount of this Note.
3. Events of Default and Remedies.
------------------------------
3.1 Events of Default. Each of the following events shall constitute
-----------------
an event of default (individually, an "Event of Default"; collectively, "Events
---------------- ------
of Default"):
- ----------
(a) DMC shall default in the due and punctual payment of all or
any part of the principal of this Note, or accrued interest thereon when and as
such principal and interest shall become due and payable, whether by
acceleration or otherwise, and such default
3
<PAGE>
shall continue for a period of ten (10) business days after the Holder has given
DMC written notice of such default;
(b) DMC, pursuant to or within the meaning of any Bankruptcy
Law, (i) files a voluntary petition in bankruptcy or a petition or answer
seeking reorganization, to effect a plan or other arrangement with creditors or
any other relief; (ii) consents to the entry of an order for relief against it
in an involuntary case; (iii) consents to the appointment of a Custodian of it
or for all or substantially all of its property; or (iv) makes a general
assignment for the benefit of its creditors; or
(c) A court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (i) is for relief against DMC in an involuntary
case; (ii) appoints a Custodian of DMC for all, or substantially all its
property; or (iii) orders the liquidation of DMC, and in any such case the order
or decree remains in effect for ninety (90) days.
3.2 Remedies. If an Event of Default shall occur and be continuing,
--------
the Holder or Holders of this Note may, subject to Section 4 below, declare, by
notice in writing given to DMC, the entire unpaid principal amount of this Note
together with interest accrued thereon, to be immediately due and payable, in
which case this Note shall become immediately due and payable, both as to
principal and interest, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived.
3.3 Suits for Enforcement. Subject to Section 4 below, at any time
---------------------
after this Note is declared to be due and payable, the Holder of this Note may
proceed to protect and enforce its rights either by suit in equity or by action
at law, or both, whether for specific performance of any covenant or agreement
contained in this Note, or the Holder of this Note may proceed to enforce any
other legal or the equitable right as the Holder of such Note. No remedy is
intended to be exclusive, and each remedy shall be cumulative.
4. Subordination.
-------------
4.1 Payment of Note Subordinated to Senior Debt. DMC and the Holder
-------------------------------------------
agree for the benefit of the Senior Debt that all indebtedness evidenced by this
Note, including principal, premium, if any, and interest, and all other amounts
payable to the Holder hereunder (collectively, the "Subordinated Debt") shall,
-----------------
to the extent hereinafter set forth, be subordinate and junior to all Senior
Debt in all respects.
4.2 No Payments With Respect to Note in Certain Circumstances.
---------------------------------------------------------
Unless and until all principal of, premium, if any, and interest on, and all
other obligations of DMC under, any Senior Debt shall have been paid in full and
all commitments to extend Senior Debt shall have terminated, neither DMC nor any
of its subsidiaries or affiliates shall make, and the Holder shall not demand,
accept or receive, or attempt to collect or commence any legal proceedings to
collect, any direct or indirect payment (in cash or property or by setoff,
exercise of contractual or statutory rights or otherwise) of or on account of
any amount payable on or with respect to this Note (excluding the accrual of
interest hereon) or any interest herein; provided that this Section 4.2 shall
not prevent the payment in cash of principal and interest on this Note
4
<PAGE>
(excluding the accrual of interest hereon), but only if (i) both before and
after giving effect to such payment, no default ("Payment Default") in payment
---------------
of any principal of or premium or interest on any Senior Debt or payment of
dividends on Series B or Series C Preferred Stock or redemption of Series B
Preferred Stock shall have occurred and be continuing and (ii) (A) so long as
any Senior Debt remains outstanding, the holders thereof shall have not
determined (and notified DMC of its determination) that there has occurred a
material adverse change, or development involving a prospective change, in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of DMC and its subsidiaries, taken as a whole, since the
respective dates as of which such Senior Debt is incurred; and (B) DMC shall not
have received written notice from holders of any Senior Debt that a default
(other than a Payment Default) under any Senior Debt shall have occurred and be
continuing, or that such payment on this Note would result in such a default,
permitting such holders to accelerate the maturity thereof; provided, that in
the case of this clause (ii), the period (a "Payment Blockage Period") during
-----------------------
which such payments on this Note shall be prohibited shall commence on the date
of receipt of such notice and end on the earliest of (x) 179 days thereafter,
(y) the date on which such default shall have been waived in writing or cured
and (z) the date on which the benefits of this clause (ii) shall have been
waived in writing by such Senior Debt lender or lenders. Notwithstanding
anything in clause (ii) to the contrary, in no event will a Payment Blockage
Period extend beyond 179 days from the date payment on this Note was due. Any
payment under this Note not permitted by this Section 4.2 to be paid shall be
deemed to not have been due and payable on such date and the failure to make
such payment shall not constitute an Event of Default hereunder.
4.3 Initiation of Actions. Unless and until all principal of,
---------------------
premium, if any, and interest on, and all other obligations of DMC under, the
Senior Debt shall have been paid in full and all commitments to extend Senior
Debt shall have terminated, the Holder will not commence or maintain any action,
suit or any other legal or equitable proceeding against DMC, or join with any
creditor in any such proceeding, under any insolvency, bankruptcy, receivership,
liquidation, reorganization or other similar law, unless the holders of Senior
Debt shall also join in bringing such proceeding; provided, that the foregoing
shall not prohibit the Holder from filing a proof of claim or otherwise
participating in any such proceeding not commenced by it.
4.4 Note Subordinated on Dissolution, Liquidation, Reorganization,
-------------------------------------------------------------
Etc. In the event of any insolvency or bankruptcy proceedings, and any
- ----
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to DMC or its creditors, in their capacity as
creditors of DMC, or to substantially all of its property, and in the event of
any proceedings for voluntary liquidation, dissolution or other winding up of
DMC, whether or not involving insolvency or bankruptcy, then:
(a) The holders of the Senior Debt shall first be entitled to
receive payment in full of the principal thereof, premium, if any, interest and
all other amounts payable thereon (accruing before and after the commencement of
the proceedings, whether or not allowed or allowable as a claim in such
proceedings) before the Holder is entitled to receive any payment on account or
in respect of Subordinated Debt; and
5
<PAGE>
(b) Any payment or distribution of assets of any kind or
character, whether in cash, property or securities to which the Holder would be
entitled, but for the provisions of this Note, shall be paid or distributed by
the liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or other trustee or agent, directly to the holders of Senior Debt and any other
representative on behalf of the holders of Senior Debt to the extent necessary
to make payment in full of all amounts of Senior Debt remaining unpaid, after
giving effect to any concurrent payment or distribution to the holders of the
Senior Debt.
