UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the thirteen week period ended November 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 333-44969-01
DESA HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2940760
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2701 Industrial Drive, Bowling Green, KY 42101
(Address of principal executive offices) (Zip Code)
(502) 781-9600
(Registrant's telephone number, including area code)
Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
As of January 4, 1999, there were 15,548,692 shares of Registrant's Common
Stock, $.01 par value per share, and 90,604 shares of the Registrant's Nonvoting
Common Stock, $.01 par value per share, outstanding.
<PAGE>
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<CAPTION>
DESA HOLDINGS CORPORATION
FORM 10-Q
November 28, 1998
INDEX
Page
<S> <C> <C>
PART I Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - November 28, 1998 and February 28, 3
1998
Consolidated Statements of Income - Thirteen Weeks and Thirty-nine 4
Weeks ended November 28, 1998 and November 29, 1997
Consolidated Statements of Stockholders' Equity (Deficit) 5
Consolidated Statements of Cash Flows - Thirty-nine Weeks ended 6
November 28, 1998 and November 29, 1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 16
Results of Operations
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DESA Holdings Corporation
Consolidated Balance Sheets
(in thousands, except number of shares)
November 28 February 28
1998 1998
--------------------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 582 $ 794
Accounts receivable, net 80,961 20,838
Inventories:
Raw materials 1,036 1,257
Work-in-process 8,549 8,908
Finished goods 42,350 30,191
----------------------
51,935 40,356
Deferred tax assets 4,156 3,730
Other current assets 2,127 1,440
----------------------
Total current assets 139,761 67,158
Property, plant and equipment:
Land 390 390
Buildings and improvements 5,339 5,241
Machinery and equipment 34,473 29,891
Furniture and fixtures 781 630
----------------------
40,983 36,152
Less accumulated depreciation 25,535 22,593
----------------------
15,448 13,559
Goodwill, net 82,999 63,430
Other assets 26,162 11,489
----------------------
Total assets $ 264,370 $ 155,636
======================
Liabilities and stockholders' deficit Current liabilities:
Accounts payable $ 40,536 $ 15,035
Accrued interest 6,739 5,725
Other accrued liabilities 15,994 14,004
Income taxes payable 2,808 49
Current portion of long-term debt 39,437 5,250
----------------------
Total current liabilities 105,514 40,063
Long-term debt 287,910 261,105
Deferred tax liabilities 1,962 1,781
Other liabilities 579 433
----------------------
Total liabilities 395,965 303,382
Commitments
Series C redeemable preferred stock, $.01 par value; authorized--
40,000 shares; issued and outstanding-- 17,600 shares at February 28, 1998
and 18,850 shares at November 28, 1998 16,002 14,661
Stockholders' deficit:
Common stock, $.01 par value; authorized--50,000,000 shares; issued and
outstanding-- 13,688,015 shares February 28, 1998 and 15,548,692 155 137
shares at November 28, 1998
Nonvoting common stock, $.01 par value; authorized--2,000,000 shares;
issued and outstanding-- 90,604 shares at February 28, 1998
and November 28, 1998 1 1
Capital in excess of par value 97,984 85,926
Carryover predecessor basis adjustment (32,309) (32,309)
Accumulated deficit (212,458) (215,598)
Cumulative other comprehensive loss (970) (564)
----------------------
Total stockholders' deficit (147,597) (162,407)
----------------------
Total liabilities and stockholders' deficit $ 264,370 $ 155,636
======================
See accompanying notes
</TABLE>
3
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<TABLE>
<CAPTION>
DESA Holdings Corporation
Consolidated Statements of Income
(in thousands)
(Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended
November 28 November 29 November 28 November 29
1998 1997 1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net sales $134,679 $103,015 $250,849 $193,404
Cost of sales 87,055 65,185 166,996 123,243
----------------------- -----------------------
Gross profit 47,624 37,830 83,853 70,161
Operating costs and expenses:
Selling 19,570 13,277 40,323 27,165
General and administrative 3,762 3,770 9,726 8,312
Other 1,712 410 3,850 2,082
----------------------- -----------------------
25,044 17,457 53,899 37,559
----------------------- -----------------------
Operating Profit 22,580 20,373 29,954 32,602
Interest expense 7,559 4,159 20,796 11,321
----------------------- -----------------------
Income before provision for income taxes 15,021 16,214 9,158 21,281
Provision for income taxes 6,808 6,639 4,188 8,769
----------------------- -----------------------
Income before extraordinary loss 8,213 9,575 4,970 12,512
Extraordinary loss, net of income taxes of $1,495 0 2,308 0 2,308
----------------------- -----------------------
Net income 8,213 7,267 4,970 10,204
Less dividends on preferred stock 564 17 1,642 17
----------------------- -----------------------
Income available for common stockholders $ 7,649 $ 7,250 $ 3,328 $ 10,187
======================= =======================
See accompanying notes
</TABLE>
4
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<TABLE>
<CAPTION>
DESA Holdings Corporation
Consolidated Statements of Stockholders' Deficit
Cumulative
Nonvoting Capital in Carryover Other Total
Common Common Excess of Predecssor Accumulated Comprehensive Stockholders'
Stock Stock Par Value Adjustment Deficit Loss Deficit
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
February 28, 1998 $137 $1 $85,926 ($32,309) ($215,598) ($564) ($162,407)
Comprehensive income:
Net Income 4,970 4,970
Foreign currency
translation adjustment (406) (406)
-----------
Comprehensive income 4,564
-----------
Accretion of preferred stock (188) (188)
Dividends on preferred stock (1,642) (1,642)
Issuance of common stock 18 12,058 12,076
-------------------------------------------------------------------------------- -----------
Balance at
November 28, 1998 $155 $1 $97,984 ($32,309) ($212,458) ($970) ($147,597)
================================================================================ ===========
</TABLE>
See accompanying notes
5
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<TABLE>
<CAPTION>
DESA Holdings Corporation
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Thirty-nine Weeks Ended
November 28 November 29
1998 1997
-------------------------
<S> <C> <C>
Operating activities
Net income $ 4,970 $ 10,204
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation 2,957 2,363
Amortization 3,511 1,570
Deferred income taxes (15) 28
Equity in undistributed earnings of joint venture (117) (124)
Extraordinary loss 0 2,308
Increase in operating assets, net of effects of acquisitions:
Accounts receivable, net (58,457) (52,520)
Inventories (7,674) (11,386)
Other current assets (570) (599)
Increase (decrease) in operating liabilities, net of effects of acquisitions:
Accounts payable 23,896 7,117
Accrued interest 1,074 (957)
Other accrued liabilities (272) 2,564
Income taxes payable 2,759 3,834
Other liabilities 146 105
----------------------
Net cash used in operating activities (27,792) (35,493)
----------------------
Investing activities
Capital expenditures (3,645) (3,690)
Dividends received from joint venture 123 124
Net cash paid for acquisition of businesses (39,635)
Other (986) 270
----------------------
Net cash used in investing activities (44,143) (3,296)
----------------------
Financing activities Recapitalization transactions:
Proceeds from Working Capital Loan 0 35,500
Proceeds from Term Loans 0 100,000
Proceeds from issuance of Senior Subordinated Notes 0 130,000
Proceeds from issuance of Series C Redeemable Preferred Stock 0 14,598
Proceeds from issuance of warrants 0 3,002
Proceeds from issuance of common stock 0 73,815
Exercise of options 0 150
Repurchase of common stock 0 (156,587)
Repayment of Term Loans 0 (183,095)
Payment of expenses 0 (16,772)
Increase in revolving loan 0 43,000
Increase (decrease) in Working Capital Loan 32,657 (2,645)
Proceeds from issuance of common stock 12,076 0
Principal payments of Term Loans (1,725) (6,855)
Payments for repurchase of common stock 0 (30)
Exercise of stock options 0 5
Increase in Acquisition Loans 30,000 0
Payment of debt financings costs in connection with debt issuance (1,193) 0
Payment of expenses related to issuance of preferred stock (96) 0
----------------------
Net cash provided by financing activities 71,719 34,086
Effect of exchange rates on cash 4 (154)
----------------------
Decrease in cash and cash equivalents for the period (212) (4,857)
Cash and cash equivalents at beginning of period 794 5,058
----------------------
Cash and cash equivalents at end of period $ 582 $ 201
======================
See accompanying notes
</TABLE>
6
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The interim consolidated financial statements for the periods presented
herein have not been audited by independent public accountants. In the opinion
of management of DESA Holdings Corporation (the "Company"), all adjustments
(consisting only of normal recurring accruals) considered necessary to present
fairly the results of operations for the periods have been included. Interim
results are not necessarily indicative of results for a full year. Sales of the
Company's zone heating products follow seasonal patterns that affect the
Company's results of operations.
The unaudited consolidated financial statements have been prepared by
the Company in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations.
The consolidated balance sheet presented as of February 28, 1998, has
been derived from the consolidated financial statements that have been audited
by the Company's independent auditors. The consolidated financial statements and
notes thereto included herein should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Registration Statement on Form S-4 (SEC File No. 333-44969-01).
Other than a small amount of goodwill and a $2.06 million note payable,
the Company has no assets, operations or cash flows independent of DESA
International, Inc. ("Desa") and, accordingly, separate financial statements for
Desa have not been provided as management believes that such financial
statements are not material to an investor.
2. Summary of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary, Desa, and all of its
wholly-owned subsidiaries, including Desa Industries of Canada, Inc., Desa
Europe B.V., DESA Industries of V.I., Inc., and Heath Company Limited. All
significant intercompany accounts and transactions have been eliminated. Desa's
50% interest in a joint venture is accounted for using the equity method.
7
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results can differ from those estimates.
Impact of Recently Issued Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits ("FAS 132"). FAS 132 is
effective for fiscal years beginning after December 15, 1997, and will be
adopted by the Company in conjunction with its 1999 year-end reporting. The
overall objective of FAS 132 is to improve and standardize disclosures about
pensions and other postretirement benefits and to make the required information
easier to prepare and more understandable. Management does not anticipate that
FAS 132 will have a significant effect on the Company's consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 must first be applied
in the first quarter of fiscal years that begin after June 15, 1999. FAS 133
will require the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivatives change
in fair value will immediately be recognized in earnings. Management has not yet
determined what the effect of FAS 133 will be on the earnings and financial
position of the Company.
3. Financing Arrangements
The Company entered into a new credit agreement on November 26, 1997
with NationsBank, N.A., UBS Securities LLC and Nationsbanc Montgomery
Securities, Inc., which was amended in May 1998, that consists of a Working
Capital Loan Commitment of up to $75,000,000 (which includes a Swing-Line Loan
Commitment of up to $5,000,000 and provides that the Company can use Letters of
Credit up to $10,000,000 under the Working Capital Loan Commitment), a Term A
Loan Commitment ("Term A Loan") of $50,000,000, a Term B Loan Commitment ("Term
B Loan") of $50,000,000, an Acquisition Loan Commitment of up to $20,000,000 and
an Acquisition Loan Commitment B of up to $30,000,000 (collectively, the "Credit
Facility").
8
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Outstanding borrowings consist of the following (in thousands):
November 28, February 28,
1998 1998
------------ ------------
<S> <C> <C>
9 7/8% Senior Subordinated Notes Due 2007 (A) $130,000 $130,000
Term A Loan (B) 47,900 49,125
Term B Loan (C) 49,250 49,750
Working Capital Loan Commitment (D) 48,137 15,480
Acquisition Loan (E) 20,000 20,000
Acquisition Loan B (F) 30,000 --
Note payable related to acquisition of Heath/Zenith (G) 2,060 2,000
-------- --------
Total outstanding borrowings $327,347 $266,355
Less current portion of long-term debt 39,437 5,250
-------- --------
Total long-term debt $287,910 $261,105
======== ========
<FN>
(A) The Senior Subordinated Notes are payable on December 15, 2007 and
accrue interest at a rate of 9.875% per annum. Interest is payable
semi-annually on June 15 and December 15. The Senior Notes can be
redeemed prior to the mandatory redemption date based upon the
occurrence of certain events, as defined. Desa is the issuer of the
Senior Subordinated Notes, which are fully and unconditionally
guaranteed by the Company.
(B) The Term A Loan is payable in quarterly installments through November
26, 2003, and accrues interest at the prime rate plus 1.50% or LIBOR
plus 2.50% at the option of the Company. Interest is payable on a
quarterly basis under the prime rate option or at the end of each LIBOR
period. Once repaid, the Term A Loan may not be reborrowed.
(C) The Term B Loan is payable in quarterly installments through November
26, 2004, and accrues interest at the prime rate plus 1.875% or LIBOR
plus 2.875% at the option of the Company. Interest is payable on a
quarterly basis under the prime rate option or at the end of each LIBOR
period. Once repaid, the Term B Loan may not be reborrowed.
(D) The Working Capital Loan Commitment is payable at any time at the
option of the Company prior to November 26, 2003, and accrues interest
at the prime rate plus 1.50% or LIBOR plus 2.50%, at the option of the
Company. Interest is payable on a quarterly basis under the prime rate
option or at the end of each LIBOR period. As of November 28, 1998,
letters of credit of $2,614,371 were outstanding under the Working
Capital Loan Commitment. Borrowings are generally limited to specific
percentages of eligible trade receivables and inventory. The Credit
Facility requires a Clean-Up Period, as defined under the Working
Capital Loan
9
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Commitment, for a period of 30 consecutive days occurring between
January 1 and May 30. During each Clean-Up Period, the sum of Working
Capital advances, Letter of Credit advances and Swing Line loan
advances outstanding may not exceed $15,000,000. As of November 28,
1998, approximately $33 million of working capital borrowings have been
classified as current, reflecting the Company's intention to pay down
such advances in order to comply with the Clean-Up Period requirements.
Such amount may be reborrowed after compliance with the Clean-Up Period
requirements.
(E) The Acquisition Loan is payable in quarterly installments commencing in
February 2000 and extending through November 26, 2003, and accrues
interest, which is payable quarterly, at the prime rate plus 1.875% or
LIBOR plus 2.875% at the option of the Company. Once repaid, the
Acquisition Loan may not be reborrowed.
(F) The Acquisition Loan B is payable in quarterly installments commencing
in February 2000 and extending through November 26, 2003, and accrues
interest, which is payable quarterly, at the prime rate plus 1.875% or
LIBOR plus 2.875% at the option of the Company. Once repaid, the
Acquisition B Loan may not be reborrowed. On August 19, 1998, the
Acquisition B Loan was drawn on to fund the Fireplace Manufacturers,
Inc. and Universal Heating, Inc. acquisitions. $30,000,000 was
borrowed, of which $4,423,170 was used to pay down the Working Capital
Loan.
(G) The note payable is due on December 31, 2008 and accrues interest,
which is payable semi-annually, at a rate of 7.5% per annum. The
Company may elect, upon written notice, to defer any interest payments,
in which event such interest payments shall effectively convert to
principal and accrue interest at a rate of 7.5% per annum.
</FN>
</TABLE>
In accordance with the terms of the Working Capital Loan
Commitment, the ability of the Company to incur additional indebtedness
is limited, as defined. At November 28, 1998, the Company had the
ability to incur additional indebtedness of $24.2 million.
On October 1, 1998, Desa entered into a binding agreement with
NationsBank for an interest rate swap. The terms of the swap
transaction have an effective date of November 27, 1998 and terminate
on November 29, 1999 and obligate the Company to pay a fixed rate of
4.75% on $75,000,000 and NationsBank to pay a floating rate based on
LIBOR on $75,000,000.
4. Comprehensive Income
As of March 2, 1997, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"). FAS 130 established new rules for the reporting
and display of comprehensive income and its components; however, the
10
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
adoption of FAS 130 has had no effect on the Company's net income or
stockholders' deficit. FAS 130 requires the Company's foreign currency
translation adjustment, which prior to adoption was reported separately
in stockholders' deficit, to be included in other comprehensive income.
Amounts reported in prior year financial statements have been
reclassified to conform with the requirements of FAS 130. As of
November 28, 1998 the cumulative other comprehensive loss consisted
solely of the Company's foreign currency translation adjustment.
<TABLE>
<CAPTION>
Comprehensive income consisted of the following (in thousands):
Thirteen Weeks Ended Thirty-nine Weeks Ended
November November November November
28, 1998 29, 1997 28, 1998 29, 1997
<S> <C> <C> <C> <C>
Net income $ 8,213 $ 7,267 $ 4,970 $ 10,204
Net change in foreign
currency translation
adjustment 131 (56) (406) (154)
-------- -------- -------- --------
Comprehensive income $ 8,344 $ 7,211 $ 4,564 $ 10,050
======== ======== ======== ========
</TABLE>
5. Stockholders' Deficit
Effective in March 1998, the Company established the 1998 Stock Option
Plan. The plan terminates in ten years and provides for the issuance of
incentive options or nonqualified stock options for up to 1,462,222
shares of common stock, $.01 par value per share, of the Company
("Common Stock"). The stock options may be granted to key employees or
eligible non-employees as defined, as determined by the Compensation
Committee of the Board of Directors, and the term of the options cannot
exceed ten years from the grant date, except for employees who own
stock possessing more than 10% of the combined voting power of all
classes of stock of the Company, for whom the term of the options is
five years. The exercise price of the incentive options must be equal
to or greater than the fair market value of the Common Stock on the
date of grant, except for employees who own stock possessing more than
10% of the combined voting power of all classes of stock, for whom the
exercise price cannot be less than 110% of the fair market value of the
Common Stock on the date of grant. The exercise price of the
nonqualified options is determined by the Compensation Committee of the
Board of Directors.
11
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DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Stockholders' Deficit (continued)
Effective in March and July of 1998, the Compensation Committee awarded
incentive stock options to purchase an aggregate of 187,750 shares of Common
Stock to certain key employees at an exercise price of $6.50 per share. These
options vest as follows: 5% at the end of year one, 10% at the end of year two,
60% at the end of year three, 80% at the end of year four and 100% at the end of
year five.
In September 1998, the Compensation Committee awarded incentive stock
options to purchase an aggregate of 1,179,777 shares of Common Stock to certain
key employees at an option price of $6.50 per share. These options vest upon the
attainment of certain performance goals.
6. Segment Information
The Company is organized into two primary product categories: (a) zone
heating products, which include indoor room heaters, hearth products and outdoor
heaters, and (b) specialty products, which include specialty tools and home
security products.
Corporate expenses include corporate headquarters staff, a modest
portion of the cost of certain support functions, including accounting,
management information systems, human resources and treasury and the
amortization of deferred financing costs.
Identifiable assets are those assets of the Company that are identified
with the operations in each product segment. Corporate assets include primarily
cash, deferred income taxes and deferred financing costs.
12
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Operational results and other financial data for the two business
segments for the periods ended November 28, 1998 and November 29, 1997 are
presented below (in thousands):
<TABLE>
<CAPTION>
Zone
Heating Specialty General
Products Products Corporate Total
-------- -------- --------- -----
<S> <C> <C> <C> <C>
Thirteen weeks ended November 28, 1998
Net sales $ 95,852 $ 38,827 -- $134,679
Operating profit 17,776 6,047 (1,243) 22,580
Depreciation and amortization 2,113 432 466 3,011
Identifiable assets 153,978 93,345 17,047 264,370
Capital expenditures 568 268 3 839
Thirteen weeks ended November 29, 1997
Net sales 90,650 12,365 -- 103,015
Operating profit 19,644 1,669 (940) 20,373
Depreciation and amortization 1,231 45 254 1,530
Identifiable assets 119,086 25,841 12,853 157,780
Capital expenditures 716 111 3 830
<CAPTION>
Zone
Heating Specialty General
Products Products Corporate Total
-------- -------- --------- -----
<S> <C> <C> <C> <C>
Thirty-nine weeks ended November 28, 1998
Net sales $148,000 $102,849 -- $250,849
Operating profit 20,819 12,381 (3,246) 29,954
Depreciation and amortization 3,891 1,358 1,219 6,468
Identifiable assets 153,978 93,345 17,047 264,370
Capital expenditures 3,059 517 69 3,645
Thirty-nine weeks ended November 29, 1997
Net sales 158,144 35,260 -- 193,404
Operating profit 30,841 4,731 (2,970) 32,602
Depreciation and amortization 2,925 246 762 3,933
Identifiable assets 119,086 25,841 12,853 157,780
Capital expenditures 3,364 323 3 3,690
</TABLE>
13
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Prior Period Acquisitions
On February 4, 1998, the Company purchased all of the issued and
outstanding stock of Heath Holding Corp. ("Heath/Zenith") for an aggregate
purchase price of $42,365,000. The purchase price consisted of $40,365,000 in
cash and a $2,000,000 junior subordinated note payable. Heath/Zenith is engaged
in the manufacturing and distribution of motion-sensor lighting products and
wireless home-controlled devices, all of which are included in the Specialty
Products segment of the Company. The Company accounted for such acquisition
using the purchase method. The fair value of the assets acquired and liabilities
assumed at February 4, 1998 is summarized as follows (in thousands):
Current assets $25,757
Property, plant and equipment 458
Other assets 2,370
Goodwill 23,769
Current liabilities (9,989)
-------
$42,365
This allocation is preliminary and will be adjusted as necessary based
upon our further analysis of the acquisition of Heath/Zenith.
On August 19, 1998, the Company consummated two acquisitions. The
Company acquired all of the outstanding stock of Fireplace Manufacturers, Inc.
("FMI"), which then merged into Desa, for a net cash purchase price of
$21,984,798. The Company also entered into non-compete agreements with certain
executives of FMI covering a three-year period for aggregate payments of
$3,050,000. The Company also acquired the worldwide rights (except in China) to
distribute Universal Heating, Inc.'s and its affiliates ("UHI") indoor heating
products, through Desa U.S. Inc., which then merged into Desa, for a cash
purchase price of $12,332,548, including non-compete payments of $1,998,000. The
Company financed the two acquisitions through borrowings of $25,891,500 under
the Credit Facility (Acquisition Loan B) and the issuance of 1,860,677 shares of
Common Stock to existing stockholders for $12,075,500. The cash purchase prices
set forth above exclude an aggregate of $600,000 in fees and expenses incurred
in connection with both acquisitions and approximately $1,200,000 in debt
financing fees paid to obtain Acquisition Loan B.
14
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company accounted for such acquisitions using the purchase method,
and, accordingly, the results of operations of such acquisitions have been
included in the Company's results of operations from the acquisition dates. The
following summarizes the fair value of the assets acquired and liabilities
assumed at August 19, 1998, for the two acquisitions (in thousands):
Current assets $ 5,080
Property, plant and equipment 1,202
Other assets 10,385
Non-compete agreements 5,048
Goodwill 18,837
Current liabilities (2,585)
-------
$37,967
This allocation is preliminary and will be adjusted as necessary based
upon our further analysis of both acquisitions.
The following supplemental pro forma information is presented as if the
acquisitions of Heath/Zenith, FMI and UHI had been completed as of March 1,
1998, and as of March 2, 1997:
<TABLE>
<CAPTION>
Thirty-nine weeks ended
November 28, 1998 November 29, 1997
----------------- -----------------
(dollars in thousands)
<S> <C> <C>
Net sales $263,556 $275,330
Income from operations before extraordinary item $ 30,050 $ 35,984
Income before extraordinary item $ 5,211 $ 9,426
Net income $ 4,754 $ 7,118
</TABLE>
15
<PAGE>
DESA HOLDINGS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
This quarterly report on Form 10-Q of Desa Holdings Corporation (the
"Company," which includes its consolidated subsidiaries unless the context
indicates otherwise contains statements which constitute forward looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Those statements appear in a number of places in this report
and include statements regarding the strategies, plans, beliefs or current
expectations of the Company and its management and other statements that are not
historical facts. Readers are cautioned that any such forward looking statements
are not guaranties of future performance and involve risks and uncertainties,
and that actual results may differ materially from those set forth in such
forward looking statements as a result of various factors. Such factors include,
but are not limited to, the Company's vulnerability to adverse general economic
and industry conditions because of its leverage, the Company's ability to obtain
future financing on acceptable terms, the Company's ability to integrate
acquired companies and to complete acquisitions on satisfactory terms, the
demand and price for the Company's products relative to production costs, the
seasonality of the Company's business and uncertainties regarding the resolution
of Year 2000 problems. The Company undertakes no obligation to release publicly
the results of any revisions to these forward looking statements that may be
made to reflect errors or circumstances that occur after the date hereof.
The following discussion of the Company's results of operations and
financial condition for the thirteen and thirty-nine week periods ending
November 28, 1998, and November 29, 1997, should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto contained
herein, as well as for the fiscal year ended February 28, 1998, included in the
Company's Registration Statement on Form S-4 (SEC File No. 333-44969-01).
Overview
The Company is organized into two primary product categories: (a) zone
heating products, which include indoor room heaters, hearth products and outdoor
heaters, and (b) specialty products, which include specialty tools and home
security products. The Company records sales upon shipment of products to its
customers. Net sales constitute gross sales net of an accrual for returns and
allowances and cash discounts.
Sales of the Company's zone heating products follow seasonal patterns
that affect the Company's results of operations. Demand for the Company's zone
heating products has been historically highest in the third quarter, as
consumers prepare for winter. Consequently, the Company's net sales and
operating profit have also been historically highest during the third quarter.
Management believes that the Company's results of operations will continue to
follow this pattern; there can be no assurance, however, that third quarter
results will always surpass those of the first and second quarters, or that any
improvement shown will be as great as that shown in previous years. In
particular, unusually warm weather in the fall may reduce demand for zone
heating products.
The Company's net sales and operating profit of zone heating products
in its current fiscal year may be adversely affected by warm weather during the
preceding winter, which can result in inventory carryover by the Company's
customers. Last winter and this fall were unusually warm
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and, consequently, net sales and operating profit of zone heating products for
the first three quarters of the current fiscal year were lower than in similar
periods in the previous fiscal year.
Sales of the Company's specialty products do not follow a significant
seasonal pattern and are not affected by weather patterns. Historically, these
sales have followed a relatively level quarterly pattern.
Acquisitions
On August 19, 1998, the Company consummated the acquisitions of FMI and
the worldwide rights (except in China) to distribute UHI's indoor heating
products. FMI is a Santa Ana, California based manufacturer of wood-burning
metal fireplaces, decorative gas appliances with refractory-lined fireboxes,
direct vent gas fireplaces, and related chimney flues. UHI, based in Yorba
Linda, California, is a privately held manufacturer of indoor gas heating
products. The aggregate purchase price for the acquisitions was $37,967,346
including non-compete payments. These acquisitions were accounted for under the
purchase method of accounting.
The Company financed these acquisitions with the proceeds of a
$25,891,500 advance under its senior credit facility and $12,075,500 of the
proceeds from the issuance of approximately 1,860,677 additional shares of the
Common Stock by the Company. The additional equity was sold to existing
stockholders of the Company at a per-share price of approximately $6.50.
In August 1998, the Company became party to an agreement to negotiate
in good faith for the purpose of entering into a joint venture to manufacture
various products in China. Pursuant to the terms of the joint venture under
negotiation, UHI intends to contribute manufacturing facilities located in China
in exchange for a 60% interest in the joint venture and a preferred interest in
an additional $7 million of profits of the joint venture. The Company intends to
contribute $3 million in cash for a 40% interest in the joint venture, which
will be subordinate to UHI's $7 million preferred interest in profits. The
Company intends to finance its $3 million contribution to the joint venture
through indebtedness under the Credit Facility. There can be no assurance that
the joint venture will be formed or, if formed, formed on the terms described
above.
Results of Operations
Thirteen Week Period Ended November 28, 1998, Compared to the
Thirteen Week Period Ended November 29, 1997
Net sales. Net sales in the thirteen weeks ended November 28, 1998,
("third quarter 1999") were $134.7 million, an increase of 31% or $31.7 million
compared to the thirteen weeks ended November 29, 1997 ("third quarter 1998").
Zone heating products had net sales of $95.9 million in third quarter 1999, an
increase of 6% or $5.2 million from third quarter 1998. This increase reflects
primarily the effects of the previously discussed FMI and UHI acquisitions on
indoor and hearth heating product sales. Specialty products had net sales of
$38.8 million in the third quarter 1999, an increase of 214% or $26.5 million
over third quarter 1998, primarily attributable to the acquisition of
Heath/Zenith and its line of home security products in February 1998 and a 38%
growth in the traditional tool business over third quarter 1998.
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Cost of Sales. For third quarter 1999, cost of sales was $87.1 million,
an increase of $21.9 million or 34% from third quarter 1998, attributable to the
higher net sales for the period. Cost of sales was 65% of net sales in third
quarter 1999 compared to 63% for third quarter 1998. This increase is because of
(i) product mix with proportionately higher sales of acquired business products,
which are sold at lower margins, and (ii) higher manufacturing overhead per unit
of zone heating products, which resulted from the weather-related reduction in
production of heating products along with an increase of $.4 million in
depreciation expense over third quarter 1998.
Selling, General and Administrative Expenses. For third quarter 1999,
selling, general and administrative expenses were $25.0 million, an increase of
$7.6 million or 43% from third quarter 1998, primarily attributable to the net
sales increase. As a percentage of net sales, selling, general and
administrative expenses were 19% for third quarter 1999 compared to 17% in third
quarter 1998. This higher level is associated with an increase in selling
expenses of 1.6% for higher freight, advertising and warranty expenses
associated with the sales increase to the major home centers and higher
amortization expenses of 0.7% associated with the November 1997 recapitalization
and the acquisitions of Heath/Zenith, FMI and UHI.
Operating Profit. Operating profit was $22.6 million for third quarter
1999 compared to $20.4 million for third quarter 1998, an increase of 11%.
Operating profit attributable to zone heating products was $17.8 million for
third quarter 1999, down $1.9 million from third quarter 1998. This decline is
attributable to the increased cost of goods sold associated with under absorbed
factory overhead and higher selling costs associated with sales increase to
major home centers. Specialty products operating profit was $6.0 million for the
third quarter 1999, an increase of $4.4 million over third quarter 1998. This
increase is attributable to increased net sales of specialty products related
primarily to the acquisition of Heath/Zenith and a 74% increase in the
traditional tool business over third quarter 1998.
EBITDA for the third quarter 1999 was $25.6 million, an increase of
$3.7 million or 17% over the third quarter 1998 which was $21.9 million. EBITDA
is defined as income before income taxes plus interest expense and depreciation
as well as amortization expense associated with intangibles and deferred
charges. EBITDA is presented because it is a widely accepted financial indicator
of a leveraged company's ability to service and/or incur indebtedness and
because management believes that EBITDA is a relevant measure of the Company's
ability to generate cash without regard to the Company's capital structure or
working capital needs. However, EBITDA should not be considered as an
alternative to net income as a measure of a company's operating results or to
cash flows from operating activities as a measure of liquidity as defined by
generally accepted accounting principles.
Interest Expense. Interest expense for third quarter 1999 was $7.6
million, an increase of $3.4 million or 82%, reflecting the November 1997
recapitalization and the financing of the acquisitions of Heath/Zenith, FMI, and
UHI.
Income Tax. The provision for income taxes was 45% for third quarter
1999, above the 41% rate for third quarter 1998. This increase is because of the
nondeductibility of the higher goodwill amortization charges.
Net Income. Net income was $8.2 million for third quarter 1999 compared
to net income of $7.3 million for third quarter 1998, an increase of 13%. This
increase is attributable to the writeoff
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of the extraordinary item associated with the November, 1997 recapitalization.
Net income before extraordinary loss for third quarter 1999 was $8.2 million
compared to net income before extraordinary loss for third quarter 1998 of $9.6
million, a decrease of 14%. This decline is attributable to the lower operating
profit and higher interest expense.
Thirty-nine Week Period Ended November 28, 1998 Compared to the Thirty-nine Week
Period Ended November 29, 1997
Net Sales. Net sales for the thirty-nine weeks ended November 28, 1998
("year to date 1999") were $250.8 million, an increase of $57.4 million or 30%
compared to the thirty-nine weeks ended November 29, 1997 ("year to date 1998").
Zone heating products had net sales of $148.0 million for the year to date 1999,
a decrease of 6% or $10.1 million from the year to date 1998. This decline
primarily reflects the effects of last winter's and this fall's unusually warm
weather and the related customer carryover inventory on heating products
particularly, outdoor heating products. Specialty products had net sales of
$102.8 million for the year to date 1999, an increase of 192% or $67.6 million
from the year to date 1998, primarily attributable to the acquisition of
Heath/Zenith in February 1998 and a 24% increase in the traditional tool
business over year to date 1998.
Cost of Sales. For the year to date 1999, cost of sales was $167.0
million, an increase of $43.8 million or 36% from the year to date 1998,
reflecting the higher sales. Cost of sales was 67% of net sales during the year
to date 1999 compared to 64% for the year to date 1998. This increase is because
of (i) product mix with proportionately higher sales of acquired business
products, which are sold at lower margins, and (ii) higher manufacturing
overhead per unit of zone heating products, which resulted from the
weather-related reduction in production of heating products primarily during the
first half of the year and an increase in depreciation expense of $0.6 million
over year to date 1998.
Selling, General and Administrative Expenses. For the year to date
1999, selling, general and administrative expenses were $53.9 million, an
increase of $16.3 million or 44% over the year to date 1998, primarily
attributable to the net sales increase. As a percentage of net sales, selling
general and administrative expenses were 21% for the year to date 1999 compared
to 19% for the year to date 1998. This higher level is associated with an
increase in selling expenses for higher freight, advertising and warranty
expenses associated with the sales increase to the major home centers and higher
amortization expenses of $2 million or 0.8% of sales associated with the
November 1997 recapitalization and the acquisitions of Heath/Zenith, FMI and
UHI.
Operating Profit. Operating profit was $30.0 million for the year to
date 1999 as compared to $32.6 million for the year to date 1998, a decline of
8% attributable to a $2.5 million increase in depreciation and amortization
expense. Operating profit attributable to zone heating products was $20.8
million for the year to date 1999, down $10.0 million from the year to date
1998. This decline is attributable to the decline in net sales of zone heating
products and the increased cost of goods sold as discussed above. Operating
profit attributable to specialty products was $12.4 million for the year to date
1999, an increase of $7.7 million over the year to date 1998. This increase is
attributable to increased net sales of specialty products related primarily to
the acquisition of Heath/Zenith and the growth of the traditional tool business
over year to date 1998.
EBITDA for the year to date 1999 was $36.4 million, in line with the
year to date 1998 of $36.5 million. EBITDA is defined as income before income
taxes plus interest expense and
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depreciation as well as amortization expense associated with intangibles and
deferred charges. EBITDA is presented because it is a widely accepted financial
indicator of a leveraged company's ability to service and/or incur indebtedness
and because management believes that EBITDA is a relevant measure of the
Company's ability to generate cash without regard to the Company's capital
structure or working capital needs. However, EBITDA should not be considered as
an alternative to net income as a measure of a company's operating results or to
cash flows from operating activities as a measure of liquidity as defined by
generally accepted accounting principles.
Interest Expense. Interest expense for the year to date 1999 was $20.8
million, an increase of $9.5 million from the year to date 1998, reflecting the
November 1997 recapitalization and the financing of the acquisitions of
Heath/Zenith, FMI, and UHI.
Income Tax. The provision for income taxes was 46% for the year to date
1999, above the rate of 41% for the year to date 1998. This increase is because
of the nondeductibility of the higher goodwill amortization charges.
Net Income. Net income for the year to date 1999 was $5.0 million
compared to $10.2 million for the year to date 1998, a decline of 51%. This
decline is attributable to the lower operating profit and higher interest
expense.
Liquidity and Capital Resources
The Company's primary cash needs have been for working capital, capital
expenditures and debt service requirements. The Company's sources of liquidity
have been cash flows from operations and borrowings under its revolving credit
facilities. The Company's business is subject to a pattern of seasonal
fluctuation. The Company's needs for working capital and the corresponding debt
levels tend to peak in the second and third fiscal quarters. The amount of sales
generated during the second and third fiscal quarters generally depends upon a
number of factors, including the level of retail sales for heating products
during the prior year's fall and winter, weather conditions affecting the level
of sales of heating products, general economic conditions, and other factors
beyond the Company's control.
Net cash used in operating activities for the year to date 1999 was
$27.8 million compared to net cash used of $35.5 million for the year to date
1998. This positive reduction of $7.7 million reflects the lower inventory build
up associated with the reduced production of zone heating products and a higher
accounts payable balance of $15.9 million.