4.5 Payment Over to Senior Debt. Should any payment or distribution
---------------------------
or security or the proceeds of any thereof be collected or received by the
Holder in respect to the Subordinated Debt, at a time when the payment thereof
by DMC is prohibited by the terms of this Note, the Holder will forthwith
deliver the same to a representative on behalf of the holders of Senior Debt for
the equal and ratable benefit of the holders of the Senior Debt in precisely the
form received (except for the endorsement or the assignment of or by the Holder
where necessary) for application to payment of all Senior Debt in full, after
giving effect to any concurrent payment or distribution to the holders of Senior
Debt and, until so delivered, the same shall be held in trust by the Holder as
the property of the holders of the Senior Debt.
4.6 Subrogation to Rights of Holders of Senior Debt. The Holder
-----------------------------------------------
shall not be subrogated to the rights of the holders of the Senior Debt to
receive payments or distributions of assets of DMC until all amounts payable
with respect to the Senior Debt shall be paid in full, and, for the purposes of
such subrogation, no payments or distributions to the holders of the Senior Debt
of any cash, property or securities to which the Holder would be entitled except
for these provisions shall, as between DMC, its creditors other than the holders
of the Senior Debt, and the Holder of this Note, be deemed to be a payment by
DMC to or on account of the Senior Debt. The subordination provisions of this
Note are and are intended solely for the purpose of defining the relative rights
of the Holder, on the one hand, and the holders of the Senior Debt, on the other
hand. Subject to the payment in full of all of the Senior Debt, the Holder of
this Note shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of DMC
applicable to the Senior Debt until all amounts owing on the Subordinated Debt
shall be paid in full. For purposes of such subrogation, no payments or
distributions to the Holder of cash, property, securities or other assets by
virtue of the subrogation herein provided which otherwise would have been made
to the holders of the Senior Debt shall, as between DMC, its creditors other
than the holders of Senior Debt and the Holder of this Note, be deemed to be a
payment to or on account of the Subordinated Debt. The Holder agrees that, in
the event that all or any part of any payment made on account of the Senior Debt
is recovered from the holders of Senior Debt as a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law, any
payment or distribution received by the Holder on account of the Subordinated
Debt at any time after the date of the payment so recovered, whether pursuant to
the right of subrogation provided for in this Note or otherwise, shall be deemed
to have been received by the Holder in trust as the property of the holders of
the Senior Debt and the Holder shall forthwith deliver the same to a
representative on behalf of the holders of the Senior Debt for the equal and
ratable benefit of the holders of the Senior Debt for application to payment of
all Senior Debt in full.
6
<PAGE>
4.7 Waiver of Notice. The Holder of this Note hereby waives any and
----------------
all notice in respect of the Senior Debt, present or future, and agrees and
consents that without notice to or assent by any holder or holders of the
Subordinated Debt:
(a) the obligations and liabilities of DMC or any other party or
parties for or upon the Senior Debt (or any promissory note, security document
or guaranty evidencing or securing the same) may, from time to time, in whole or
in part, be renewed, extended, modified, amended, restated, accelerated,
compromised, supplemented, terminated, sold, exchanged, waived or released;
(b) the holders of the Senior Debt may exercise or refrain from
exercising any right, remedy or power granted by or in connection with any
agreements relating to the Senior Debt; and
(c) any balance or balances of funds with any holders of the
Senior Debt at any time standing to the credit of DMC may, from time to time, in
whole or in part, be surrendered or released;
all as the holders of the Senior Debt may deem advisable and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Subordinated Debt to the Senior Debt provided for herein.
4.8 Provisions Solely to Define Relative Rights. Nothing contained
-------------------------------------------
in the subordination provisions of this Note is intended to or shall impair, as
between DMC, its creditors other than the holders of the Senior Debt, and the
Holder, the obligation of DMC, which is absolute and unconditional, to pay to
the Holder the principal of, premium, if any, and interest on this Note, as and
when the same shall become due and payable (except as otherwise provided in this
Note) in accordance with its terms, or is intended to or shall affect the
relative rights of the Holder and other creditors of DMC other than the holders
of the Senior Debt.
4.9 Reliance by Holders of Senior Debt. The Holder of this Note
----------------------------------
acknowledges and agrees that the holders of the Senior Debt have relied upon and
will continue to rely upon the subordination provided for herein in entering
into the agreements relating to Senior Debt and in extending credit to DMC
pursuant thereto. No present or future holder of Senior Debt shall be
prejudiced in its right to enforce the subordination contained herein in
accordance with the terms hereof by any act or failure to act on the part of DMC
or the Holder. The subordination provisions contained herein are for the
benefit of the holders of the Senior Debt from time to time and, so long as any
Senior Debt is outstanding under any agreement, may not be rescinded, cancelled
or modified in any way without the prior written consent thereto of holders of a
majority in aggregate principal amount of Senior Debt.
4.10 Court Order. Notwithstanding anything to the contrary in this
-----------
Note, upon any payment or distribution of assets of DMC in any proceedings for
reorganization, insolvency, liquidation, dissolution or other winding up, the
Holder shall be entitled to rely upon any final order or decree made by any
court of competent jurisdiction in which any such proceedings are pending for
the purpose of ascertaining the persons entitled to participate in such payment
or
7
<PAGE>
distribution, the holders of the Senior Debt and other debt of DMC, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto.
4.11 Binding Upon Successors and Assigns. The subordination
-----------------------------------
provisions hereof shall be binding upon any holder of Subordinated Debt and upon
the successors and assigns of the Holder; and all references herein to the
Holder shall be deemed to include any successor or successors, whether immediate
or remote, to the Holder.
4.12 Undertaking. By its acceptance of this Note, the Holder hereof
-----------
agrees to execute and deliver such documents as may be reasonably requested from
time to time by DMC or the holders of any Senior Debt in order to implement the
foregoing provisions of this Section 4.
5. Miscellaneous
-------------
5.1 Waiver. DMC hereby waives diligence, presentment, demand,
------
protest and any other notices of any kind in the enforcement of this Note, save
as otherwise specifically provided herein.
5.2 Notices. All notices and waivers hereunder shall be in writing
-------
and shall be given, in the case of DMC, at Doskocil Manufacturing Company, Inc.,
c/o Westar Capital, 949 South Coast Drive, Suite 600, Costa Mesa, California
92626, Attention John W. Clark (or such other address as may have been notified
to the Holder in accordance with the provisions of this section) and, in the
case of the Holder, to Holder at ___________________________________________
(or such other address as it may have notified to DMC in accordance with the
provisions of this section).
5.3 No Course of Dealing. No course of dealing between DMC and the
--------------------
Holder of this Note or any delay on the part of the Holder in exercising any
rights under this Note shall operate as a waiver thereof.
5.4 Severability. If any one or more of the provisions contained in
------------
this Note shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired.
5.5 Governing Law. The terms of this Note shall be governed by the
-------------
laws of the State of California applicable to agreements entered into, to be
wholly performed in and among residents exclusively of, Texas.
8
<PAGE>
5.6 Waiver and
----------
Amendment. Any provision of this Note may be amended, waived, or modified upon
- ---------
the written consent of DMC and the holder of this Note.
DOSKOCIL MANUFACTURING COMPANY, INC.
a Texas corporation
By: ________________________________
[ ]
Its: President
9
<PAGE>
EXHIBIT 12.1
DOSKOCIL MANUFACTURING COMPANY, INC.
UNAUDITED PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FOR THE LATEST FOR THE SIX MONTHS
TWELVE MONTHS ENDED JUNE 30,
FOR THE YEAR ENDED ENDED -------------------
DECEMBER 31, 1996 JUNE 30, 1997 1996 1997
------------------ -------------- -------------------
<S> <C> <C> <C> <C>
FIXED CHARGES
Pro forma interest
expense.............. 15,313 15,313 7,656 7,656
Portion of rent
representing
interest............. 1,307 1,300 654 646
------ ------ -------- ----------
16,620 16,613 8,310 8,302
EARNINGS
Pro forma pre tax
income (loss)........ 8,451 3,270 279 (4,902)
Fixed charges per
above................ 16,620 16,613 8,310 8,302
------ ------ -------- ----------
25,071 19,883 8,589 3,400
Pro forma ratio of
earnings to fixed
charges.............. 1.5 1.2 1.0 --
Pro forma deficiency
of earnings to cover
fixed charges........ -- -- -- ($4,902)
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated July 25, 1997, in the Registration Statement (Form
S-4) of Doskocil Manufacturing Company, Inc. Senior Subordinated Notes due
2007 and related Prospectus of Doskocil Manufacturing Company, Inc. filed with
the Securities Exchange Commission.
We also consent to the use of our report dated January 30, 1997 related to
the financial statements of Dogloo, Inc., in the Registration Statement (Form
S-4) of Doskocil Manufacturing Company, Inc. Senior Subordinated Notes due
2007 and related Prospectus of Doskocil Manufacturing Company, Inc. filed with
the Securities Exchange Commission.
/S/ ERNST & YOUNG LLP
Dallas, Texas
September 30, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Doskocil Manufacturing Company, Inc.:
We consent to the inclusion of our report dated March 12, 1997, with respect
to the combined balance sheets of Doskocil Manufacturing Company, Inc. and
Spectrum Polymers. Ltd. as of December 28, 1996 and December 30, 1995, and the
related combined statements of operations, equity, and cash flows for the
years ended December 28, 1996, December 30, 1995, and December 31, 1994, which
report appears in the Form S-4 of Doskocil Manufacturing Company, Inc. dated
October 2, 1997, and to the reference to our firm under the heading "Experts"
in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Fort Worth, Texas
October 2, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated February 15, 1995, accompanying the
financial statements of Dogloo, Inc. contained in the Registration Statement
and Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."
/s/ GRANT THORNTON LLP
Irvine, California
October 2, 1997
<PAGE>
EXHIBIT 25.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
FIRST TRUST NATIONAL ASSOCIATION
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
UNITED STATES 41-0257700
(State of Incorporation) (I.R.S. Employer Identification No.)
FIRST TRUST CENTER
180 EAST FIFTH STREET
ST. PAUL, MINNESOTA 55101
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
DOSKOCIL MANUFACTURING COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
TEXAS 75-1281683
(State of Incorporation) (I.R.S. Employer Identification No.)
4209 BARNETT
ARLINGTON, TX 76017
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
10 1/8% SENIOR SUBORDINATED NOTES DUE 2007
(Title of the Indenture Securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GENERAL
1. GENERAL INFORMATION Furnish the following information as to the Trustee.
(a) Name and address of each examining or supervising authority to which it
is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published pursuant
to law or the requirements of its supervising or examining authority is
incorporated by reference to Registration Number 333-34585.
*Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what persons
have been underwriters for any securities of the obligors within three years
prior to the date of filing this statement, or what persons are owners of 10%
or more of the voting securities of the obligors, or affiliates, are based
upon information furnished to the Trustee by the obligors. While the Trustee
has no reason to doubt the accuracy of any such information, it cannot accept
any responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, First Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, and its seal to be hereunto affixed
and attested, all in the City of Saint Paul and State of Minnesota on the 30th
day of September, 1997.