Net cash used in investing activities was $44.1 million for the year to
date 1999, compared to $3.3 million for the year to date 1998. This higher cash
used for investing activities reflects the acquisition of UHI and FMI. Net cash
provided by financing activities for the year to date 1999 was $71.7 million,
compared to $34.1 million for the year to date 1998 due to the issuance of
Common Stock and bank loans associated with the acquisitions of UHI and FMI.
The Credit Facility provides for commitments in an aggregate amount of
up to $225.0 million. Borrowings outstanding under the Credit Facility were
$195.3 million on November 28, 1998. Outstanding letters of credit and foreign
currency contracts established to facilitate merchandise purchases were $2.6
million and $2.7 million, respectively, on November 28, 1998.
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The Company had the ability to incur additional indebtedness of $24.2 million at
November 28, 1998 under the Credit Facility.
The Company expects that capital expenditures during fiscal 1999 will
be approximately $4.2 million. Capital expenditures are expected to be funded
from internally generated cash flows and by borrowings under the Credit
Facility.
Management believes that cash flow from operations and availability
under the Credit Facility will provide adequate funds for the Company's
foreseeable working capital needs, planned capital expenditures and debt service
obligations. The Credit Facility requires a Clean-Up Period, as defined, under
the Working Capital Loan Commitment, for a period of 30 consecutive days
occurring between January 1 and May 30 in each calendar year commencing January
1, 1998. During the Clean-Up Period, the sum of Working Capital advances, Letter
of Credit advances and Swing Line loan advances outstanding shall not exceed
$15,000,000 for any Clean-Up Period. As of November 28, 1998, approximately $33
million of working capital borrowings have been classified as current as a
result of the Clean-Up requirement. Such amount may be reborrowed after
compliance of the Clean-Up Period The Company's ability to fund its operations,
make planned capital expenditures, make scheduled debt payments, finance
indebtedness and remain in compliance with all of the financial covenants under
its debt agreements depends on its future operating performance and cash flow,
which in turn, are subject to prevailing economic conditions and to financial,
business and other factors, some of which are beyond its control.
Year 2000
The Company is in the process of reviewing its computer and operational
systems to identify and determine the extent to which any such systems will be
vulnerable to potential errors and failures as a result of the "Year 2000"
problem. The Year 2000 problem is a result of computer programs being written
using two digits, rather than four digits, to identify years. The Year 2000
presents several risks to the Company: (i) that the Company's internal systems
may not function properly, (ii) that suppliers' computer systems may not
function properly and, consequently, deliveries of required parts may be
delayed, (iii) that customers' computer systems may not function properly and,
consequently, orders or payments for the Company's products may be delayed, and
(iv) that the Company's bank's computer systems could malfunction, disrupting
the Company's orderly posting of deposits, funds transfers and payments. The
occurrence of any one or more of these events could have a material adverse
effect on the Company's financial condition and results of operations. The
Company does not have any contingency plans to address the Year 2000 problem if
the efforts described below are not successful.
The Company has written all of its internal management information
systems ("MIS") applications, rather than buying applications from vendors, and
is in the process of modifying those applications to appropriately address the
Year 2000 problem. Such modifications are approximately 80% complete. Management
believes that the Company's MIS staff will be able to modify all such
applications prior to March 1, 1999, although there can be no assurances that
such modifications will be timely completed. No embedded systems used in
manufacturing require any modification for Year 2000 compliance. Review of
embedded systems used for quality control is expected to be completed in January
1999. The expenses of the Company's efforts to identify and address any Year
2000 problems are not expected to exceed $100,000, of which $37,000 have already
been spent, exclusive of staff time.
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The Company has identified critical parts and materials suppliers and
is beginning a program to contact such suppliers to evaluate the extent of the
Year 2000 risk to the Company's continued timely receipt of parts and materials
deliveries. Management believes that such efforts will allow the Company to
identify any risk of parts or materials shortages and either to find alternative
suppliers or to order sufficient quantities of critical parts and materials
prior to the Year 2000 so as to avoid adverse effects on the Company's financial
condition and results of operations, although there can be no assurances that
such efforts will be successful.
The Company is also engaged in discussions with certain major customers
to ensure that electronic data interchange ("EDI") formats function properly
notwithstanding the advent of the Year 2000. EDI is the primary method by which
customers place orders for the Company's products. Such discussions are
completed, in the case of the Company's major home center customers, and are
well advanced with other major customers using EDI, and management believes that
transmission of orders from these major customers will not be significantly
affected by the advent of the Year 2000, although there can be no assurances in
this regard. Management does not, however, have sufficient information regarding
the internal systems of all of its customers to form an opinion as to whether
such customers will be able to timely place such orders or to timely pay for
products. The purchasing patterns of existing and potential customers may be
affected by Year 2000 problems that could cause unexpected fluctuations in the
Company's sales volumes.
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PART II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Desa Holdings Corporation Amended and Restated
Stockholders Agreement dated as of October 9, 1998
among the Company and the persons named therein
10.2 Desa Holdings Corporation Purchase Agreement dated as
of October 9, 1998 among the Company and the persons
named therein
10.3 Preferred Stock Tagalong Agreement dated as of
October 9, 1998 among the Company and the persons
named therein
10.4 Form of Warrant
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the period for
which this report is made.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DESA HOLDINGS CORPORATION
By:
Dated: January 11, 1999 /s/ Robert H. Elman
Robert H. Elman
Chairman and Chief Executive Officer
Dated: January 11, 1999 /s/ Edward G. Patrick
Edward G. Patrick
Vice President of Finance and Treasurer
(Principal Financial Officer)
Dated: January 11, 1999 /s/ Scott M. Nehm
Scott M. Nehm
Vice President and Controller
(Chief Accounting Officer)
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EXHIBIT 10.1
DESA HOLDINGS CORPORATION
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
Dated as of October 9, 1998
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AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement") is
entered into as of October 9, 1998, by and among Desa Holdings Corporation, a
Delaware corporation (the "Company"), those persons identified as the JWC
Holders on the signature pages hereof (the "JWC Holders"), those persons
identified as the Management Holders on the signature pages hereof (the
"Management Holders") and those persons identified as the Other Holders on the
signature pages hereof (the "Other Holders").
RECITALS
A. The Company has heretofore issued certain shares of Common Stock (as
hereinafter defined) and certain warrants and options to acquire from the
Company shares of Common Stock.
B. All of the Stockholders desire to enter into this Agreement for the
purpose of regulating certain aspects of the Stockholders' relationships with
one another and with the Company.
C. This Agreement amends in part and restates in its entirety the
Stockholders Agreement dated as of November 26, 1997 among the Company, the JWC
Holders named therein, the Management Holders named therein and the Other
Holders named therein.
AGREEMENT
In consideration of the foregoing recitals and the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties to this Agreement mutually agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. For the purposes of this Agreement, the following
terms shall be defined as follows:
The "1933 Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute thereto, and the rules and regulations of the SEC
promulgated thereunder, all as the same shall be in effect from time to time.
The "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute thereto, and the rules and regulations
of the SEC promulgated thereunder, all as the same shall be in effect from time
to time.
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This "Agreement" shall mean this Amended and Restated Stockholders
Agreement, dated as of October 9, 1998, together with all schedules and exhibits
hereto, all as from time to time in effect.
An "Affiliate" of a specified Person (a) shall mean (i) a Person who,
directly or indirectly, through one or more intermediaries, controls or is
controlled by or is under common control with such specified Person, (ii) a
director or executive officer of such specified Person, (iii) a general partner
of such specified Person if such specified Person is a partnership, and (iv) a
manager of such specified Person if such specified Person is a limited liability
company, and, (b) when used with respect to the Company or any Subsidiary of the
Company, shall include any holder of capital stock or any officer or director of
the Company or any Subsidiary of the Company.
"Business Day" shall mean any day, other than a Saturday, Sunday or
legal holiday, on which banks in both New York, New York and Boston,
Massachusetts are permitted to be open for business.
"Common Stock" shall mean shares of Voting Common Stock or Nonvoting
Common Stock.
"Common Stock Equivalents" shall mean, as of any date, (a) all shares
of Common Stock outstanding as of such date and (b) all shares of Common Stock
that may be acquired as of such date pursuant to Vested Options.
The "Company" shall mean Desa Holdings Corporation, a Delaware
corporation, and its successors and assigns.
"Company Notice Period" shall have the meaning set forth in Section
2.4.
"Company Securities" shall have the meaning set forth in Section 4.17.
"Demand Registration" shall have the meaning set forth in Section 3.2.
"Dragalong Group" shall have the meaning set forth in Section 2.3.
"Election Period" shall have the meaning set forth in Section 4.17.
"Equity Partners Agreement" shall have the meaning set forth in Section
4.8.
"First Refusal Offer" shall have the meaning set forth in Section 2.4.
"First Refusal Offer Notice" shall have the meaning set forth in
Section 2.4.
"HMTF Attendee" shall have the meaning set forth in Section 2.5.
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"HMTF Holders" shall mean HMTF Inc. and those other persons who are
identified as HMTF Holders on the signature pages hereto and (a) shall also
include (i) any other Person not at the time a party hereto (other than any
director, officer or employee of the Company or any of its Subsidiaries) who,
after the date hereof, (A) acquires from the Company or any of its Subsidiaries
any shares of Common Stock or options, warrants, securities and other rights to
acquire from the Company, by exercise, conversion, exchange or otherwise, shares
of Common Stock or securities convertible into Common Stock and, (B) with the
written consent of the Company, the JWC Representative and the Stockholder Group
comprised of the HMTF Holders, hereafter becomes a party to this Agreement as an
HMTF Holder, (ii) any Permitted Transferee of the HMTF Holders (except as
otherwise provided in clause (b) of this definition) unless immediately prior to
such Transfer such transferee was already a Management Holder, a JWC Holder or
an Other Holder (other than an HMTF Holder) and (iii) any Permitted Transferee
in a Permitted Transfer permitted under clause (e)(iii) or (j) or (k) of the
definition of "Permitted Transfer" herein if, immediately prior to any such
Transfer, such transferee was already a HMTF Holder, but (b) shall not include
any Permitted Transferee of the HMTF Holders in a Permitted Transfer permitted
under clause (e)(iii) of the definition of "Permitted Transfer" herein if,
immediately prior to such Transfer, such Permitted Transferee was not already an
HMTF Holder.
"HMTF Inc." shall mean Hicks, Muse, Tate & Furst Incorporated, a
Delaware corporation.
"Holder" shall have the meaning set forth in Section 3.1.
"Initiating Stockholder" shall have the meaning set forth in Section
2.2.
"JWC Equity Funding" shall mean JWC Equity Funding, Inc., a Delaware
corporation.
"JWC Equity Partners" shall mean J.W. Childs Equity Partners, L.P., a
Delaware limited partnership.
"JWC Equity Partners Agreement" shall have the meaning set forth in
Section 4.8(b).
"JWC Holders" shall have the meaning set forth in the preamble
preceding the recitals to this Agreement and
(a) shall also include:
(i) any other Person not at the time a party hereto
(other than (A) any director, officer or employee of
the Company or any of its Subsidiaries who is not
also associated with JWC Equity Partners or (B) any
officer, employee or consultant of JWC Inc.) who,
after the date hereof, (I) acquires from the Company
or any of its Subsidiaries any shares of Common Stock
or options, warrants, securities and other rights to
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-4-
acquire from the Company, by exercise, conversion,
exchange or otherwise, shares of Common Stock or
securities convertible into Common Stock and, (II)
with the written consent of the Company, the JWC
Representative, the Stockholder Group comprised of
the UBS Holders and the Stockholder Group comprised
of the PPM/ReliaStar Holders, hereafter becomes a
party to this Agreement as a JWC Holder,
(ii) any other Person not at the time a party hereto who
is an officer, employee or consultant of JWC Inc.
who, after the date hereof, acquires from the Company
or any of its Subsidiaries any shares of Common Stock
or options, warrants, securities and other rights to
acquire from the Company, by exercise, conversion,
exchange or otherwise, shares of Common Stock or
securities convertible into Common Stock,
(iii) any Permitted Transferee of the JWC Holders (except
as otherwise provided in clause (b) of this
definition) unless immediately prior to such Transfer
such transferee was already a Management Holder or an
Other Holder, and
(iv) any Permitted Transferee in a Permitted Transfer
permitted under clause (e)(iii) or (j) or (k) of the
definition of "Permitted Transfer" herein if,
immediately prior to any such Transfer, such
transferee was already a JWC Holder,
but
(b) shall not include any Permitted Transferee of the JWC Holders
in a Permitted Transfer permitted under clause (e)(iii) or (j)
or (k) of the definition of "Permitted Transfer" herein if,
immediately prior to such Transfer, such Permitted Transferee
was not already a JWC Holder.
"JWC/UBS Holders Notice Period" shall have the meaning set forth in
Section 2.4.
"JWC Inc." shall mean J.W. Childs Associates, Inc., a Delaware
corporation.
"JWC L.P." shall mean J.W. Childs Associates, L.P., a Delaware limited
partnership.
"JWC Representative" shall have the meaning set forth in Section 4.8.
"Junior Security" shall have the meaning set forth in Section 4.17(c).
"Management Agreement" shall mean that Management Agreement dated as of
November 26, 1997 among the Company, the Operating Company and JWC L.P.
"Management Holders" shall have the meaning set forth in the preamble
preceding the recitals to this Agreement and (a) shall also include (i) any
director, officer or employee of the
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Company or any of its Subsidiaries (other than any director, officer or employee
of the Company or any of its Subsidiaries who is also associated with JWC Equity
Partners or any of its Affiliates or UBS Capital or any of its Affiliates) who,
after the date hereof, (A) acquires from the Company or any of its Subsidiaries
any shares of Common Stock or options, warrants, securities and other rights to
acquire from the Company, by exercise, conversion, exchange or otherwise, shares
of Common Stock or securities convertible into Common Stock and, (B) with the
written consent of the Company and the JWC Representative, hereafter becomes a
party to this Agreement as a Management Holder,, (ii) any Permitted Transferee
of the Management Holders (except as otherwise provided in clause (b) of this
definition) unless immediately prior to such Transfer such transferee was
already a JWC Holder or an Other Holder, and (iii) any Permitted Transferees in
a Permitted Transfer permitted under clause (e)(iii) or (j) or (k) of the
definition of "Permitted Transfer" herein if, immediately prior to any such
Transfer, such transferee was already a Management Holder, but (b) shall not
include (i) any Permitted Transferee of the HMTF Holders in a Permitted Transfer
permitted under clause (e)(iii) of the definition of "Permitted Transfer" herein
if, immediately prior to such Transfer, such Permitted Transferee was not
already a Management Holder
"Nonvoting Common Stock" shall mean shares of Nonvoting Common Stock,
par value $.01 per share, of the Company.
"Offered Securities" shall have the meaning set forth in Section 2.4.
"Operating Company" shall mean Desa International, Inc., a Delaware
corporation, in its capacity as a Subsidiary of the Company.
"Other Holders" shall have the meaning set forth in the preamble
preceding the recitals to this Agreement and (a) shall also include (i) the UBS
Holders, (ii) the HMTF Holders, (iii) the PPM/ReliaStar Holders, (iv) the
Warrant Holders, (v) any other Person not at the time a party hereto (other than
any director, officer or employee of the Company or any of its Subsidiaries)
who, after the date hereof, (A) acquires from the Company or any of its
Subsidiaries any shares of Common Stock or options, warrants, securities and
other rights to acquire from the Company, by exercise, conversion, exchange or
otherwise, shares of Common Stock or securities convertible into Common Stock
and, (B) with the written consent of the Company and the JWC Representative,
hereafter becomes a party to this Agreement as an Other Holder, (vi) any
Permitted Transferee of the Other Holders (except as otherwise provided in
clause (b) of this definition) unless immediately prior to such Transfer such
transferee was already a Management Holder or a JWC Holder, and (vii) any
Permitted Transferee in a Permitted Transfer permitted under clause (e)(iii) or
(j) or (k) of the definition of "Permitted Transfer" herein if, immediately
prior to any such Transfer, such transferee was not already a Management Holder
or a JWC Holder but (b) shall not include any Permitted Transferee of the Other
Holders in a Permitted Transfer permitted under clause (e)(iii) of the
definition of "Permitted Transfer" herein if, immediately prior to such
Transfer, such Permitted Transferee was already a Management Holder or a JWC
Holder.
"Participating Offerees" shall have the meaning set forth in Section
2.2.
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"Participation Notice" shall have the meaning set forth in Section 2.2.
"Participation Securities" shall have the meaning set forth in Section
2.2.
"Permitted Transfer" shall mean:
(a) a Transfer of any Subject Securities between any JWC Holder or
Other Holder or Management Holder who is a natural person and
such Stockholder's spouse, children, parents or siblings
(whether natural, step or by adoption) or to a trust solely
for the benefit of one or more of any of such Persons,
provided that with respect to any such Transfer, the
Stockholder retains, as trustee or by some other means, the
sole authority to vote such Subject Securities (including any
Common Stock that may be acquired pursuant to any Vested
Options);
(b) a Transfer of Subject Securities by a JWC Holder to JWC Inc.
or to the officers, employees or consultants of JWC Inc. or to
a corporation or corporations or to a partnership or
partnerships (or other entity for collective investment, such
as a limited liability company or a fund) which is (and
continues to be) controlled by, controlling or under common
control with JWC Inc.;
(c) a Transfer of Subject Securities (i) between or among the
Management Holders, (ii) between or among the JWC Holders,
(iii) between or among the UBS Holders, (iv) between or among
the HMTF Holders or (v) between or among the PPM/ReliaStar
Holders;
(d) a Transfer of Subject Securities between any Stockholder who
is a natural person and such Stockholder's estate, executors,
legal representative, guardian or conservator, or the Transfer
of Subject Securities between the estate of any Stockholder
and such Stockholder's spouse, children, parents or siblings
(whether natural, step or by adoption) or to a trust solely
for the benefit of one or more of any of such Persons;
(e) (i) a bona fide pledge of Subject Securities by a JWC Holder
or a UBS Holder or an HMTF Holder to a bank or financial
institution or (ii) any pledge of Subject Securities by a
Management Holder (A) existing at November 26, 1997 or (B) to
the Company or any of its Subsidiaries or (iii) a Transfer by
a pledgee upon any bona fide foreclosure on any pledge
permitted under clause (e)(i) or (ii) of this definition;
(f) a Transfer of Subject Securities between any Other Holder or
any JWC Holder and any Affiliate of such holder, provided that
such Affiliate (i) shall remain at all times an Affiliate of
such Stockholder and (ii) is an Accredited Investor at the
time of such transfer;
(g) a Transfer of Subject Securities between any Other Holder or
any JWC Holder and any shareholder, member, officer, director
or direct or indirect general or
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limited partner (or officer or director of such general or
limited partner) of such holder;
(h) a Transfer of Subject Securities by a HMTF Holder to HMTF Inc.
or to the officers or employees of HMTF Inc. or to a
corporation or corporations or to a partnership or
partnerships (or other entity for collective investment, such
as a limited liability company or a fund) which is (and
continues to be) controlled by, controlling or under common
control with HMTF Inc.;
(i) a Transfer of Subject Securities by a UBS Holder to UBS
Capital or to the officers, employees or consultants of UBS
Capital or to a corporation or corporations or to a
partnership or partnerships (or other entity for collective
investment, such as a limited liability company or a fund)
which is (and continues to be) controlled by, controlling or
under common control with UBS Capital;
(j) a Transfer of "Warrants" or "Warrant Shares" (each as defined
in the Tagalong/Dragalong Agreement) by a JWC Holder or a UBS
Holder pursuant to the terms of Article II of the
Tagalong/Dragalong Agreement; and
(k) a Transfer by a JWC Holder or a UBS Holder of any of those
576,287.8200 shares of Voting Common Stock (with such number
of shares to be adjusted from time to time to reflect any
split or combination of shares of Common Stock) issued by the
Company to JWC Equity Funding on November 26, 1997.
No Permitted Transfer shall be effective unless and until the transferee of the
Subject Securities so transferred executes and delivers to the Company an
executed counterpart of this Agreement in accordance with Section 4.12 hereof.
"Permitted Transferee" shall mean any Person who shall have acquired
and who shall hold any Subject Securities pursuant to a Permitted Transfer.
"Person" means an individual, corporation, partnership, limited
liability company, trust, unincorporated association, government or any agency
or political subdivision thereof, or other entity.
"PPM/ReliaStar Holders" shall mean those persons who are identified as
PPM/ReliaStar Holders on the signature pages hereto and shall also include (a)
any other Person not at the time a party hereto (other than any director,
officer or employee of the Company or any of its Subsidiaries) who, after the
date hereof, (A) acquires from the Company or any of its Subsidiaries any shares
of Common Stock or options, warrants, securities and other rights to acquire
from the Company, by exercise, conversion, exchange or otherwise, shares of
Common Stock or securities convertible into Common Stock and, (B) with the
written consent of the Company, the JWC Representative and the Stockholder Group
comprised of the PPM/ReliaStar Holders, hereafter becomes a party to this
Agreement as a PPM/ReliaStar Holder, (b) any Permitted Transferee of the
PPM/ReliaStar Holders unless
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immediately prior to such Transfer such transferee was already a Management
Holder, a JWC Holder or an Other Holder (other than a PPM/ReliaStar Holder) and
(c) any Permitted Transferee in a Permitted Transfer permitted under clause
(e)(iii) or (j) or (k) of the definition of "Permitted Transfer" herein if,
immediately prior to any such Transfer, such transferee was already a
PPM/ReliaStar Holder.
"PPM/ReliaStar Preferred Holder" shall have the meaning set forth in
Section 4.17(a).
"Preemptive Rights Notice" shall have the meaning set forth in Section
4.17.
"Preemptive Stockholder" shall mean any of the Stockholders identified
on Exhibit B hereto and any Permitted Transferee of such Stockholders who
hereafter becomes a party to this Agreement pursuant to Section 4.12 hereof.
"Preferred Securities" shall mean the Series C Preferred Stock or any
of the 12% Junior Subordinated Notes due December 31, 2009 of the Company that
may be issued by the Company in exchange for the Series C Preferred Stock
pursuant to the terms of the Series C Preferred Stock.
"Preferred Stock" shall mean shares of any class or series of preferred
stock of the Company, whether now authorized and existing or hereafter
authorized and existing.
"Public Float Date" shall mean the date on which (a) shares of Common
Stock shall have been sold pursuant to one or more Public Offerings in which the
aggregate proceeds (before deducting underwriter discounts and commissions) to
the Company and the selling stockholders, if any, of such shares equal or exceed
$50 million or (b) the Company shall have merged into or consolidated or entered
into another business combination transaction with a Person in which the Company
is not the surviving person, and the surviving person (the "Successor") from
such merger, consolidation or other transaction shall (i) have a class of common
stock (or similar equity securities of a limited liability company or
partnership) that is registered under Section 12 of the 1934 Act, (ii) have sold
shares of such common stock (or similar equity securities) pursuant to one or
more public offerings and, (iii) as of the close of business on the date such
merger, consolidation or other business combination transaction becomes
effective, the aggregate fair market value of all of the issued and outstanding
shares of such common stock (or similar equity securities) of the Successor,
excluding all such shares that are received in such merger, consolidation or
other transaction by any Person who was a beneficial owner of shares of Common
Stock immediately prior to the consummation of such merger, consolidation or
other transaction, shall be at least $50 million. For purposes of this
definition, "fair market value" of such common stock (or similar equity
securities) of the Successor, on any date specified herein, shall mean (A) the
last reported sales price, regular way, or, in the event that no sale takes
place on such day, the average of the reported closing bid and asked prices,
regular way, in either case (I) as reported on the New York Stock Exchange
Composite Tape, or (II) if such security is not listed or admitted to trading on
the New York Stock Exchange, on the principal national securities exchange on
which such security is listed or admitted to trading, or (III) if not then
listed or admitted to trading on any
<PAGE>
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national securities exchange, on the NASDAQ National Market System; or (B) if
such security is not quoted on such National Market System, (I) the average of
the closing bid and asked prices on each such day in the over-the-counter market
as reported by NASDAQ, or (II) if bid and asked prices for such security on each
such day shall not have been reported through NASDAQ, the average of the bid and
asked prices for such day as furnished by any New York Stock Exchange member
firm regularly making a market in such security selected for such purpose by the
Board of Directors of the Successor or a committee thereof.
A "Public Offering" shall mean (a) the completion of a sale of shares
of Common Stock pursuant to a registration statement which has become effective
under the 1933 Act, excluding registration statements on Form S-4 or Form S-8 or
similar limited purpose forms or or (b) the merger or consolidation of the
Company with, or other business combination transaction involving the Company
with, a Person in which the Company is not the surviving person, where the
surviving person from such merger, consolidation or other transaction shall have
a class of common stock (or similar equity securities of a limited liability
company or partnership) that is registered under Section 12 of the 1934 Act.
"Registrable Securities" shall mean, as of any date, with respect to
any Stockholder, (a) all shares of Common Stock held by such Stockholder as of
such date and (b) all shares of Common Stock that may be acquired as of such
date by such Stockholder upon exercise of Vested Options; provided that, as to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a registration statement (other than a
registration statement on Form S-8) with respect to the sale or exchange of such
securities shall have become effective under the 1933 Act and such securities
shall have been disposed of in accordance with such registration statement, (ii)
a registration statement on Form S-8 with respect to such securities shall have
become effective under the 1933 Act, (iii) such securities shall have been sold
or acquired under a Rule 144 Transaction, or (iv) such securities have ceased to
be outstanding.
"Rule 144 Transaction" means a transfer of Common Stock (a) complying
with Rule 144 under the 1933 Act as such rule or a successor thereto is in
effect on the date of such transfer (but not including a sale other than
pursuant to a "brokers transaction" as defined in clauses (i) and (ii) of
paragraph (g) of Rule 144 as in effect on the date hereof) and (b) occurring at
a time when the Common Stock is registered pursuant to Section 12 of the 1934
Act.
"Sale Request" shall have the meaning set forth in Section 2.3.
"Schedule of Stockholders" shall refer to the Schedule of Stockholders
attached hereto as Exhibit A as from time to time amended pursuant to Section
4.2.
"Series C Preferred Stock" shall mean the Company's Series C 12% Senior
Redeemable Exchangeable Pay-in-Kind Preferred Stock, par value $.01 per share.
"Stockholder" shall mean any party hereto other than the Company,
including any Person who hereafter becomes a party to this Agreement pursuant to
Section 4.12 hereof.
<PAGE>
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"Stockholder Group" shall mean any of (a) the Other Holders (including
the HMTF Holders, the UBS Holders, the PPM/ReliaStar Holders and the Warrant
Holders) taken as a group, (b) the JWC Holders taken as a group, (c) the
Management Holders taken as a group, (d) the HMTF Holders taken as a group, (e)
the UBS Holders taken as a group, (f) the PPM/ReliaStar Holders taken as a
group, and (g) the Warrant Holders taken as a group. The Company and its
Subsidiaries shall not in any case be deemed to be a member of any Stockholder
Group (whether or not the Company or any of its Subsidiaries holds or
repurchases any Common Stock Equivalents). Where provisions of this Agreement
contemplate that actions be taken or notices be given by a Stockholder Group,
actions taken or notices given by the holders of a majority of the Common Stock
Equivalents held in the aggregate by a Stockholder Group shall be deemed to be
actions taken or notices given by such Stockholder Group, and the other parties
hereto are and will be entitled to rely on any action so taken or any notice so
given by such majority holders of a Stockholder Group.
"Subject Securities" shall mean any Common Stock or Vested Options or
other options, warrants, securities and other rights to acquire from the
Company, by exercise, conversion, exchange or otherwise, shares of Common Stock
or securities convertible into Common Stock, whether now or hereafter held by
any Stockholder.
"Subsidiary" with respect to any Person (the "parent") shall mean any
Person of which such parent, at the time in respect of which such term is used,
(a) owns directly or indirectly more than fifty percent (50%) of the equity or
beneficial interest, on a consolidated basis, or (b) owns directly or controls
with power to vote, indirectly through one or more Subsidiaries, shares of
capital stock or beneficial interest having the power to cast at least a
majority of the votes entitled to be cast for the election of directors,
trustees, managers or other officials having powers analogous to those of
directors of a corporation. Unless otherwise specifically indicated, when used
herein the term Subsidiary shall refer to a direct or indirect Subsidiary of the
Company.
"Tagalong/Dragalong Agreement" shall mean the Tagalong/Dragalong
Agreement dated as of November 26, 1997 among JWC Equity Funding, Inc. and UBS
Capital.
"Third Party" means any Person other than the Company.
"Third Party Offer" shall have the meaning set forth in Section 2.4.
"Third Party Offeror" shall have the meaning set forth in Section 2.4.
"Transfer" shall mean to transfer, sell, assign, pledge, hypothecate,
give, grant or create a security interest in or lien on, place in trust (voting
or otherwise), assign an interest in or in any other way encumber or dispose of,
directly or indirectly and whether or not by operation of law or for value, any
of the Subject Securities.
"UBS Attendee" shall have the meaning set forth in Section 2.5.
"UBS Capital" shall mean UBS Capital LLC, a Delaware limited liability
company.
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"UBS Holders" shall mean UBS Capital and (a) shall also include (i) any
other Person not at the time a party hereto (other than any director, officer or
employee of the Company or any of its Subsidiaries who is not also associated
with UBS Capital or any of its Affiliates) ) who, after the date hereof, (A)
acquires from the Company or any of its Subsidiaries any shares of Common Stock
or options, warrants, securities and other rights to acquire from the Company,
by exercise, conversion, exchange or otherwise, shares of Common Stock or
securities convertible into Common Stock and, (B) with the written consent of
the Company, the JWC Representative and the Stockholder Group comprised of the
UBS Holders, hereafter becomes a party to this Agreement as a UBS Holder, (ii)
any Permitted Transferee of the UBS Holders (except as otherwise provided in
clause (b) of this definition) unless immediately prior to such Transfer such
transferee was already a Management Holder, a JWC Holder or an Other Holder
(other than a UBS Holder) and (iii) any Permitted Transferee in a Permitted
Transfer permitted under clause (e)(iii) or (j) or (k) of the definition of
"Permitted Transfer" herein if, immediately prior to any such Transfer, such
transferee was already a UBS Holder, but (b) shall not include any Permitted
Transferee of the UBS Holders in a Permitted Transfer permitted under clause
(e)(iii) or (j) or (k) of the definition of "Permitted Transfer" herein if,
immediately prior to such Transfer, such Permitted Transferee was not already a
UBS Holder.
"Vested Options" shall mean, as of any date, options, warrants,
securities and other rights to acquire from the Company, by exercise,
conversion, exchange or otherwise, shares of Common Stock or securities
convertible into Common Stock, but only to the extent that such options,
warrants, securities and other rights are both, as of such date, (a) vested
under the terms thereof or under any plan, agreement or instrument pursuant to
which such options, warrants, securities and other rights were issued, and (b)
so exchangeable, exercisable or convertible.
"Voting Common Stock" shall mean shares of Common Stock, par value $.01
per share, of the Company.
"Warrant Holders" shall mean any Permitted Transferees in a Permitted
Transfer permitted under clause (j) or (k) of the definition of "Permitted
Transfer" herein if, immediately prior to any such Transfer, such transferee was
not already a Management Holder, a JWC Holder or an Other Holder, and shall also
include (a) any other Person not at the time a party hereto (other than any
director, officer or employee of the Company or any of its Subsidiaries) who,
after the date hereof, (A) acquires from the Company or any of its Subsidiaries
any shares of Common Stock or options, warrants, securities and other rights to
acquire from the Company, by exercise, conversion, exchange or otherwise, shares
of Common Stock or securities convertible into Common Stock and, (B) with the
written consent of the Company, the JWC Representative and the Stockholder Group
comprised of the Warrant Holders, hereafter becomes a party to this Agreement as
a Warrant Holder, (b) any Permitted Transferee of the Warrant Holders, unless
immediately prior to such Transfer such transferee was a Management Holder, a
JWC Holder or an Other Holder (other than a Warrant Holder) and (c) any
Permitted Transferee in a Permitted Transfer permitted under clause (e)(iii) or
(j) or (k) of the definition of "Permitted Transfer" herein if, immediately
prior to any such Transfer, such transferee was already a Warrant Holder.
<PAGE>
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ARTICLE 2
Transferability and Voting
2.1 Restrictions on Transfers
(a) Without the written consent of the holders of a majority
of the Common Stock Equivalents at the time held by the JWC Holders, no
Management Stockholder shall Transfer all or any part of the Subject Securities
at the time held by such Management Stockholder to any Person other than in
accordance with the provisions of Section 2.3 or in accordance with and as a
Participating Offeree (as defined in Section 2.2 hereof) under the provisions of
Section 2.2 hereof. Without the written consent of the holders of a majority of
the Common Stock Equivalents at the time held by the JWC Holders, no Other
Holder shall Transfer all or any part of the Subject Securities at the time held
by such Other Holder to any Person other than in accordance with the provisions
of Section 2.3 or 2.4 hereof or in accordance with and as a Participating
Offeree under the provisions of Section 2.2 hereof. Without the written consent
of the holders of a majority of the Common Stock Equivalents at the time held by
the Other Holders, no JWC Holder shall Transfer all or any part of the Subject
Securities at the time held by such JWC Holder to any Person other than in
accordance with the provisions of Section 2.3 hereof or in accordance with and
as an Initiating Stockholder (as defined in Section 2.2 hereof) or a
Participating Offeree under the provisions of Section 2.2 hereof.
(b) The provisions of this Section 2.1 shall not apply to a
Transfer which is (i) a Permitted Transfer, (ii) pursuant to a Public Offering,
or (iii) after the Public Float Date, pursuant to a Rule 144 Transaction.
2.2 Tagalong. No JWC Holder (unless such JWC Holder shall be
participating in a Transfer as a Participating Offeree under and in accordance
with the provisions of this Section 2.2) shall Transfer any Subject Securities
to a Third Party without complying with the terms and conditions set forth in
this Section 2.2, as applicable.
(a) Any JWC Holder (the "Initiating Stockholder") desiring to
Transfer such Subject Securities shall give not less than 15 days prior written
notice of such intended Transfer to each other Stockholder ("Participating
Offerees") and to the Company. Such notice (the "Participation Notice") shall
set forth terms and conditions of such proposed Transfer, including the name of
the prospective transferee, the number of Common Stock Equivalents proposed to
be transferred (the "Participation Securities") by the Initiating Stockholder,
the purchase price per share proposed to be paid therefor and the payment terms
and type of Transfer to be effectuated. Within 10 days following the delivery of
the Participation Notice by the Initiating Stockholder to each Participating
Offeree and to the Company, each Participating Offeree shall, by notice in
writing to the Initiating Stockholder and to the Company, have the opportunity
and right to sell to the purchasers in such proposed Transfer (upon the same
terms and conditions as the Initiating Stockholder) up to that number of Subject
Securities representing Common Stock Equivalents at the time held by such
Participating Offeree that constitutes the same percentage of the aggregate
number of Common
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Stock Equivalents owned by such Participating Offeree as of the date of such
proposed Transfer as the number of Subject Securities representing Common Stock
Equivalents to be sold in such proposed Transfer by the Initiating Stockholder
(after giving effect to the provisions of this and the following sentence)
constitutes of the aggregate number of Common Stock Equivalents owned as of the
date of such proposed Transfer by the Initiating Stockholder. As contemplated by
the preceding sentence, the amount of Participation Securities to be sold by an
Initiating Stockholder and the amount of Subject Securities to be sold by any
Participating Offerees shall be adjusted to the extent necessary to provide for
sales by the Initiating Stockholder and Participating Offerees of an aggregate
number of Subject Securities (i) which is not greater than the number of
Participation Securities originally proposed to be transferred by the Initiating
Stockholder and (ii) such that the number of Subject Securities representing
Common Stock Equivalents at the time held by each Participating Offeree to be
sold in such proposed Transfer constitutes the same percentage of the aggregate
number of Common Stock Equivalents owned by such Participating Offeree as of the
date of such proposed Transfer as the number of Subject Securities representing
Common Stock Equivalents to be sold in such proposed Transfer by the Initiating
Stockholder (after giving effect to the provisions of this Section 2.2)
constitutes of the aggregate number of Common Stock Equivalents owned as of the
date of such proposed Transfer by the Initiating Stockholder.