FIRST TRUST NATIONAL ASSOCIATION
/s/ KATHE M. BARRETT
Kathe M. Barrett
Trust Officer
/s/ TAMARA SCHULTZ-FUGH
Tamara Schultz-Fugh
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned, FIRST TRUST NATIONAL ASSOCIATION hereby consents that reports of
examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Dated: September 30, 1997
FIRST TRUST NATIONAL ASSOCIATION
/s/ KATHE M. BARRETT
Kathe M. Barrett
Trust Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HISTORICAL
COMBINED FINANCIAL STATEMENTS OF DOSKOCIL MANUFACTURING COMPANY, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-28-1996 JUN-30-1997
<PERIOD-START> DEC-30-1995 DEC-29-1996
<PERIOD-END> DEC-28-1996 JUN-30-1997
<CASH> 6,975 2,066
<SECURITIES> 0 0
<RECEIVABLES> 14,236 14,833
<ALLOWANCES> (220) (248)
<INVENTORY> 19,268 1,644
<CURRENT-ASSETS> 41,929 33,358
<PP&E> 57,963 54,628
<DEPRECIATION> (35,397) (37,724)
<TOTAL-ASSETS> 66,135 50,679
<CURRENT-LIABILITIES> 22,966 14,936
<BONDS> 7,465 6,590
0 0
0 0
<COMMON> 24 24
<OTHER-SE> 35,614 29,066
<TOTAL-LIABILITY-AND-EQUITY> 66,135 50,679
<SALES> 103,455 51,756
<TOTAL-REVENUES> 103,455 51,756
<CGS> 73,128 38,389
<TOTAL-COSTS> 73,128 38,389
<OTHER-EXPENSES> 0 3,846
<LOSS-PROVISION> 181 75
<INTEREST-EXPENSE> 1,750 471
<INCOME-PRETAX> 4,743 (4,276)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 4,743 (4,276)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,743 (4,276)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR TENDERS OF
OUTSTANDING 10 1/8% SENIOR SUBORDINATED NOTES DUE 2007
FOR 10 1/8% SENIOR SUBORDINATED NOTES DUE 2007 WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
DOSKOCIL MANUFACTURING COMPANY, INC.
PURSUANT TO THE PROSPECTUS
DATED , 1997 OF DOSKOCIL MANUFACTURING COMPANY, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997 (UNLESS EXTENDED) (THE "EXPIRATION DATE").
TENDERED OLD NOTES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE
EXPIRATION DATE OF THE EXCHANGE OFFER.
Deliver to: First National Association, Exchange Agent:
By Mail (registered or certified mail recommended), Hand or Overnight Courier:
First Trust National Association
180 East Fifty Street
St. Paul, Minnesota 55101
Attn: David Haugen
Specialized Finance Corporation Trust Department
Fourth Floor
Telephone Number
(612) 244-8162
By Facsimile:
(612) 244-1537
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.
<PAGE>
The undersigned acknowledges that he or she has received the Prospectus,
dated , 1997, (the "Prospectus"), of Doskocil Manufacturing Company,
a Texas corporation (the "Company"), and this Letter of Transmittal, which may
be amended from time to time (this "Letter"), which together constitute the
Company's offer (the "Exchange Offer") to exchange its outstanding 10 1/8%
Senior Subordinated Notes due 2007 (the "Old Notes"), of which $85,000,000
aggregate principal amount is outstanding, for a like aggregate principal
amount of the Company's newly issued 10 1/8% Senior Subordinated Notes due
2007 (the "New Notes"). The Old Notes and the New Notes are referred to herein
collectively as the "Notes" and holders of the Notes are sometimes referred to
herein as the "Holders."
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 from the most recent date to which
interest has been paid on the Old Notes, or if no interest has been paid on
the Old Notes, from September 19, 1997. Accordingly, if the relevant record
date for interest payment occurs after the consummation of the Exchange Offer,
registered Holders of New Notes on such record date will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid, from September 19, 1997. If, however, the relevant
record date for interest payment occurs prior to the consummation of the
Exchange Offer, registered Holders of Old Notes on such record date will
receive interest accruing from the most recent date to which interest has been
paid, or if no interest has been paid, from September 19, 1997. Old Notes
accepted for exchange will cease to accrue interest from and after the date of
consummation of the Exchange Offer, except as set forth in the immediately
preceding sentence. Holders of Old Notes whose Old Notes are accepted for
exchange will not receive any payment in respect of interest on such Old Notes
otherwise payable on any interest payment date the record date for which
occurs on or after consummation of the Exchange Offer. If the Exchange Offer
is not consummated within the time period set forth herein under the heading
"Description of the Notes--Registration Rights; Liquidated Damages" of the
Prospectus, special interest in the form of liquidated damages will accrue and
be payable on the Old Notes until the Exchange Offer is consummated.
This Letter is to be used: (i) by all Holders who are not members of the
Automated Tender Offering Program ("ATOP") at the Depository Trust Company
("DTC"); (ii) by Holders who are ATOP members but choose not to use ATOP; or
(iii) if the Old Notes are to be tendered in accordance with the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 2. Delivery of this
Letter to DTC does not constitute delivery to the Exchange Agent.
Notwithstanding anything to the contrary in the registration rights
agreements, dated September 19, 1997 among the Company and the initial
purchasers of Old Notes (the "Registration Rights Agreements"), the Company
will accept for exchange any and all Old Notes validly tendered on or prior to
5:00 p.m., New York City time, on , 1997 (unless the Exchange
Offer is extended by the Company) (the "Expiration Date"). Tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date.
IMPORTANT: HOLDERS WHO WISH TO TENDER OLD NOTES IN THE EXCHANGE OFFER MUST
COMPLETE THIS LETTER OF TRANSMITTAL AND TENDER THE OLD NOTES TO THE EXCHANGE
AGENT AND NOT TO THE COMPANY.
The Exchange Offer is subject to the condition that the Exchange Offer not
violate any applicable law, policy or interpretation of the staff of the
Securities and Exchange Commission. 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 or acceptance of the Exchange Offer would not
be in compliance with the laws of such jurisdiction.
The instructions included with this Letter of Transmittal must be followed
in their entirety. Questions and requests for assistance or for additional
copies of the Prospectus or this Letter of Transmittal may be directed to the
Exchange Agent at the address listed above.
2
<PAGE>
APPROPRIATE SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company the principal amount of Old
Notes indicated below under "Description of Old Notes," in accordance with and
upon the terms and subject to the conditions set forth in the Prospectus,
receipt of which is hereby acknowledged, and in this Letter of Transmittal,
for the purpose of exchanging the principal amount of Old Notes designated
herein held by the undersigned and tendered hereby for an equal principal
amount of the New Notes. The New Notes will be issued only in integral
multiples of $1,000 to each tendering Holder of Old Notes whose Old Notes are
accepted in the Exchange Offer. Holders may tender all or a portion of their
Old Notes pursuant to the Exchange Offer.