For example: if (i) an Initiating Stockholder gives a
Participation Notice with respect to the proposed Transfer of 200 Common Stock
Equivalents by the Initiating Stockholder, (ii) the Initiating Stockholder at
the time of such proposed Transfer owns 500 Common Stock Equivalents, (iii)
Stockholder A elects to participate in such proposed Transfer and at the time
thereof owns 200 Common Stock Equivalents, and (iv) Stockholder C elects to
participate in such proposed Transfer and at the time thereof owns 100 Common
Stock Equivalents, then the aggregate number of Common Stock Equivalents to be
sold would remain at 200 Common Stock Equivalents, of which the Initiating
Stockholder would be entitled to sell 125 Common Stock Equivalents (25% of the
500 total Common Stock Equivalents owned by the Initiating Stockholder),
Stockholder A would be entitled to sell 50 Common Stock Equivalents (25% of the
200 total Common Stock Equivalents owned by Stockholder A) and Stockholder B
would be entitled to sell 25 Common Stock Equivalents (25% of the 100 total
Common Stock Equivalents owned by Stockholder B).
(b) At the closing of any proposed Transfer in respect of
which a Participation Notice has been delivered, the Initiating Stockholder,
together with all Participating Offerees so electing to sell Subject Securities
pursuant to this Section 2.2 shall deliver to the proposed transferee
certificates and/or other instruments representing the Subject Securities to be
sold, free and clear of all liens and encumbrances, together with stock or other
appropriate powers duly endorsed therefor, and shall receive in exchange
therefor the consideration to be paid or delivered by the proposed transferee in
respect of such Subject Securities as described in the Participation Notice. If
the prospective transferee does not purchase any of the Subject Securities of
any Participating Offeree required to be included in such proposed Transfer
pursuant to this Section 2.2 (otherwise than due to (i) the failure of such
Participating Offeree to comply with the provisions of the first sentence of
this Section 2.2(b) or (ii) any other fault
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of such Participating Offeree), then the Initiating Stockholder shall not
Transfer any of its Subject Securities in such proposed Transfer.
(c) The provisions of this Section 2.2 shall not apply to (i)
any Transfer pursuant to a Public Offering or, following the Public Float Date,
pursuant to a Rule 144 Transaction or (ii) any Permitted Transfer or (iii) any
Transfers pursuant to Section 2.3 or 2.4 hereof.
2.3 Dragalong.
(a) If, at the time a Sale Request (as hereinafter defined) is
given, both (i) the JWC Holders hold more Common Stock Equivalents than the UBS
Holders and (ii) JWC Holders holding at least a majority of Common Stock
Equivalents at the time held by such JWC Holders (the Dragalong Group) determine
to sell or exchange (in a sale or exchange of securities of the Company or in a
merger, consolidation or other business combination or any similar transaction),
in one or a series of bona fide arms-length transactions to an unrelated and
unaffiliated Third Party fifty percent (50%) or more of the Subject Securities
at the time held by them then, upon 30 days' prior written notice from the
Dragalong Group to the other Stockholders, which notice shall include reasonable
details of the proposed sale or exchange including the proposed time and place
of closing and the consideration to be received by the Stockholders (such notice
being referred to as the "Sale Request"), each other Stockholder shall be
obligated to, and shall, (i) sell, transfer and deliver, or cause to be sold,
transferred and delivered, to such Third Party an equivalent percentage of such
Stockholder's Subject Securities in the same transaction at the closing thereof
and shall (A) execute and deliver such agreements for the purchase of such
Subject Securities and other agreements, instruments and certificates as the
members of the Dragalong Group shall execute and deliver in connection with such
proposed transaction (provided that no Holder shall be required to make any
representations or warranties in connection with such sale or transfer other
than representations and warranties as to (x) such Holder's ownership of his or
its Subject Securities to be sold or transferred free and clear of all liens,
claims, and encumbrances, (y) such Holder's power and authority to effect such
transfer without violation of any agreements, instruments or laws, and (z) such
matters pertaining to compliance with securities laws as the transferee may
reasonably require) and (B) deliver certificates and/or other instruments
representing such percentage of such Stockholder's Subject Securities, together
with stock or other appropriate powers therefor duly executed, at the closing,
free and clear of all claims, liens and encumbrances), and each Stockholder
shall receive upon the closing of such transaction the same per share
consideration (including terms of payment) to be paid or delivered by the
proposed transferee in respect of such Stockholder's Subject Securities as shall
be payable to the members of the Dragalong Group in respect of their Subject
Securities (including any consideration payable to the members of the Dragalong
Group in respect of noncompetition or similar covenants made by them or for
consulting services to be rendered by them, but only to the extent that such
consideration is unreasonable in amount) and, if any members of the Dragalong
Group are given an option as to the form or amount of consideration per share to
be received, each Stockholder shall be given the same option, and (ii) if
stockholder approval of the transaction is required, vote such Stockholder's
Common Stock in favor thereof.
<PAGE>
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(b) The provisions of this Section 2.3 shall not apply to any
Transfer (i) pursuant to a Public Offering or (ii) pursuant to a Permitted
Transfer.
2.4 Right of First Refusal. If at any time prior to the Public Float
Date, any Other Holder shall receive a bona fide written offer (a "Third Party
Offer") from a Third Party (the "Third Party Offeror") to purchase any Subject
Securities and such Other Holder desires to accept such Third Party Offer, such
Other Holder shall, prior to accepting the Third Party Offer, offer (the "First
Refusal Offer") to sell such Subject Securities (the "Offered Securities") in
accordance with the procedures, and upon the terms, set forth below.
(a) (i) The Other Holder shall send a written notice
of the First Refusal Offer (a "First Refusal
Offer Notice") to the Company, which First
Refusal Offer Notice shall state that such
Other Holder proposes to effect a sale to a
Third Party Offeror, the number and class or
type of Subject Securities subject to the
Third Party Offer and the name and address
of the Third Party Offeror, together with a
copy of all writings between the Third Party
Offeror and such Other Holder necessary to
establish the terms of the Third Party
Offer.
(ii) Subject to Section 2.4(b), the right of
first refusal may be exercised by the
Company by delivery of a written notice to
the Other Holder making the First Refusal
Offer within 20 days after receipt by the
Company of the applicable First Refusal
Offer Notice (the "Company Notice Period"),
which notice shall state the number of
Offered Securities the Company intends to
purchase pursuant to this paragraph (ii). If
the Company fails to respond to the Other
Holder making the First Refusal Offer within
the Company Notice Period, the failure shall
be deemed a rejection of the First Refusal
Offer.
(iii) If the Company has not exercised the right
of first refusal with respect to all of the
Offered Securities pursuant to this Section
2.4, the Other Holder shall send a First
Refusal Offer Notice to the JWC Holders, the
UBS Holders and the PPM/ReliaStar Holders
(other than the Other Holder making the
First Refusal Offer) and the Management
Holders with respect to those Offered
Securities as to which the Company has not
exercised its right of first refusal.
Subject to Section 2.4(b), the right of
first refusal may be exercised by the JWC
Holders, such UBS Holders and PPM/ReliaStar
Holders and the Management Holders, pro rata
in accordance with the respective Common
Stock Equivalents at the time held by the
JWC Holders, such UBS Holders and
PPM/ReliaStar Holders and the Management
Holders so exercising their rights under
this Section 2.4, by delivery of a written
notice to the Other Holder making the First
<PAGE>
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Refusal Offer within 20 days after receipt
by the JWC Holders, such UBS Holders and
PPM/ReliaStar Holders and the Management
Holders of the applicable First Refusal
Offer Notice (the "JWC/UBS Holders Notice
Period"), which notice shall state the
number of Offered Securities each of the JWC
Holders, such UBS Holders and PPM/ReliaStar
Holders and the Management Holders intend to
purchase pursuant to this paragraph (iii).
If the JWC Holders or such UBS Holders or
PPM/ReliaStar Holders or the Management
Holders, as the case may be, fail to respond
to the Other Holder making the First Refusal
Offer within the JWC/UBS Holders Notice
Period, the failure shall be deemed a
rejection of the First Refusal Offer by the
JWC Holders or such UBS Holders or
PPM/ReliaStar Holders or the Management
Holders, as the case may be.
(iv) The purchase of the Offered Securities by
the Company and/or the JWC Holders, such UBS
Holders and PPM/ReliaStar Holders and the
Management Holders pursuant to this Section
2.4 shall be effected at the offices of JWC
Equity Partners within 30 days after the
expiration of the Company Notice Period (or,
if the JWC Holders or such UBS Holders or
PPM/ReliaStar Holders or the Management
Holders are exercising their right of first
refusal with respect to any of the Offered
Securities, within 30 days after the
expiration of the JWC/UBS Holders Notice
Period) on those terms and conditions of the
Third Party Offer. The price per Offered
Security payable by the Company and/or the
JWC Holders, such UBS Holders and
PPM/ReliaStar Holders and the Management
Holders shall be equal to the price per
Offered Security set forth in the Third
Party Offer. The purchase price for the
Offered Securities purchased by the Company
and/or the JWC Holders, such UBS Holders and
PPM/ReliaStar Holders and the Management
Holders shall be paid by certified checks
payable, or wire transfer, to the Other
Holder making the First Refusal Offer
against receipt of a certificate or
certificates representing all Offered
Securities so purchased, properly endorsed
for transfer to the Company and/or the JWC
Holders, such UBS Holders and PPM/ReliaStar
Holders and the Management Holders, as the
case may be.
(v) Any purchase of the Offered Securities by
the Company and/or the JWC Holders, such UBS
Holders and PPM/ReliaStar Holders and the
Management Holders pursuant to this Section
2.4 shall be conditioned (by the Other
Holder making the First Refusal Offer) upon
the Company's and/or the JWC Holders', such
UBS Holders' and PPM/ReliaStar Holders' and
the Management
<PAGE>
-17-
Holders' exercising in the aggregate the
right of first refusal with respect to all
the Offered Securities.
(b) Notwithstanding anything to the contrary contained herein,
if the Company and/or the JWC Holders, such UBS Holders and PPM/ReliaStar
Holders and the Management Holders have not exercised the right of first refusal
with respect to all of the Offered Securities pursuant to this Section 2.4, then
such Other Holder may transfer to the Third Party Offeror on the terms and
conditions of the Third Party Offer all but not less than all of the Offered
Securities; provided that such sale is consummated within 60 days from the
expiration of the JWC/UBS Holders Notice Period; and provided, further, that
such Third Party Offeror shall agree in writing in advance with the Company to
be bound by and to comply with all applicable provisions of this Agreement to
the same extent as if such Third Party Offeror were such Other Holder. If such
sale is not consummated within such 60-day period, the restrictions provided for
in this Section 2.4 shall again become effective, and no transfer of such
Offered Securities may be made thereafter without again offering the same to the
Company and/or the JWC Holders, such UBS Holders and PPM/ReliaStar Holders and
the Management Holders in accordance with the terms and conditions of this
Agreement.
(c) The provisions of this Section 2.4 shall not apply to (i)
any Transfer pursuant to a Public Offering or, following a Public Offering,
pursuant to a Rule 144 Transaction or (ii) any Permitted Transfer or (iii) any
Transfers pursuant to Section 2.2 or 2.3 hereof.
2.5 Corporate Governance.
(a) The Company and each of the JWC Holders, the Other Holders
and the Management Holders shall take all action (including but not limited to
such Stockholder's voting, or executing proxies or written consents with respect
to, the Common Stock at the time held by such Stockholder as may be from time to
time requested by holders of a majority of the Common Stock Equivalents at the
time held by the JWC Holders) so that the Company's Board of Directors shall
include such number of members as may be from time to time designated by the
holders of a majority of the Common Stock Equivalents at the time held by the
JWC Holders (or the JWC Representative). The holders of a majority of the Common
Stock Equivalents at the time held by the JWC Holders (or the JWC
Representative) shall also be entitled to require that any member of the
Company's Board of Directors so designated pursuant to this Section 2.5 be
removed or replaced by another designee of the holders of a majority of the
Common Stock Equivalents at the time held by the JWC Holders (or the JWC
Representative), in which event the Company and each such Stockholder shall take
all action, including but not limited to such Stockholder's voting, or executing
written consents with respect to, the Common Stock at the time held by such
Stockholder as may be necessary to effect such removal or replacement.
(b) Notwithstanding the provisions of Section 2.5(a), the
Company and each of the JWC Holders, the Other Holders and the Management
Holders shall take all action, including but not limited to such Stockholder's
voting, or executing proxies or written consents with respect to, the Common
Stock at the time held by such Stockholder as may be from time
<PAGE>
-18-
to time requested by holders of a majority of the Common Stock Equivalents at
the time held by the UBS Holders, so that the Company's Board of Directors shall
include one (1) member designated by the holders of a majority of the Common
Stock Equivalents at the time held by the UBS Holders which one (1) member shall
initially be Michael Greene; provided that the number of members of the
Company's Board of Director's that the UBS Holders shall be entitled to
designate pursuant to this Section 2.5(b) shall be permanently reduced from one
(1) member to zero (0) members at such time as the UBS Holders shall hold less
than 770,000 shares of Voting Common Stock (with such number of shares to be
adjusted from time to time to reflect any split or combination of shares of
Common Stock). The holders of a majority of the Common Stock Equivalents at the
time held by the UBS Holders shall also be entitled to require that any member
of the Company's Board of Directors so designated pursuant to this Section
2.5(b) be removed or replaced by another designee of the holders of a majority
of the Common Stock Equivalents at the time held by the UBS Holders, in which
event the Company and each such Stockholder shall take all action, including but
not limited to such Stockholder's voting, or executing written consents with
respect to, the Common Stock at the time held by such Stockholder as may be
necessary to effect such removal or replacement.
(c) Notwithstanding the provisions of Section 2.5(a) or
2.5(b), the Stockholders shall vote their shares of Common Stock to elect each
of Robert H. Elman and Terry G. Scariot to the Company's Board of Directors
until such person is no longer employed by the Company or any of its
Subsidiaries.
(d) The HMTF Holders shall have the right to have an
individual appointed by them (the "HMTF Attendee") in attendance at all regular
and special meetings of the Company's Board of Directors to observe, but not to
vote on any matters before the Board of Directors at, such meetings; provided,
however, that the HMTF Attendee shall recuse himself or herself from any such
meeting during the Board of Directors' discussions, deliberations and voting on
matters with respect to which the Board of Directors determines, in the good
faith exercise of its business judgment, the HMTF Attendee's presence presents a
conflict of interest. The HMTF Attendee shall be provided with all information
prepared and delivered to board members in general, at the same time and by the
same means as such information is provided to members of the board.
2.6 Restrictions on Other Agreements. Except as provided in Section 4.8
and clause (a) of the definition of "Permitted Transfer" herein, no Stockholder
shall grant any proxy or enter into or agree to be bound by any voting trust or
voting agreement with respect to any Subject Securities nor shall any
Stockholder enter into any stockholders agreements or arrangements of any kind
with any Person with respect to any of the Subject Securities on terms which
conflict with the provisions of this Agreement (whether or not such agreements
and arrangements are with other Stockholders or holders of Common Stock
Equivalents that are not parties to this Agreement), including, but not limited
to, agreements or arrangements with respect to the acquisition, disposition or
voting of Subject Securities inconsistent herewith.
2.7 Stockholder Action. Each Stockholder agrees that, in such
Stockholder's capacity as a stockholder of the Company, such Stockholder shall,
subject to delivery of the Sale
<PAGE>
-19-
Request pursuant to Section 2.3 hereof, vote, or grant proxies relating to the
Common Stock at the time held by such Stockholder to vote, all of such
Stockholder's Common Stock in favor of any sale or exchange of securities of the
Company or any merger, consolidation or other business combination or any
similar transaction pursuant to Section 2.3 hereof (other than a transaction
with an Affiliate) if, and to the extent that, approval of the Company's
stockholders is required in order to effect such transaction.
ARTICLE 3
Registration Rights
3.1 General. For purposes of this Article 3: (a) the terms "register",
"registered" and "registration" refer to a registration effected by preparing
and filing a registration statement on Form S-1, S-2 or S-3 in compliance with
the 1933 Act and the declaration or ordering of effectiveness of such
registration statement; and (b) the term "Holder" means any Stockholder.
3.2 Demand and Piggyback Registration.
(a) Demand Registration of the UBS Holders and PPM/ReliaStar
Holders.
(i) Demand Registration of the UBS Holders.
(A) UBS Holders' Demand Right.
Subject to the provisions of this Agreement
(including Sections 3.2(b) and 3.9 hereof),
at any time after the Public Float Date,
upon the written request of any UBS Holders
requesting that the Company effect the
registration under the 1933 Act of
Registrable Securities, which request shall
specify in reasonable detail the number of
Registrable Securities to be registered and
the intended method of distribution thereof,
the Company shall use its reasonable
commercial efforts to register under the
1933 Act (a "Demand Registration") the
Registrable Securities which the Company has
been requested to register by such UBS
Holders, all to the extent requisite to
permit the disposition of such Registrable
Securities in accordance with the plan of
distribution set forth in the applicable
registration statement. In the case of such
Demand Registration, such UBS Holders must
request registration of Registrable
Securities representing not less than such
number of Registrable Securities the
expected gross proceeds of which, on the
date of the aforementioned written request,
would equal at least $5 million unless such
registration request is for all remaining
Registrable Securities held by such UBS
Holders.
(B) Registration Statement Form. Any
Demand Registration under this Section shall
be on Form S-3, if and to the
<PAGE>
-20-
extent that the Company is eligible under
the 1933 Act to use such form at the time of
the written request for such Demand
Registration.
(ii) Demand Registration of the PPM/ReliaStar
Holders.
(A) PPM/ReliaStar Holders' Demand
Right. Subject to the provisions of this
Agreement (including Sections 3.2(b) and 3.9
hereof), at any time after one (1) year
after the Public Float Date, upon the
written request of any PPM/ReliaStar Holders
requesting that the Company effect the
registration under the 1933 Act of
Registrable Securities, which request shall
specify in reasonable detail the number of
Registrable Securities to be registered, the
Company shall use its reasonable commercial
efforts to effect a Demand Registration of
the Registrable Securities which the Company
has been requested to register by such
PPM/ReliaStar Holders, all to the extent
reasonably requisite to permit the
disposition of the Registrable Securities in
accordance with an at the market offering of
the Registrable Securities. In the case of
such Demand Registration, such PPM/ReliaStar
Holders must request registration of
Registrable Securities representing not less
than such number of Registrable Securities
the expected gross proceeds of which, on the
date of the aforementioned written request,
would equal at least $5 million unless such
registration request is for all remaining
Registrable Securities held by such
PPM/ReliaStar Holders.
(B) Registration Statement Form. Any
Demand Registration under this Section shall
be on Form S-3, if and to the extent that
the Company is eligible under the 1933 Act
to use such form at the time of the written
request for such Demand Registration.
(iii) Limitations on Demand Registrations.
Anything herein to the contrary
notwithstanding, the Company shall not be
required to effect more than (A) one (1)
Demand Registration pursuant to Section
3.2(a)(i) hereof or (B) one (1) Demand
Registration pursuant to Section 3.2(a)(ii)
hereof.
(iv) Effective Registration Statement. Except as
otherwise provided in Section 3.2(a)(vii)
hereof, a Demand Registration requested
pursuant to this Section 3.2(a) shall not be
deemed to have been effected (A) unless a
registration statement with respect thereto
has become effective, (B) if after it has
become effective, such registration is
materially interfered with by any stop
order, injunction or similar order or
requirement of the Commission or
<PAGE>
-21-
other governmental agency or court for any
reason not attributable to any UBS Holder
(in the case of a Demand Registration
pursuant to Section 3.2(a)(i) hereof) or any
PPM/ReliaStar Holder (in the case of a
Demand Registration pursuant to Section
3.2(a)(ii) hereof) and has not thereafter
become effective, or (C) if the conditions
to closing specified in the underwriting
agreement, if any, entered into in
connection with such registration are not
satisfied or waived, other than by reason of
a failure on the part of any UBS Holder (in
the case of a Demand Registration pursuant
to Section 3.2(a)(i) hereof) or any
PPM/ReliaStar Holder (in the case of a
Demand Registration pursuant to Section
3.2(a)(ii) hereof).
(v) Selection of Underwriters. In the case of
such a Demand Registration by UBS Holders
pursuant to Section 3.2(a)(i)(A) hereof, the
selection of any managing and other
underwriter(s) shall be made by the Company,
with the consent of UBS Capital (which
consent shall not be unreasonably withheld).
(vi) Certain Requirements in Connection with
Registration Rights. In the case of such
Demand Registration by UBS Holders pursuant
to Section 3.2(a)(i) hereof, if the Holder
has determined to enter into one or more
underwriting agreements in connection
therewith, no Person may participate in such
Demand Registration unless such Person
agrees to sell his or its securities on the
basis provided in the underwriting
arrangements and completes all
questionnaires, powers of attorney,
indemnities, underwriting agreements and
other documents which are reasonable and
customary under the circumstances.
(vii) Certain Other Matters. Should a Demand
Registration not become effective due to the
failure of any of the UBS Holders (in the
case of a Demand Registration pursuant to
Section 3.2(a)(i) hereof) or any of the
PPM/ReliaStar Holders (in the case of a
Demand Registration pursuant to Section
3.2(a)(ii) hereof) requesting such Demand
Registration to perform its obligations
under this Agreement or the inability of
such UBS Holders (in the case of a Demand
Registration pursuant to Section 3.2(a)(i)
hereof) to reach agreement with the
underwriters on price or other customary
terms for such transaction, or in the event
such UBS Holders (in the case of a Demand
Registration pursuant to Section 3.2(a)(i)
hereof) or such PPM/ReliaStar Holders (in
the case of a Demand Registration pursuant
to Section 3.2(a)(ii) hereof) withdraw or do
not pursue the request for such Demand
Registration (in any of the foregoing cases,
provided that at such time the Company is in
compliance in all material respects with
<PAGE>
-22-
its obligations under this Agreement), then
such Demand Registration shall be deemed to
have been effected.
(viii) Shelf Registration. The Company shall be
permitted to satisfy its obligations under
this Section 3.2(a) by filing (if and to the
extent that the Company is eligible to do so
at the time of the written request for any
Demand Registration) a "shelf" registration
statement on Form S-3 (or any successor form
thereto that may be adopted by the SEC)
pursuant to Rule 415 under the 1933 Act (or
any successor rule thereto that may be
adopted by the SEC) (a"Shelf Registration"),
or amending a previously filed Shelf
Registration by the Company under the 1933
Act, so that such Shelf Registration shall
permit the disposition (in accordance with
the intended methods of disposition
specified for the Registrable Securities to
be included in such Demand Registration) of
all of the Registrable Securities for which
a request for registration has been made
under this Section 3.2(a).
(b) Piggyback Registration. If at any time the Company
determines to register any Public Offering of any of the Common Stock
Equivalents for the account of any JWC Holder under the 1933 Act in connection
with the public offering of such securities or pursuant to a request for a
Demand Registration pursuant to Section 3.2(a) hereof, the Company shall, at
each such time, promptly give each Holder written notice of such determination
no later than 30 days before its intended filing with the SEC. Upon the written
request of any Holder received by the Company within 10 days after the giving of
any such notice by the Company, the Company shall use all commercially
reasonable efforts to cause to be registered under the 1933 Act all of the
Registrable Securities of such Holder that such Holder has requested be
registered. If the total amount of Registrable Securities that are to be
included by the Company in such registration exceeds the amount of securities
that the underwriters reasonably believe compatible with the success of the
offering, then the Company will include in such registration only the number of
securities which in the opinion of such underwriters can be sold, in the
following order:
(i) first, all securities of the Company to be
offered for the account of the Company; and
(ii) second, the Registrable Securities, pro rata
based on the number of Registrable
Securities held by each Holder seeking to
have Registrable Securities included in such
registration (including any UBS Holders and
PPM/ReliaStar Holders seeking to have
Registrable Securities included in such
registration pursuant to a Demand
Registration requested under Section 3.2(a)
hereof).
<PAGE>
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3.3 Obligations of the Company.
(a) Whenever required under Section 3.2 hereof to use all
commercially reasonable efforts to effect the registration of Registrable
Securities, the Company shall:
(i) prepare and file with the SEC a registration
statement with respect to such Registrable
Securities and use all commercially
reasonable efforts to cause such
registration statement to become and remain
(for a period of 90 days after the effective
date of such registration statement (unless
all securities covered by such registration
statement are sooner disposed of))
effective, including, without limitation,
filing of post-effective amendments and
supplements to any registration statement or
prospectus necessary to keep the
registration statement current; provided,
however, that if the Company shall furnish
to Holders requesting a Demand Registration
pursuant to Section 3.2(a) hereof a
certificate signed by the Chairman of the
Board or the President of the Company
stating that, in the good faith judgment of
the Board of Directors of the Company, it
would be seriously detrimental to the
Company and its stockholders for such
registration statement to be filed because
such registration would require premature
disclosure of any acquisition, corporate
reorganization, proposed public offering or
other material transaction involving the
Company and that it is therefore essential
to defer taking action with respect to the
filing of such registration statement, then
the Company may direct that the Demand
Registration be delayed for a period not to
exceed one hundred eighty (180) days in the
aggregate;
(ii) as expeditiously as reasonably possible,
prepare and file with the SEC such
amendments and supplements to such
registration statement and the prospectus
used in connection with such registration
statement as may be necessary to comply with
the provisions of the 1933 Act with respect
to the disposition of all securities covered
by such registration statement and to keep
each registration and qualification under
this Agreement effective (and in compliance
with the 1933 Act) by such actions as may be
necessary or appropriate for a period of 90
days after the effective date of such
registration statement (unless all
securities covered by such registration
statement are sooner disposed of), all as
requested by such Holder or Holders;
(iii) as expeditiously as reasonably possible
furnish to the Holders such numbers of
copies of a prospectus, including a
preliminary prospectus, in conformity with
the requirements of the 1933 Act, and such
other documents as they may reasonably
request in
<PAGE>
-24-
order to facilitate the disposition of
Registrable Securities owned by them in
accordance with the plan of distribution
provided for in such registration statement;
(iv) as expeditiously as reasonably possible use
all commercially reasonable efforts to
register and qualify the securities covered
by such registration statement under such
securities or "blue sky" laws of such
jurisdictions as shall be reasonably
appropriate for the distribution of the
securities covered by the registration
statement, provided that the Company shall
not be required in connection therewith or
as a condition thereto to qualify to do
business, subject itself to taxation, or to
file a general consent to service of process
in any such jurisdiction, and further
provided that (anything in this Agreement to
the contrary notwithstanding with respect to
the bearing of expenses) if any jurisdiction
in which the securities shall be qualified
shall require that expenses incurred in
connection with the qualification of the
securities in that jurisdiction be borne by
selling stockholders, then such expenses
shall be payable by selling stockholders pro
rata, to the extent required by such
jurisdiction;
(v) notify each seller of Registrable Securities
covered by such registration statement, at
any time when a prospectus relating thereto
is required to be delivered under the 1933
Act, upon discovery that, or upon the
happening of any event as a result of which,
the prospectus included in such registration
statement, as then in effect, includes an
untrue statement of a material fact or omits
to state any material fact required to be
stated therein or necessary to make the
statements therein not misleading in the
light of the circumstances under which they
were made (each Holder hereby covenanting
that, upon receipt of any such notice, it
shall forthwith cease using any such
prospectus unless and until it shall have
received from the Company a supplement to or
amendment of such prospectus as hereinafter
referred to in this Section 3.3(a)(v)), and
at the request of any such seller or Holder
promptly prepare to furnish to such seller
or Holder a reasonable number of copies of a
supplement to or an amendment of such
prospectus as may be necessary so that, as
thereafter delivered to the purchasers of
such securities, such prospectus shall not
include an untrue statement of a material
fact or omit to state a material fact
required to be stated therein or necessary
to make the statements therein not
misleading in the light of the circumstances
under which they were made;
(vi) otherwise use all commercially reasonable
efforts to comply with all applicable rules
and regulations of the SEC, and make
<PAGE>
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available to its security holders, as soon
as reasonably practicable, an earnings
statement covering the period of at least 12
months but not more than 18 months,
beginning with the first full calendar month
after the effective date of such
registration statement, which earnings
statement shall satisfy the provisions of
Section 11(a) of the 1933 Act, and will
furnish to each such seller at least 2
Business Days prior to the filing thereof a
copy of any amendment or supplement to such
registration statement or prospectus and
shall not file any thereof to which any such
seller shall have reasonably objected,
except to the extent required by law, on the
grounds that such amendment or supplement
does not comply in all material respects
with the requirements of the 1933 Act or of
the rules or regulations thereunder;
(vii) provide and cause to be maintained a
transfer agent and registrar for all
Registrable Securities covered by such
registration statement from and after a date
not later than the effective date of such
registration statement; and
(viii) use all commercially reasonable efforts to
list all Registrable Securities covered by
such registration statement on any
securities exchange on which any class of
Registrable Securities is then listed.
(b) The Company will furnish to each Holder on whose behalf
Registrable Securities have been registered pursuant to this Agreement a signed
counterpart, addressed to such Holder, of (i) an opinion of counsel for the
Company dated the effective date of such registration statement, and (ii) a
so-called "cold comfort" letter signed by the independent public accountants who
have certified the Company's financial statements included in such registration
statement, and such opinion of counsel and accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in connection with underwritten public offerings of securities.
(c) If the Company at any time proposes to register any of its
securities under the 1933 Act subject to the piggyback registration rights of
the Holders under Section 3.2(b) hereof or pursuant to a Demand Registration
under Section 3.2(a) hereof, and such securities are to be distributed by or
through one or more underwriters, then the Company will make reasonable efforts,
if requested by any Holder of Registrable Securities who requests registration
of Registrable Securities in connection therewith pursuant to Section 3.2
hereof, to arrange for such underwriters to include such Registrable Securities
among the securities to be distributed by or through such underwriters.
(d) In connection with the preparation and filing of each
registration statement registering Registrable Securities under this Agreement,
the Company will give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be so registered and
<PAGE>
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their underwriters, if any, and their respective counsel and accountants the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the SEC, and each amendment
thereof or supplement thereto, and will give each of them such access to its
books and records and such opportunities to discuss the business of the Company
with its officers, its counsel and the independent public accountants who have
certified its financial statements, as shall be reasonably necessary, in the
opinion of such Holders or such underwriters or their respective counsel, in
order to conduct a reasonable and diligent investigation within the meaning of
the 1933 Act. Without limiting the foregoing, each registration statement,
prospectus, amendment, supplement or any other document filed with respect to a
registration under this Agreement shall be subject to review and reasonable
approval by the Holders registering Registrable Securities in such registration
and by their counsel.
3.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Article 3 that
each Holder shall furnish to the Company such information regarding such Holder,
the Registrable Securities held by such Holder, and the intended method of
disposition of such securities as the Company shall reasonably request and as
shall be required in connection with the action to be taken by the Company.
3.5 Expenses of Registration. All expenses incurred in connection with
a registration pursuant to Section 3.2 hereof (excluding underwriters' discounts
and commissions, which shall be borne by the Holders), including without
limitation all registration and qualification fees, printers' and accounting
fees, fees and disbursements of counsel for the Company, and the reasonable fees
and disbursements of one counsel for the selling Holders (which counsel shall be
selected by the holders of a majority of the Registrable Securities to be
included in such registration) shall be borne by the Company.
3.6 Underwriting Requirements. In connection with any registration of
Registrable Securities under this Agreement, the Holders shall, if requested by
the Company or the underwriters for any Registrable Securities included in such
registration, enter into an underwriting agreement with such underwriters for
such offering, such agreement to contain such representations and warranties by
the Company and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, provisions relating to indemnification and contribution
provided, that no Holder shall be required to make any representations or
warranties, or provide any indemnity, with respect to any matter other than (a)
such Holder's ownership of his or its Subject Securities to be sold or
transferred free and clear of all liens, claims and encumbrances and (b)
information regarding such Holder appearing in the registration statement,
preliminary or final prospectus or amendments or supplements thereto that has
been provided in writing by such Holder. The Holders on whose behalf Registrable
Securities are to be distributed by such underwriters shall be parties to any
such underwriting agreement, and the representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of such
underwriters shall be also made to and for the benefit of such Holders of
Registrable Securities. Such underwriting agreement shall comply with Section
3.7.
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3.7 Indemnification. In the event any Registrable Securities are
included in a registration statement pursuant to this Article 3:
(a) To the fullest extent permitted by law, the Company will
indemnify and hold harmless each Holder joining in a registration, any
underwriter (as defined in the 1933 Act) for it, and each Person, if any, who
controls such Holder or such underwriter within the meaning of the 1933 Act,
from and against any losses, claims, damages, expenses (including reasonable
attorneys' fees and expenses and reasonable costs of investigation) or
liabilities, joint or several, to which they or any of them may become subject
under the 1933 Act or otherwise, insofar as such losses, claims, damages,
expenses or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based on any untrue or
alleged untrue statement of any material fact contained in such registration
statement including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements made therein not
misleading in light of the circumstances under which they were made or arise out
of any violation by the Company of any rule or regulation promulgated under the
1933 Act applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, provided that the
indemnity agreement contained in this Section 3.7(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable to anyone for any
such loss claim, damage, liability or action to the extent that it arises out of
or is based upon an untrue statement or omission made in connection with such
registration statement, preliminary prospectus, final prospectus or amendments
or supplements thereto in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Holder, underwriter or control person. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Holder, underwriter or control person and shall survive the transfer of such
securities by such Holder.
(b) To the fullest extent permitted by law, each Holder
joining in a registration shall indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the registration statement,
each Person, if any, who controls the Company within the meaning of the 1933
Act, and each agent and any underwriter for the Company and any Person who
controls any such agent or underwriter and each other Holder and any Person who
controls such Holder (within the meaning of the 1933 Act) against any losses,
claims, damages or liabilities to which the Company or any such director,
officer, control person, agent, underwriter or other Holder may become subject,
under the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon an untrue statement of any
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or omission was made in such registration
statement,
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preliminary or final prospectus, or amendments or supplements thereto, in
reliance upon and in conformity with written information furnished by such
Holder with respect to such Holder expressly for use in connection with such
registration, and such Holder shall reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, control
person, agent, underwriter or other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action, provided that the
indemnity obligation of each such Holder hereunder shall be limited to and shall
not exceed the proceeds actually received by such Holder upon a sale of
Registrable Securities pursuant to a registration statement hereunder, and
provided, further that the indemnity agreement contained in this Section 3.7(b)
shall not apply to amounts paid in settlements effected without the consent of
such Holder (which consent shall not be unreasonably withheld). Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any such director, officer, Holder, underwriter or
control person and shall survive the transfer of such securities by such Holder.
(c) Any Person seeking indemnification under this Section 3.7
will (i) give prompt notice to the indemnifying party of any claim with respect
to which it seeks indemnification, but the failure to give such notice will not
affect the right to indemnification hereunder (except to the extent the
indemnifying party is prejudiced by such failure), and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest may exist between
such indemnified and indemnifying parties with respect to such claim, permit
such indemnifying party, and other indemnifying parties similarly situated,
jointly to assume the defense of such claim with counsel reasonably satisfactory
to the parties. In the event that the indemnifying parties cannot mutually agree
as to the selection of counsel, each indemnifying party may retain separate
counsel to act on its behalf and at its expense. The indemnified party shall in
all events be entitled to participate in such defense at its expense through its
own counsel. If such defense is not assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the reasonable fees and expenses of such additional counsel.
(d) If for any reason the foregoing indemnification is
unavailable to any party or insufficient to hold it harmless as and to the
extent contemplated by the preceding paragraphs of this Section 3.7, then each
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage expense or liability
in such proportion as is appropriate to reflect the relative benefits received
by the Company, on the one hand, and the applicable indemnified party, as the
case may be, on the
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other hand, and also the relative fault of the Company and any applicable
indemnified party, as the case may be, as well as any other relevant equitable
considerations.
3.8 Rule 144. With a view to making available to the Holders and their
transferees the benefits of Rule 144 and Rule 144A under the 1933 Act and any
other rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration, the Company agrees
to use all commercially reasonable efforts to take all action that may be
required as a condition to the availability after a Public Offering of Rule 144,
Rule 144A or such other rules or regulations, including without limitation to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times subsequent to 90 days after
the effective date of the first registration statement covering an underwritten
public offering filed by the Company;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act
(including, without limitation, under Section 13 or Section 15 of the 1934 Act);
and
(c) furnish to any Holder forthwith upon request a written
statement by the Company that it has complied with the reporting requirements of
Rule 144 (at any time after 90 days after the effective date of said first
registration statement filed by the Company), and of the 1933 Act and the 1934
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC permitting
the selling of any such securities without registration.