Subject to, and effective upon, the acceptance for exchange of the Old Notes
tendered herewith in accordance with the terms of the Exchange Offer, the
undersigned hereby sells, assigns and transfers to, or upon the order of, the
Company all right, title and interest in and to all such Old Notes that are
being tendered hereby and that are being accepted for exchange pursuant to the
Exchange Offer. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as the true and lawful agent and attorney-in-fact of the
undersigned (with full knowledge that the Exchange Agent also acts as the
agent of the Company), with respect to the Old Notes tendered hereby and
accepted for exchange pursuant to the Exchange Offer with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) to deliver the Old Notes tendered hereby to the
Company (together with all accompanying evidences of transfer and
authenticity) for transfer or cancellation by the Company.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or
incapacity of the undersigned and any obligation of the undersigned hereunder
shall be binding upon the heirs, executors, administrators, legal
representatives, successors and assigns of the undersigned. Any tender of Old
Notes hereunder may be withdrawn only in accordance with the procedures set
forth in the instructions contained in this Letter of Transmittal. See
Instruction 4 hereto.
The undersigned hereby represents and warrants that he or she has full power
and authority to tender, exchange, 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. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Company to be necessary or
desirable to complete the assignment and transfer of the Old Notes tendered.
The undersigned has read and agrees to all of the terms of the Exchange Offer.
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.
The name(s) and address(es) of the registered Holder(s) should be printed
herein under "Description of Old Notes" (unless a label setting forth such
information appears thereunder), exactly as they appear on the Old Notes
tendered hereby. The certificate number(s) and the principal amount of Old
Notes to which this Letter of Transmittal relates, together with the principal
amount of such Old Notes that the undersigned wishes to tender, should be
indicated in the appropriate boxes herein under "Description of Old Notes."
The undersigned 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 Agreements and that, upon the issuance of the New Notes, the Company
will have no further obligations or liabilities thereunder.
3
<PAGE>
The undersigned understands that the tender of Old Notes pursuant to one of
the procedures described in the Prospectus under "The Exchange Offer--
Procedures for Tendering Old Notes" and the Instructions hereto will
constitute the tendering Holder's acceptance of the terms and the conditions
of the Exchange Offer. The undersigned hereby represents and warrants to the
Company that the New Notes to be acquired by such Holder pursuant to the
Exchange Offer are being acquired in the ordinary course of such Holder's
business, that such Holder has no arrangement or understanding with any person
to participate in the distribution of the New Notes. The Company's acceptance
for exchange of Old Notes tendered pursuant to the Exchange Offer will
constitute a binding agreement between the tendering Holder and the Company
upon the terms and subject to the conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT IT IS NOT ENGAGED IN,
AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF THE NEW NOTES.
The undersigned also acknowledges that this Exchange Offer is being made
based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no action letters issued to third
parties in other transactions substantially similar to the Exchange Offer,
which lead the Company to believe that the New Notes issued in exchange for
the Old Notes pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, (ii) an Initial Purchaser who acquired the Old Notes directly
from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act, or
(iii) a broker-dealer who acquired the Old Notes as a result of market making
or other trading activities), without further 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 are not participating and have no arrangement or understanding
with any person to participate in the distribution (within the meaning of the
Securities Act) of such New Notes. 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 or is engaged in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act. If
the undersigned is a broker-dealer that will receive New Notes for its own
account in exchange of 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
activities 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 Section
2(11) of the Securities Act.
The undersigned understands that the New Notes issued in consideration of
Old Notes accepted for exchange, and/or any principal amount of Old Notes not
tendered or not accepted for exchange, will only be issued in the name of the
Holder(s) appearing herein under "Description of Old Notes." Unless otherwise
indicated under "Special Delivery Instruments," please mail the New Notes
issued in consideration of Old Notes accepted for exchange, and/or any
principal amount of Old Notes not tendered or not accepted for exchange (and
accompanying documents, as appropriate), to the Holder(s) at the address(es)
appearing herein under "Description of Old Notes." In the event that the
Special Delivery Instructions are completed, please mail the New Notes issued
in consideration of Old Notes accepted for exchange, and/or any Old Notes for
any principal amount or liquidation preference not tendered or not accepted
for exchange, in the name of the Holder(s) appearing herein under "Description
of Old Notes," and send such New Notes and/or Old Notes to the address(es) so
indicated. Any transfer of Old Notes to a different holder must be completed,
according to the provisions on transfer of Old Notes contained in the
Indenture.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES
AS SET FORTH IN SUCH BOX BELOW.
4
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Guarantee of Signatures. Signatures on this Letter of Transmittal or
notice of withdrawal, as the case may be, must be guaranteed by an institution
which falls within the definition of "eligible guarantor institution"
contained in Rule 17Ad15 as promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended (hereinafter,
an "Eligible Institution") unless (i) the Old Notes tendered hereby are
tendered by the Holder(s) of the Old Notes who has (have) not completed the
box entitled "Special Delivery Instructions" on this Letter of Transmittal or
(ii) the Old Notes are tendered for the account of an Eligible Institution.
2. Delivery of this Letter of Transmittal and Old Notes; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be used: (i) by all Holders who
are not ATOP members, (ii) by Holders who are ATOP members but choose not to
use ATOP or (iii) if the Old Notes are to be tendered in accordance with the
guaranteed delivery procedures set forth in the Prospectus under "The Exchange
Offer--Guaranteed Delivery Procedures." To validly tender Old Notes, a Holder
must physically deliver a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) with any required signature guarantees and
all other required documents to the Exchange Agent at its address set forth on
the cover of this Letter of Transmittal prior to the Expiration Date (as
defined below) or the Holder must properly complete and duly execute an ATOP
ticket in accordance with DTC procedures. Otherwise, the Holder must comply
with the guaranteed delivery procedures set forth in the next paragraph.