3.9 Market Stand-Off Agreement. Each Stockholder agrees not to sell or
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company at the time held by such Stockholder (other than securities included in
the applicable registration statement or shares purchased in the public market
after the effective date of registration) or any interest or future interest
therein during the 15-day period prior to and such period (not to exceed 180
days) as is mutually acceptable to a majority in interest of Stockholders and
the underwriter following the effective date of the registration statement of
the Company filed under the 1933 Act which includes securities of the Company to
be sold to the public in an underwritten offer.
ARTICLE 4
Certain Miscellaneous Other Provisions
4.1 Remedies. The parties to this Agreement acknowledge and agree that
the covenants of the Company and the Stockholders set forth in this Agreement
may be enforced in equity by a decree requiring specific performance. Without
limiting the foregoing, if any dispute arises concerning the sale or other
disposition of any of the securities of the Company subject to this Agreement or
concerning any other provisions hereof or the obligations of the parties
hereunder, the parties to this Agreement agree that an injunction may be issued
in
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connection therewith. Such remedies shall be cumulative and non-exclusive and
shall be in addition to any other rights and remedies the parties may have under
this Agreement or otherwise.
4.2 Entire Agreement; Amendment; Termination.
(a) This Agreement sets forth the entire understanding of the
parties, amends in part and restates in its entirety the Stockholders Agreement,
dated as of November 26, 1997, among the Company, the JWC Holders, the
Management Holders and the Other Holders party thereto, and supersedes all other
agreements and all other arrangements and communications, whether oral or
written, with respect to the subject matter hereof.
(b) The Schedule of Stockholders may be amended in writing by
the Company to reflect changes in the composition of the Stockholders and
changes in their addresses or telecopy numbers that may occur from time to time
as a result of Permitted Transfers, Transfers permitted under Article 2 hereof
or issuances contemplated by Section 4.12. Amendments to the Schedule of
Stockholders reflecting Permitted Transfers, Transfers permitted under Article 2
hereof or issuances contemplated by Section 4.12 shall become effective when the
amended Schedule of Stockholders, and a copy of this Agreement as executed by
any new transferee or other new party hereto in accordance with Section 4.12,
are filed with the Company. Upon written request of any Stockholder, the Company
will promptly provide to such Stockholder a copy of the Schedule of Stockholders
as in effect at the date of such request therefor.
(c) Any other amendment to this Agreement shall be in writing
and shall require the written consent of (i) the Company, (ii) either the JWC
Representative or the holders of a majority of Common Stock Equivalents at the
time held by the JWC Holders, (iii) if adverse to the interests of the
Stockholder Group comprised of the Other Holders, (A) the holders of a majority
of the Common Stock Equivalents at the time held by the Other Holders, (B) the
holders of a majority of the Common Stock Equivalents at the time held by the
UBS Holders, and (C) the holders of a majority of the Common Stock Equivalents
at the time held by the PPM/ReliaStar Holders, and (iv) if adverse to the
interests of a particular Stockholder or any Stockholder Group (other than the
Stockholder Group comprised of the Other Holders), that Stockholder or the
holders of a majority of the Common Stock Equivalents at the time held by that
Stockholder Group, as the case may be.
(d) Notwithstanding the foregoing provisions of this Section
4.2, this Agreement may be terminated at any time upon the written consent of
(i) the Company and (ii) the holders of a majority of the Common Stock
Equivalents at the time held by the Management Holders, the Other Holders, the
UBS Holders, the PPM/ReliaStar Holders and the JWC Holders (or the JWC
Representative), each voting separately as a group; provided that the provisions
of Sections 3.7 and 4.20 shall survive any termination of this Agreement.
4.3 Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if the invalid or
unenforceable provision were omitted.
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4.4 Notices. All notices, consents and other communications required,
or contemplated under this Agreement shall be in writing and shall be delivered
in the manner specified herein or, in the absence of such specification, shall
be deemed to have been duly given (i) three (3) Business Days after mailing by
first class certified mail, postage prepaid, (ii) when delivered by hand, (iii)
upon confirmation of receipt by telecopy, or (iv) one day after sending by
overnight delivery service, to the respective addresses of the parties set forth
below:
For notices and communications to the Company:
c/o J.W. Childs Associates, L.P.
One Federal Street
Boston, MA 02110
Attention: John W. Childs
Telecopy: 617-753-1101
with a copy to:
Desa International, Inc.
2701 Industrial Drive
Bowling Green, KY 42102
Attention: President
Telecopy: 502-781-9807
For notices and communications to the Stockholders, to the
respective addresses set forth in the Schedule of
Stockholders.
With a copy in the case of the JWC Holders to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attention: Christopher Cabot, Esq.
Telecopy: 617-338-2880
By notice complying with the foregoing provisions of this Section 4.4, each
party shall have the right to change the mailing address or telecopy number for
future notices and communications to such party.
4.5 Binding Effect; Assignment. This Agreement shall binding upon and
inure to the benefit of the parties hereto and to their respective transferees,
successors, assigns, heirs and administrators, provided that the rights under
this Agreement may not be assigned except as expressly provided herein. No such
assignment shall relieve an assignor of its obligations hereunder.
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4.6 Termination. Without affecting any other provision of this
Agreement requiring termination of any rights in favor of any Stockholder,
Permitted Transferee or any other transferee of Subject Securities, the
provisions of Articles 2 and 3 (other than Section 3.7, which in any event shall
survive any termination of this Agreement or the termination of this Agreement
as to any Stockholder, Permitted Transferee or other transferee when such
Stockholder, Permitted Transferee or other transferee no longer owns any Subject
Securities) and Sections 4.17, 4.18 and 4.19 of this Agreement shall terminate
as to such Stockholder, Permitted Transferee or other transferee, when, pursuant
to and in accordance with this Agreement, such Stockholder, Permitted Transferee
or other transferee, as the case may be, no longer owns any Subject Securities.
4.7 Recapitalizations, Exchanges, etc. The provisions of this Agreement
shall apply, to the full extent set forth herein with respect to Common Stock
Equivalents and to any and all shares of capital stock of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Common Stock Equivalents, by reason of a stock dividend,
stock split, stock issuance, reverse stock split, combination, recapitalization,
reclassification, merger, consolidation or otherwise. Upon the occurrence of any
such events, amounts hereunder shall be appropriately adjusted.
4.8 JWC Representative.
(a) Each JWC Holder hereby designates and appoints (and each
Permitted Transferee of each such JWC Holder shall be deemed to have so
designated and appointed) John W. Childs and Adam L. Suttin, and each of them
acting singly, with full power of substitution (the "JWC Representative"), the
representative of each such Person to perform all such acts as are required,
authorized or contemplated by this Agreement to be performed by any such Person
and hereby acknowledges that the JWC Representative shall be the only Person
authorized to take any action so required, authorized or contemplated by this
Agreement by each such Person. Each such Person further acknowledges that the
foregoing appointment and designation shall be deemed to be coupled with an
interest and shall survive the death or incapacity of such Person. Each such
Person hereby authorizes (and each Permitted Transferee shall be deemed to have
authorized) the other parties hereto to disregard any notice or other action
taken by such Person pursuant to this Agreement except for the JWC
Representative. The other parties hereto are and will be entitled to rely on any
action so taken or any notice given by the JWC Representative and are and will
be entitled and authorized to give notices only to the JWC Representative for
any notice contemplated by this Agreement to be given to any such Person. A
successor to the JWC Representative may be chosen by the holders of a majority
of the Common Stock Equivalents at the time held by the JWC Holders, provided
that written notice thereof is given by the successor JWC Representative to the
Company, the Other Holders, the Management Holders and the other JWC Holders.
(b) Each of the JWC Holders agrees to be bound by all of the
provisions of paragraph 3.07 of the First Amended and Restated Agreement of
Limited Partnership of J.W. Childs Equity Partners, L.P. dated as of December
20, 1995 (the "JWC Equity Partners Agreement") including without limitation, the
provisions of paragraph 3.07(b) thereof, and
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further agrees to be bound by the confidentiality provisions set forth in
paragraph 14.08 of the JWC Equity Partners Agreement as if such JWC Holder were
a limited partner under the JWC Equity Partners Agreement.
4.9 Action Necessary to Effectuate the Agreement. The parties hereto
agree to take or cause to be taken all such corporate and other action as may be
necessary to effect the intent and purposes of this Agreement.
4.10 Purchase for Investment; Legend on Certificate. Each Stockholder
acknowledges that all of the securities of the Company held by such Stockholder
are being (or have been) acquired for investment and not with a view to the
distribution thereof and that no transfer, hypothecation or assignment of any
such securities (including the Common Stock for which such securities may be
exercisable or exchangeable or into which such securities may be convertible)
may be made except in compliance with applicable federal and state securities
laws. All the certificates or other instruments representing any of such
securities (including the Common Stock for which such securities may be
exercisable or exchangeable or into which such securities may be convertible)
which are now or hereafter held by any Stockholder shall be subject to the terms
of this Agreement and shall have endorsed in writing, stamped or printed,
thereon either of the following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF AN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
DATED AS OF OCTOBER 9, 1998, AS AMENDED FROM TIME TO TIME, A COPY OF
WHICH IS ON FILE WITH AND AVAILABLE FROM THE SECRETARY OF THE COMPANY."
or
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
PROVISIONS REGARDING THE VOTING OF SUCH SECURITIES AND CERTAIN TRANSFER
RESTRICTIONS SET FORTH IN THE AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT DATED AS OF OCTOBER 9, 1998, AS AMENDED FROM TIME TO TIME, A
COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES."
4.11 Effectiveness of Transfers. Any Subject Securities transferred by
a Stockholder (other than pursuant to an effective registration statement under
the 1933 Act or a Rule 144 Transaction) shall be held by the transferee thereof
pursuant to this Agreement. Such transferee shall, except as otherwise expressly
stated herein, have all the rights and be subject to all of the obligations of a
Stockholder under this Agreement automatically and without requiring any further
act by such transferee or by any parties to this Agreement. Without affecting
the preceding sentence, if such transferee is not a Stockholder on the dates of
such transfer, then such transferee, as a condition to such transfer, shall
confirm such transferee's obligations hereunder in accordance with Section 4.12
hereof. No Subject Securities shall be
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transferred on the Company's books and records, and no transfer of thereof shall
be otherwise effective, unless any such transfer is made in accordance with the
terms and conditions of this Agreement, and the Company is hereby authorized by
all of the Stockholders to enter appropriate stop transfer notations on its
transfer records to give effect to this Agreement.
4.12 Additional Stockholders. Any Person acquiring any Subject
Securities (except for any acquisition thereof (a) in an offering registered
under the 1933 Act or (b) in a Rule 144 Transaction) shall on or before the
transfer or issuance to it of such Subject Securities, sign a counterpart
signature page hereto in form reasonably satisfactory to the Company and the JWC
Representative and shall thereby become a party to this Agreement; provided that
a transferee which is a pledgee and within the definition of a Permitted
Transferee shall not be obligated so to agree until foreclosure on its pledge.
The Company shall require each Person acquiring any restricted stock under a
restricted stock plan or an option, warrant or other right to purchase shares of
Common Stock under any option or other equity participation plan to execute a
counterpart signature page hereto as a JWC Holder, a Management Holder or Other
Holder, as may be appropriate.
4.13 No Waiver. No course of dealing and no delay on the part of any
party hereto in exercising any right, power or remedy conferred by this
Agreement shall operate as a waiver thereof or otherwise prejudice such party's
rights, powers and remedies. No single or partial exercise of any rights, powers
or remedies conferred by this Agreement shall preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
4.14 Counterparts. This Agreement may be executed in two or more
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same instrument, and all signatures need not appear
on any one counterpart.
4.15 Headings, etc. All headings and captions in this Agreement are for
purposes of references only and shall not be construed to limit or affect the
substance of this Agreement. Words used in this Agreement, regardless of the
gender and number used, will be deemed and construed to include any other
gender, masculine, feminine, or neuter, and any other number, singular or
plural, as the context requires. As used in this Agreement, the words
"including", "includes" and "included" are not limiting, and the word "or" is
not exclusive. The words "this Agreement", "hereto", "herein", "hereunder",
"hereof", and words or phrases of similar import refer to this Agreement as a
whole, together with any and all Schedules and Exhibits hereto, and not to any
particular article, section, subsection, paragraph, clause or other portion of
this Agreement.
4.16 Governing Law. This Agreement shall be construed under and
governed by the substantive and procedural laws of the State of Delaware
applicable to a contract executed in and wholly performed within Delaware.
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4.17 Preemptive Right Provisions. The Company hereby agrees, so long as
both (i) the Preemptive Stockholders hold any Common Stock Equivalents, and (ii)
a Public Offering shall not have occurred, as follows:
(a) Preemptive Rights. Except as otherwise provided in Section
4.17(b) hereof, if the Company proposes to issue or sell in an offering any
shares of its capital stock or any security convertible into, exchangeable or
exercisable for or having rights to purchase any shares of capital stock of the
Company (the "Company Securities") to any person, the Company shall deliver to
the Preemptive Stockholders at the time holding any Subject Securities at least
20 days' prior written notice in respect of such proposed offering (the
"Preemptive Rights Notice") stating its desire to issue or sell such Company
Securities. The Preemptive Rights Notice must specify the class of and the
amount of such Company Securities that the Company desires so to issue or sell
in such proposed offering and the price, payment terms and other material terms
and conditions at and on which it is willing to sell such Company Securities and
the material terms, provisions and conditions of such Company Securities. Within
10 days after the Company's delivery of a Preemptive Rights Notice in respect of
a proposed offering (the "Election Period"), each Preemptive Stockholder at the
time holding any Subject Securities shall have the right to elect to purchase,
at the designated offering price and on other terms and conditions specified in
the Preemptive Rights Notice, and in the priority and amounts specified below in
this Section 4.17(a), such Company Securities as follows:
(i) First, solely in the case of Company
Securities which are not Junior Securities
(as hereinafter defined), so long as any
PPM/ReliaStar Holder shall hold any of the
Preferred Securities (such a holder being
hereinafter sometimes referred to as a
"PPM/ReliaStar Preferred Holder"), such
PPM/ReliaStar Preferred Holder shall have
the right to acquire up to its pro rata
portion of such Company Securities (based on
the respective holdings of Preferred
Securities, at the time of the Preemptive
Rights Notice, of each PPM/ReliaStar
Preferred Holder electing to exercise its
preemptive rights under this Section
4.17(a)(i) in respect of such Company
Securities); provided that, notwithstanding
anything to the contrary contained herein,
if the PPM/ReliaStar Preferred Holders do
not exercise their preemptive rights with
respect to all of such Company Securities
pursuant to this Section 4.17(a)(i), then
this Section 4.17(a)(i) shall cease to apply
to such Company Securities and the
PPM/ReliaStar Preferred Holders shall not be
entitled to acquire any of such Company
Securities (other than in their respective
capacities as a Stockholder pursuant to
Section 4.17(a)(ii) hereof); and
(ii) Second, in the case of Company Securities
(A) which are Junior Securities or (B) in
respect of which Section 4.17(a)(i) hereof
shall cease to apply pursuant to the proviso
contained in said
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Section 4.17(a)(i), each Preemptive
Stockholder shall have the right to acquire
up to that number of such Company Securities
so that, after giving effect to such
purchase, such Preemptive Stockholder shall
continue to maintain in the aggregate his,
her or its same proportionate ownership of
Common Stock Equivalents of the Company as
of the date of the Preemptive Rights Notice.
For purposes of determining the ownership of
Common Stock Equivalents of the Company as
of the date of the Preemptive Rights Notice
under the preceding sentence, each holder
(including but not limited to each
Stockholder) of Vested Options shall be
treated as though he, she or it had fully
converted, exchanged or exercised all Vested
Options at the time held by him, her or it
at the then existing conversion, exchange or
exercise price or ratio.
Each Preemptive Stockholder at the time holding any Subject Securities may
exercise his, her or its rights under this Section 4.17(a) solely by delivering
a notice to the Company during the Election Period. Should such Preemptive
Stockholder elect to purchase any such Company Securities pursuant to this
Section 4.17(a), such Preemptive Stockholder shall purchase such Company
Securities at the closing and on the closing date set forth in the Preemptive
Rights Notice. The provisions of this Section 4.17(a) shall apply similarly to
successive proposed offerings by the Company of Company Securities.
(b) Exclusions. The provisions of Section 4.17(a) hereof shall
not apply to the issuance or sale of (i) Junior Securities issued or issuable to
officers, directors or employees of the Company or any subsidiary of the Company
who are not affiliated with J.W. Childs Associates, L.P., (ii) shares of capital
stock of the Company Securities issued or issuable upon the exercise, exchange
or conversion of any Company Security or other securities, options, warrants and
other rights issued by the Company and outstanding as of the date hereof, after
giving effect to the closing of certain transactions that are closing
concurrently with the issuance of the Subject Securities pursuant to this
Agreement, (iii) Company Securities issued or issuable in connection with any
pro rata stock split, stock dividend or recapitalization by or reorganization of
the Company, (iv) Company Securities issued or issuable as a pro rata dividend
on the Common Stock, (v) Company Securities issued or issuable by the Company in
connection with and as consideration for the acquisition of another business or
entity by the Company or any of its subsidiaries, (vi) shares of Series C
Preferred Stock issued or issuable as a pro rata dividend on the Series C
Preferred Stock and (vii) Company Securities issued or issuable to any person or
entity who (A) is neither an Affiliate of JWC Equity Partners nor a financial
buyer and (B) is either (I) directly or indirectly through its subsidiaries a
significant actual or prospective supplier of goods to or customer of the
Company or any of its subsidiaries, to whom such Company Securities are issued
or issuable for the purpose of establishing or enhancing the business
relationship between such supplier or customer and the Company and its
subsidiaries or (II) engaged in, and having a principal business unit engaged
in, manufacturing or marketing tools, specialty tools, decorative, indoor,
outdoor or other heating products, lighting products, security products, home
improvement or decorative products or other accessories or products for the
home.