Notwithstanding anything to the contrary in the Registration Rights
Agreements, the term "Expiration Date" means 5:00 p.m., New York City time, on
, 1997 (or such later date to which the Company may, in its
sole discretion, extend the Exchange Offer). If this Exchange Offer is
extended, the term "Expiration Date" shall mean the latest time and date to
which the Exchange Offer is extended. The Company expressly reserves the
right, at any time or from time to time, to extend the period of time during
which the Exchange Offer is open by giving oral (confirmed in writing) or
written notice of such extension to the Exchange Agent and by making a public
announcement of such extension prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
LETTERS OF TRANSMITTAL SHOULD NOT BE SENT TO THE COMPANY OR TO DTC
If a Holder of the Old Notes desires to tender such Old Notes and time will
not permit such Holder's required documents to reach the Exchange Agent before
the Expiration Date, a tender may be effected if (a) the tender is made
through an Eligible Institution; (b) on or prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery (by telegram, facsimile transmission, mail or hand
delivery) setting forth the name and address of the Holder of the Old Notes
and the principal amount of Old Notes tendered, stating that the tender is
being made thereby and guaranteeing that within three New York Stock Exchange
trading days after the Expiration Date, any documents required by the Letter
of Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and (c) all other documents required by the Letter of Transmittal are
received by the Exchange Agent within three New York Stock Exchange trading
days after the Expiration Date. See "The Exchange Offer--Guaranteed Delivery
Procedures" as set forth in the Prospectus.
Only a Holder of Old Notes may tender Old Notes in the Exchange Offer. The
term "Holder" as used herein with respect to the Old Notes means any person in
whose name Old Notes are registered on the books of the Trustee. If the Letter
of Transmittal or any Old Notes 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 so submitted.
5
<PAGE>
Any beneficial Holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to validly surrender those Old Notes in the Exchange Offer should contact such
registered Holder promptly and instruct such registered Holder to tender on
his behalf. If such beneficial Holder wishes to tender on his own behalf, such
beneficial Holder must, prior to completing and executing the Letter of
Transmittal, make appropriate arrangements to register ownership of the Old
Notes in such beneficial Holder's name. It is the responsibility of the
beneficial Holder to register ownership in his own name if he chooses to do
so. The transfer of record ownership may take considerable time.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF)
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE EXCHANGING
HOLDER, but, except as otherwise provided below, the delivery will be deemed
made only when actually received or confirmed by the Exchange Agent. If sent
by mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to assure timely
delivery to the Exchange Agent before the Expiration Date. No Letters of
Transmittal or Old Notes should be sent to the Company.
No alternative, conditional or contingent tenders will be accepted. All
tendering Holders, by execution of this Letter of Transmittal (or facsimile
hereof), waive any right to receive notice of acceptance of their Old Notes
for exchange.
3.Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and principal amount of the Old Notes to which this Letter
of Transmittal relates should be listed on a separate signed schedule attached
hereto.
4.Withdrawal of Tender. Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written or facsimile transmission notice of withdrawal
must (i) be received by the Exchange Agent at the address set forth herein
prior to 5:00 p.m., New York City time, on the Expiration Date; (ii) specify
the name of the person having tendered the Old Notes to be withdrawn; (iii)
identify the Old Notes to be withdrawn; and (iv) be (a) signed by the Holder
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature
guarantees) or (b) accompanied by evidence satisfactory to the Company that
the Holder withdrawing such tender has succeeded to beneficial ownership of
such Old Notes. If Old Notes have been tendered pursuant to the ATOP procedure
with DTC, any notice of withdrawal must otherwise comply with the procedures
of DTC. Old Notes properly withdrawn will thereafter be deemed not validly
tendered for purposes of the Exchange Offer; provided, however, that withdrawn
Old Notes may be retendered by again following one of the procedures described
herein at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. All questions as to the validity, form and eligibility (including time
of receipt) of notice of withdrawal will be determined by the Company, whose
determinations will be final and binding on all parties. Neither the Company,
the Exchange Agent, nor any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failure to give any such notification. The Exchange
Agent intends to use reasonable efforts to give notification of such defects
and irregularities.
5.Partial Tenders; Pro Rata Effect. Tenders of the Old Notes will be
accepted only in integral multiples of $1,000. If less than the entire
principal amount evidenced by any Old Notes is to be tendered, fill in the
principal amount that is to be tendered in the box entitled "Principal Amount
Tendered" below. The entire principal amount of all Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
6.Signatures on this Letter of Transmittal; Bond Powers and Endorsements. If
this Letter of Transmittal is signed by the registered Holder(s) of the Old
Notes tendered hereby, the signature must correspond with the name as written
on the face of the certificate representing such Old Notes without alteration,
enlargement or any change whatsoever.
6
<PAGE>
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the Old Notes tendered hereby are registered in different names,
it will be necessary to complete, sign and submit as many separate copies of
this Letter of Transmittal and any necessary accompanying documents as there
are different registrations.
When this Letter of Transmittal is signed by the Holder(s) of Old Notes
listed and tendered hereby, no endorsements or separate bond powers are
required.
If this Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such 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.
7. Special Delivery Instructions. Tendering Holders should indicate in the
applicable box the name and address to which New Notes issued in consideration
of Old Notes accepted for exchange, or Old Notes for principal amounts not
exchanged or not tendered, are to be sent, if different from the name and
address of the person signing this Letter of Transmittal.
8. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Old Notes for principal amounts not
exchanged are to be delivered to any person other than the Holder of the Old
Notes or if a transfer tax is imposed for any reason other than the exchange
of Old Notes pursuant to the Exchange Offer, the amount of any such transfer
taxes (whether imposed on the registered Holder of any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted, the amount of such transfer
taxes will be billed directly to such tendering Holder.
9. Irregularities. All questions as to validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old Notes
will be resolved by the Company, in its sole discretion, whose determination
shall be final and binding. The Company reserves the absolute right to reject
any or all tenders of any particular Old Notes that are not in proper form, or
the acceptance of which would, in the opinion of the Company or its counsel,
be unlawful. The Company also reserves the absolute right to waive any defect,
irregularity or condition of tender with regard to any particular Old Notes.
The Company's interpretation of the terms of, and conditions to, the Exchange
Offer (including the instructions herein) will be final and binding. Unless
waived, any defects or irregularities in connection with tenders must be cured
within such time as the Company shall determine. Neither the Company nor the
Exchange Agent shall be under any duty to give notification of defects in such
tenders or shall incur any liability for failure to give such notification.
The Exchange Agent intends to use reasonable efforts to give notification of
such defects and irregularities have been cured or waived. Any Old Notes
received by the Exchange Agent that are not properly tendered and as to which
the irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering Holder, unless otherwise provided by this
Letter of Transmittal, as soon as practicable following the Expiration Date.
10. Interest on Exchanged 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 from the most recent date to which interest has been paid on the
Old Notes, or if no interest has been paid on the Old Notes, from September
19, 1997. Accordingly, if the relevant record date for interest payment occurs
after the consummation of the Exchange Offer, registered Holders of New Notes
on such record date will receive interest accruing from the most recent date
to which interest has been paid or, if no interest has been paid, from
September 19, 1997. If, however, the relevant record date for interest payment
occurs prior to the consummation of the Exchange Offer, registered Holders of
Old Notes on such record date will receive interest accruing from the most
recent date to which interest has been paid, or if no interest has been paid,
from September 19, 1997. Old Notes accepted for exchange will cease to accrue
interest from and after the
7
<PAGE>
date of consummation of the Exchange Offer, except as set forth in the
immediately preceding sentence. Holders of Old Notes whose Old Notes are
accepted for exchange will not receive any payment in respect of interest on
such Old Notes otherwise payable on any interest payment date the record date
for which occurs on or after consummation of the Exchange Offer. If the
Exchange Offer is not consummated within the time period set forth herein
under the heading "Description of the Notes--Registration Rights; Liquidated
Damages" of the Prospectus, special interest in the form of liquidated damages
will accrue and be payable on the Old Notes until the Exchange Offer is
consummated.
11.Mutilated, Lost, Stolen or Destroyed Certificates. Holders whose
certificates for Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), TOGETHER WITH
ALL REQUIRED DOCUMENTS, OR A NOTICE OF GUARANTEED DELIVERY, MUST BE RECEIVED
BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
8
<PAGE>
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1 AND 7)
To be completed ONLY if the New
Notes issued in consideration of Old
Notes exchanged, or certificates for
Old Notes in a principal amount not
surrendered for exchange, are to be
mailed to someone other than the
undersigned or to the undersigned at
an address other than that below.
Mail to:
Name: _______________________________
(Please Print)
Address: ____________________________
_____________________________________
(Zip Code)
DESCRIPTION OF OLD NOTES
(SEE INSTRUCTIONS 2 AND 7)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES)
OF REGISTERED
HOLDER(S) (PLEASE CERTIFICATE(S)
FILL IN, IN BLANK) (ATTACH ADDITIONAL SIGNED LIST, IF NECESSARY)
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT
AGGREGATE OF OLD NOTES
PRINCIPAL AMOUNT TENDERED (MUST
OF OLD NOTES BE INTEGRAL
CERTIFICATE EVIDENCED BY MULTIPLES OF
NUMBER(S) CERTIFICATE(S) $1,000)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
TOTAL
- --------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
(Boxes below to be checked by Eligible Institutions only)
[_] 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________________________________________
DTC Account Number___________________________________________________
Transaction Code Number______________________________________________
[_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED
DELIVERY 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 Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution________________________________________
DTC Account Number___________________________________________________
Transaction Code Number______________________________________________
[_] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET
FORTH ABOVE.
[_] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS
OR SUPPLEMENTS THERETO.
Name____________________________________________________________________
Address_________________________________________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
10
<PAGE>
PLEASE SIGN HERE
WHETHER OR NOT OLD NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
X
X
SIGNATURE(S) OF OWNER(S) DATED
OF AUTHORIZED SIGNATORY
Area Code and Telephone Number: ________________________________________
This box must be signed by registered holder(s) of Old Notes as their
name(s) appear(s) on certificate(s) for Old Notes hereby tendered or on
a security position listing, or by any person(s) authorized to become
registered holder(s) by endorsement and documents transmitted with this
Letter (including such opinions of counsel, certifications and other
information as may be required by the Company or the Trustee for the
Old Notes to comply with the restrictions on transfer applicable to the
Old Notes). If signature is by an attorney-in-fact, trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, such person must set forth his or her full
title below.
Name(s)_________________________________________________________________
------------------------------------------------------------------------
(Please Print)
Capacity (full title)___________________________________________________
Address_________________________________________________________________
------------------------------------------------------------------------
(Include Zip Code)
Tax Identification or Social Security Number(s)_________________________
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 6 TO DETERMINE IF REQUIRED)
------------------------------------------------------------------------
AUTHORIZED SIGNATURE
------------------------------------------------------------------------
NAME
------------------------------------------------------------------------
NAME OF FIRM
------------------------------------------------------------------------
TITLE
------------------------------------------------------------------------
ADDRESS
11
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
DOSKOCIL MANUFACTURING COMPANY, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) of Doskocil
Manufacturing Company, Inc. (the "Company") made pursuant to the Prospectus,
dated , 1997 (as the same may be amended or supplemented from
time to time, the "Prospectus"), and the related Letter of Transmittal (the
"Letter of Transmittal") if the Letter of Transmittal and all other required
documents cannot be delivered or transmitted by facsimile transmission, mail
or hand delivery to First Trust National Association (the "Exchange Agent") on
or prior to 5:00 p.m., New York City time, on the Expiration Date (as defined
in the Prospectus) on or prior to 5:00 p.m., New York City time, on the
Expiration Date (as defined in the Prospectus) or the procedures for delivery
by book-entry transfer cannot be completed on a timely basis. See "The
Exchange Offer--Guaranteed Delivery Procedures" section in the Prospectus. The
term "Old Notes" means the Company's outstanding 10 1/8% Senior Subordinated
Notes due 2007.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997 (UNLESS EXTENDED) (THE "EXPIRATION DATE"). TENDERED OLD
NOTES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF
THE EXCHANGE OFFER.
Deliver to: First National Trust Association, Exchange Agent:
By Mail (registered or certified mail recommended), Hand or Overnight Courier:
First Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attn: David Haugen
Specialized Finance Corporate Trust Department,
Fourth Floor
Telephone Number:
(612) 244-8162
By Facsimile:
(612) 244-1537
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and conditions
set forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Exchange Offer"), receipt of which are hereby acknowledged,
the aggregate principal amount of Old Notes set forth below pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section in the Prospectus and the Letter of Transmittal.
Principal Amount of Old Notes Signature(s)_________________________
Tendered $__________________________
-------------------------------------
Certificate Nos.
(if available)______________________ Please Print the Following
Information
Total Principal Amount Name(s) of Registered Holders
Represented by Old
Securities Certificate(s)___________ -------------------------------------
If Old Notes will be tendered by Address
book-entry transfer, provide the
information:
-------------------------------------
DTC Account Number Area Code and Telephone Number(s)
Dated: ________________________, 1997
-------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," hereby guarantees to deliver to the Exchange Agent, at its
address set forth above, either the Old Notes tendered hereby in proper form
for transfer, or confirmation of the book-entry transfer of such Old Notes
pursuant to the procedures for book-entry transfer set forth in the
Prospectus, in either case together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal within three New York Stock Exchange trading days after the date
of execution of this Notice of Guaranteed Delivery.
Name of Firm______________________________________________
Address___________________________________________________
Zip Code__________________________________________________
Area Code and Telephone Number____________________________
----------------------------------------------------------
(Authorized Signature)
Name______________________________________________________
Date______________________________________________________
2
<PAGE>
EXHIBIT 99.3
DOSKOCIL MANUFACTURING COMPANY, INC.
OFFER TO EXCHANGE
10 1/8% SENIOR SUBORDINATED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR ANY AND ALL OUTSTANDING
10 1/8% SENIOR SUBORDINATED NOTES DUE 2007
To: BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES AND OTHER NOMINEES:
Doskocil Manufacturing Company, Inc. (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 1/8% Senior Subordinated Notes Due 2007, which have been registered
under the Securities Act of 1933, as amended (the "New Notes"), for its
outstanding 10 1/8% Senior Subordinated Notes Due 2007 (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 September 19,
1997, by and among the Company, Donaldson, Lufkin & Jenrette Securites
Corporation and Nationsbanc Capital Markets, Inc.
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; and
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
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 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 "Exchange Offer."
<PAGE>
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to First
Trust National Association, 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,
DOSKOCIL MANUFACTURING COMPANY, INC.
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
2
<PAGE>
EXHIBIT 99.4
DOSKOCIL MANUFACTURING COMPANY, INC.
OFFER TO EXCHANGE
10 1/8% SENIOR SUBORDINATED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
FOR ANY AND ALL OUTSTANDING
10 1/8% SENIOR SUBORDINATED NOTES DUE 2007
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 Doskocil
Manufacturing Company, Inc. (the "Company") to exchange its 10 1/8% Senior
Subordinated Notes Due 2007, which have been registered under the Securities
Act of 1933, as amended (the "New Notes"), for any and all outstanding 10 1/8%
Senior Subordinated Notes Due 2007 (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 September 19, 1997, by and among the Company, Donaldson, Lufkin &
Jenrette Securities Corporation and Nationsbanc Capital Markets, Inc.
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 any and all Old Notes.
2. The Exchange Offer is subject to the condition that the Exchange Offer
not violate any applicable law, policy or interpretation of the staff of
the Securities and Exchange Commission.
3. The Exchange Offer expires 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 Doskocil
Manufacturing Company, Inc. with respect to the 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:
AGGREGATE PRINCIPAL
AMOUNT OF OLD NOTES
---------------------------------------
10 1/8% Senior Subordinated Notes
Due 2007.............................
---------------------------------------
[_]Please do not tender any Old
Notes held by you for my account
Dated: , 1997
---------------------------------------
---------------------------------------
Signature
---------------------------------------
---------------------------------------
---------------------------------------
Please print name
---------------------------------------
---------------------------------------
Address
---------------------------------------
Area Code and Telephone Number
---------------------------------------
Tax Identification Number or
Social Security Number
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.
2
<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 GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF-- NUMBER OF --
- ------------------------------------------------ ------------------------------------------------
<S> <C> <S> <C>
1. An individual's account The individual 9. A valid trust, estate, or The legal entity
2. Two or more individuals The actual owner pension trust (Do not furnish
(joint account) of the account the identifying
or, if combined number of the
funds, any one of personal
the representative or
individuals(1) trustee unless
3. Husband and wife (joint The actual owner the legal entity
account) of the account itself is not
or, if joint designated in the
funds, either account
person(1) title.)(5)
4. Custodian account of a The minor(2) 10. Corporate account The corporation
minor (Uniform Gift to 11. Religious, charitable, or The organization
Minors Act) educational organization
5. Adult and minor (joint The adult or, if account
account) the minor is the 12. Partnership account held The partnership
only contributor, in the name of the
the minor(1) business
6. Account in the name of The ward, minor, 13. Association, club, or The organization
guardian or committee for a or incompetent other tax-exempt
designated ward, minor, or person(3) organization
incompetent person 14. A broker or registered The broker or
7. a. The usual revocable The grantor- nominee nominee
savings trust account trustee(1) 15. Account with the The public entity
(grantor is also trustee) Department of Agriculture
b. So-called trust account The actual in the name of a public
that is not a legal or owner(1) entity (such as a State
valid trust under State or local government,
law school district, or
8. Sole proprietorship The owner(4) prison) that receives
account agricultural program
payments
- ------------------------------------------------ ------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF 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 an 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
Payees specifically exempted from backup withholding on ALL payments include
the following:
.A corporation.
.A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of
1940.
. A foreign central bank of issue.
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 where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. 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 pro-
vided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends un-
der 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.
. Payments made to a nominee.
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, dividends, 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, inter-
est, or other payments to give taxpayer identification numbers to payers who
must report the payments to IRS. IRS uses the numbers for identification pur-
poses. 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 tax-
payer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are sub-
ject 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 pat-
ronage 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 evi-
dence 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.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or im-
prisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