<PAGE>
-37-
(c) For purposes of this Section 4.17, the term "Junior
Security" shall mean (i) any shares of the Voting Common Stock and the Nonvoting
Common Stock of the Company and any other class or series of stock of the
Company which, by the terms of the Certificate of Incorporation of the Company
or of the instrument by which the Board of Directors of the Company, acting
pursuant to authority granted in such Certificate of Incorporation, shall fix
the relative rights, preferences and limitations thereof, shall be junior to the
Series C Preferred Stock in respect of the right to receive dividends or to
participate in any distribution of assets (including but not limited to any
distribution of assets in connection with the liquidation of the Company) other
than by way of dividends, and (ii) any options or warrants or similar securities
or rights to acquire from the Company any securities described in clause (i) of
this definition.
4.18 Transactions with Affiliates. Other than the Management Agreement
and other agreements entered into on or prior to the date hereof and arms-length
agreements entered into in the ordinary course of business after the date hereof
on terms no less favorable to the Company than would be available in agreements
entered into with Persons who are not Affiliates of JWC Equity Partners, the
Company shall not enter into any transaction with any Affiliate of JWC Equity
Partners without the consent of the holders of a majority of the Common Stock
Equivalents at the time held in the aggregate by the Management Holders and the
Other Holders, unless such transaction shall (a) have been approved by a
majority of the directors of the Company who are not affiliated or associated
with JWC Equity Partners and (b) be on terms no less favorable to the Company
than would be available in agreements entered into with Persons who are not
Affiliates of JWC Equity Partners.
4.19 Certain Covenants of the Company. The Company hereby agrees, for
the benefit of the UBS Holders, the HMTF Holders and the PPM/ReliaStar Holders
for so long as the Public Float Date shall not have occurred, the Company will
comply with and will cause its subsidiaries to comply with the following
covenants:
(a) Annual Statements. As soon as available and in any event
within 90 days after the close of each fiscal year of the Company ending after
the date of this Agreement, the Company will deliver to each of UBS Capital,
HMTF Inc., PPM America, Inc. and ReliaStar Financial Corp. a balance sheet of
the Company and its subsidiaries and statements of income and of cash flows of
the Company and its subsidiaries, audited by any "big six" independent public
accounting firm selected by the Company (or other independent public accounting
firm selected by the Company and reasonably acceptable to the UBS Holders and
the HMTF Holders), showing the financial position of the Company and its
subsidiaries as of the close of such fiscal year and the results of the
operations of the Company and its subsidiaries during such fiscal year, all on a
consolidated basis. Each of the financial statements delivered pursuant to this
Section 4.19(a) will be accompanied by a report, without material qualification,
of such accounting firm to the effect that such financial statements have been
prepared, except as may be otherwise noted therein, in accordance with generally
accepted accounting principles consistently applied.
<PAGE>
-38-
(b) Monthly Statements. Within 30 days after the end of each
of the first eleven months in each fiscal year of the Company, the Company will
deliver to each of UBS Capital, HMTF Inc., PPM America, Inc. and ReliaStar
Financial Corp. a consolidated unaudited balance sheet of the Company and its
subsidiaries and statements of income and of cash flows of the Company and its
subsidiaries as of the end of each such month, all on a consolidated basis, with
(i) a comparison of such month's results to the budgeted results for such month
and to the corresponding month of the prior fiscal year and, (ii) a comparison
of the results for the period from the beginning of the then current fiscal year
to the end of such month to the budgeted results for such period and to the
corresponding period of the prior fiscal year, certified by the chief financial
officer of the Company to be true and correct in all material respects and to
have been prepared, except as may be otherwise noted therein, in accordance with
generally accepted accounting principles consistently applied, subject to normal
year-end adjustments and the addition of footnotes.
(c) Other Financial Information. The Company will deliver to
each of UBS Capital, HMTF Inc., PPM America, Inc. and ReliaStar Financial Corp.,
within 90 days after the commencement of each fiscal year, projected monthly
balance sheets and statements of income for such fiscal year prepared by
management of the Company.
(d) Notice of Litigation, Defaults, Etc. The Company will
promptly give notice to each of UBS Capital, HMTF Inc., PPM America, Inc. and
ReliaStar Financial Corp. of any litigation or administrative proceeding to
which the Company or any of its subsidiaries may hereafter become a party which
has or, in the good faith business judgment of senior management of the Company,
is reasonably likely to have a material adverse effect on the business, assets
or financial condition of the Company and its subsidiaries, taken as a whole.
Promptly upon any executive officer of the Company obtaining knowledge of any
default with respect to indebtedness for borrowed money involving in excess of
$25,000,000 in principal amount, the Company will furnish a notice to each of
UBS Capital, HMTF Inc., PPM America, Inc. and ReliaStar Financial Corp.
specifying the nature and period of existence and the action the Company or any
of its subsidiaries has taken, is taking or proposes to take with respect
thereto. Promptly after the receipt thereof, the Company will provide each of
UBS Capital, HMTF Inc., PPM America, Inc. and ReliaStar Financial Corp. copies
of any reports as to adequacies in accounting controls submitted by independent
accountants with respect to the Company and its subsidiaries.
(e) Other Information. From time to time upon the written
request of UBS Capital, HMTF Inc., PPM America, Inc. or ReliaStar Financial
Corp., the Company will furnish such information regarding the business,
affairs, prospects and financial condition of the Company and its subsidiaries
as the representatives of any UBS Holder or HMTF Holder or PPM/ReliaStar Holder
may reasonably request; provided that, upon the request and as a condition to
the delivery of such information, each of the UBS Holders, HMTF Holders and the
PPM/ReliaStar Holders who is to receive such information shall execute and
deliver a confidentiality and nondisclosure agreement in form and substance
reasonably satisfactory to the Company. Each such representative shall have the
right during normal business hours to examine the financial books and records,
and the certificate of incorporation, bylaws, minutes of meetings of
stockholders, boards of directors and committees thereof, stockholders records
<PAGE>
-39-
and similar corporate records, of the Company and its subsidiaries and to make
copies, notes and abstracts therefrom, all at such reasonable times and
intervals as such UBS Holder or HMTF Holder or PPM/ReliaStar Holder may
reasonably request.
4.20 Confidentiality Covenant.
(a) Each of the UBS Holders, the HMTF Holders and the
PPM/ReliaStar Holders agrees to keep confidential any information or materials
provided by or on behalf of the Company hereunder, except (i) as may be
otherwise required by law and (ii) such information and materials as (A) are or
become generally available to the public other than as a result of a disclosure
in violation of this Agreement, (B) was independently acquired or developed by
such Stockholder without violating any of its obligations under this Agreement,
or (C) becomes available to such Stockholder on a nonconfidential basis from a
person who is not and was not to such Stockholder's knowledge bound by a
confidentiality obligation to the Company, or is not and was not otherwise
prohibited from transmitting such information or materials to such Stockholder.
Notwithstanding the foregoing, each of the UBS Holders, the HMTF Holders and the
PPM/ReliaStar Holders shall have the right to disclose such information or
materials to any prospective purchaser of securities of the Company owned by
such Stockholder, provided that such prospective purchaser shall have executed
and delivered a confidentiality and nondisclosure agreement in form and
substance reasonably satisfactory to the Company.
(b) Each of the UBS Holders, HMTF Holders and the
PPM/ReliaStar Holders acknowledges that securities laws prohibit any person who
has received material non-public information regarding the Company or its
subsidiaries from purchasing or selling securities of the Company or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities. Each of the UBS Holders, HMTF Holders and the PPM/ReliaStar Holders
agrees that it will not, at any time that it has received material non-public
information regarding the Company or its subsidiaries, purchase or sell
securities of the Company in violation of such securities laws or communicate
such information to any other person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell such
securities in violation of such securities laws.
4.21 Restatement of Stockholders Agreement. This Agreement amends in
part and restates in its entirety the Stockholders Agreement, dated as of
November 26, 1997, among the Company, the JWC Holders, the Management Holders
and the Other Holders party thereto.
[Signatures on Following Pages]
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE COMPANY:
DESA HOLDINGS CORPORATION
By:/s/____________________________
Name:
Title:
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE MANAGEMENT HOLDERS:
/s/ Robert H. Elman
Robert H. Elman
/s/ Terry G. Scariot
Terry G. Scariot
/s/ John M. Kelly
John M. Kelly
/s/ Blaine Chickering
Blaine Chickering
/s/ Donald W. Denton
Donald W. Denton
/s/ Jake Miller
Jake Miller
/s/ Scott M. Nehm
Scott M. Nehm
/s/ Edward G. Patrick
Edward G. Patrick
/s/ Jeffrey Polofsky
Jeffrey Polofsky
/s/ Ralph Pratt
Ralph Pratt
/s/ Douglas D. Rohrer
Douglas D. Rohrer
/s/ Sue Walker
Sue Walker
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE MANAGEMENT HOLDERS, continued:
/s/ David Keown
David Keown
/s/ George Johnson
George Johnson
/s/ Greg Becker
Greg Becker
/s/ Dennis Cornett
Dennis Cornett
/s/ Boyd Jeffries
Boyd Jeffries
/s/ Joe Lee
Joe Lee
/s/ Steve Marcum
Steve Marcum
/s/ Marilyn Parrigin
Marilyn Parrigin
/s/ Gary Sanders
Gary Sanders
/s/ Scott Slater
Scott Slater
/s/ John Barrett
John Barrett
/s/ Doug Smith
Doug Smith
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE MANAGEMENT HOLDERS, continued:
/s/ Dan Waters
Dan Waters
/s/ Richard Willey
Richard Willey
/s/ Doug Green
Doug Green
/s/ Mike Head
Mike Head
/s/ Marty Mozingo
Marty Mozingo
/s/ Nick Noble
Nick Noble
/s/ Sarah Perry
Sarah Perry
/s/ Ivan Shelburne
Ivan Shelburne
/s/ Kirk Weber
Kirk Weber
/s/ Tony James
Tony James
/s/ Steve Manning
Steve Manning
/s/ John Thomas
John Thomas
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE MANAGEMENT HOLDERS, continued:
/s/ Emmet Roche
Emmet Roche
/s/ Brad Jensen
Brad Jensen
/s/ Gary McGriff
Gary McGriff
/s/ Wai Shing Ko
Wai Shing Ko
/s/ Thomas Harris
Thomas Harris
/s/ Joseph Bulhoes
Joseph Bulhoes
/s/ Mark J. Elman
Mark J. Elman
/s/ Valerie N. Elman
Valerie N. Elman
/s/ Wendy J. Elman
Wendy J. Elman
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE JWC HOLDERS:
/s/ John W. Childs
John W. Childs
/s/ Jerry D. Horn /s/ Steven G. Segal
Jerry D. Horn Steven G. Segal
/s/ Raymond B. Rudy /s/ Lambros J. Lambros
Raymond B. Rudy Lambros J. Lambros
/s/ Adam L. Suttin /s/ Glenn A. Hopkins
Adam L. Suttin Glenn A. Hopkins
By executing above, each of the foregoing JWC Holders acknowledges
that, pursuant to Section 4.8 of this Amended and Restated Stockholders
Agreement, each of the foregoing JWC Holders has designated and appointed John
W. Childs and Adam L. Suttin, and each of them acting singly, as its
representative to perform all acts as are required, authorized or contemplated
by this Amended and Restated Stockholders Agreement.
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE JWC HOLDERS, continued:
/s/ Richard S. Childs /s/ James E. Childs
Richard S. Childs James E. Childs
/s/ Edward D. Yun /s/ Dana L. Schmaltz
Edward D. Yun Dana L. Schmaltz
STEVEN G. SEGAL 1995 SGS-III FAMILY LIMITED PARTNERSHIP
IRREVOCABLE TRUST
By:/s/_____________________ By:/s/______________________
Title: Title:
SUTTIN FAMILY TRUST SGS 1995 FAMILY
LIMITED PARTNERSHIP
By:/s/_____________________ By:/s/_____________________
Title: Title:
By executing above, each of the foregoing JWC Holders acknowledges
that, pursuant to Section 4.8 of this Amended and Restated Stockholders
Agreement, each of the foregoing JWC Holders has designated and appointed John
W. Childs and Adam L. Suttin, and each of them acting singly, as its
representative to perform all acts as are required, authorized or contemplated
by this Amended and Restated Stockholders Agreement.
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE JWC HOLDERS, continued:
OFS INVESTMENT PARTNERS BOCK FAMILY TRUST
By:/s/_________________________ By:/s/________________________
Title: Title:
/s/James T. McKitrick /s/G. Dean Longnecker
James T. McKitrick G. Dean Longnecker
By executing above, each of the foregoing JWC Holders acknowledges
that, pursuant to Section 4.8 of this Amended and Restated Stockholders
Agreement, each of the foregoing JWC Holders has designated and appointed John
W. Childs and Adam L. Suttin, and each of them acting singly, as its
representative to perform all acts as are required, authorized or contemplated
by this Amended and Restated Stockholders Agreement.
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE JWC HOLDERS, continued:
J.W. CHILDS EQUITY PARTNERS, L.P.
By: J.W. Childs Advisors, L.P.,
its General Partner
By: J.W. Childs Associates, L.P.,
its General Partner
By: J.W. Childs Associates, Inc.,
its General Partner
By:/s/____________________________
Title:
JWC EQUITY FUNDING, INC.
By:/s/____________________________
Name:
Title:
By executing above, each of the foregoing JWC Holders acknowledges
that, pursuant to Section 4.8 of this Amended and Restated Stockholders
Agreement, each of the foregoing JWC Holders has designated and appointed John
W. Childs and Adam L. Suttin, and each of them acting singly, as its
representative to perform all acts as are required, authorized or contemplated
by this Amended and Restated Stockholders Agreement.
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE JWC HOLDERS, continued:
/s/Mario E. Soussou
Mario E. Soussou
By executing above, each of the foregoing JWC Holders acknowledges
that, pursuant to Section 4.8 of this Amended and Restated Stockholders
Agreement, each of the foregoing JWC Holders has designated and appointed John
W. Childs and Adam L. Suttin, and each of them acting singly, as its
representative to perform all acts as are required, authorized or contemplated
by this Amended and Restated Stockholders Agreement.
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE JWC HOLDERS, continued:
ISABELLE M. SOUSSOU TRUST
By:/s/Mario E. Soussou
Mario E. Soussou, Trustee
MARIELLA Z. SOUSSOU TRUST
By:/s/Mario E. Soussou
Mario E. Soussou, Trustee
By executing above, each of the foregoing JWC Holders acknowledges
that, pursuant to Section 4.8 of this Amended and Restated Stockholders
Agreement, each of the foregoing JWC Holders has designated and appointed John
W. Childs and Adam L. Suttin, and each of them acting singly, as its
representative to perform all acts as are required, authorized or contemplated
by this Amended and Restated Stockholders Agreement.
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE OTHER HOLDERS:
THE UBS HOLDERS:
UBS Capital LLC
By:/s/_________________________
Title:
By:/s/_________________________
Title:
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE OTHER HOLDERS, continued:
THE HMTF HOLDERS:
CCC/OMNI INVESTMENT
PARTNERS, L.P.
By:/s/________________________
Title:
JDF FAMILY TRUST
By:/s/________________________
Title:
/s/Thomas O. Hicks
Thomas O. Hicks
HICKS, MUSE, TATE & FURST EQUITY
FUND II, L.P.
By: HM2/GP PARTNERS, L.P., its
general partner
By: HICKS, MUSE GP PARTNERS, L.P.,
its general partner
By: HICKS MUSE FUND II,
INCORPORATED, its
general partner
By:/s/________________________
Title:
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE OTHER HOLDERS, continued:
THE HMTF HOLDERS, continued:
/s/James N. Mills
James N. Mills
/s/John R. Muse
John R. Muse
MUSE CHILDREN GS TRUST
By:/s/_________________________
Title:
/s/Charles W. Tate
Charles W. Tate
/s/Michael D. Salim
Michael D. Salim
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE OTHER HOLDERS, continued:
THE HMTF HOLDERS, continued:
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE OTHER HOLDERS, continued:
THE PPM/RELIASTAR HOLDERS:
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: PPM America, Inc., as attorney in fact,
on behalf of Jackson National Life
Insurance Company
By:/s/______________________________
Title:
OLD HICKORY FUND I, LLC
By: PPM America, Inc., its manager
By:/s/______________________________
Title:
RELIASTAR FINANCIAL CORP.
By:/s/________________________
Title:
<PAGE>
Desa Holdings Corporation
Amended and Restated Stockholders Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE OTHER HOLDERS, continued:
CERTAIN OTHER OTHER HOLDERS:
BT INVESTMENT PARTNERS, INC.
By:/s/_________________________
Name:
Title:
<PAGE>
EXHIBIT A
SCHEDULE OF STOCKHOLDERS
As of October 9, 1998
[Schedule of stockholders has not been
included and is available upon request]
<PAGE>
EXHIBIT B
SCHEDULE OF PREEMPTIVE STOCKHOLDERS
[Schedule of preemptive stockholders has not been
included and is available upon request]
EXHIBIT 10.2
DESA HOLDINGS CORPORATION
PURCHASE AGREEMENT
17,400.17827 Shares of Series C
12% Senior Redeemable Exchangeable
Pay-In-Kind Stock
Warrants to Purchase 260,212
Shares of Common Stock
638,693 Shares of Common Stock
DATED October 9, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
Section 1. Authorization and Closing.......................................................................1
1.01 Authorization of Securities............................................................1
1.02 Purchase and Sale of the Series C Preferred, Warrants, and the
Voting Common..........................................................................1
1.03 The Closing............................................................................2
Section 2. Conditions of Each Purchaser's Obligation at the Closing........................................2
2.01 Representations and Warranties; Covenants..............................................2
2.02 Stockholders Agreement.................................................................2
2.03 Tagalong Agreement.....................................................................2
2.04 Sale of Purchased Securities to Each Purchaser.........................................3
2.05 Securities Law Compliance..............................................................3
2.06 Senior Documents.......................................................................3
2.07 Opinion of the Company's Counsel.......................................................3
2.08 Closing Documents......................................................................3
2.09 Proceedings............................................................................4
2.10 Expenses...............................................................................4
2.11 Compliance with Applicable Laws........................................................4
2.12 Waiver.................................................................................4
Section 3. Covenants.......................................................................................5
3.01 Financial Statements and Other Information.............................................5
3.02 Inspection of Property.................................................................7
3.03 Attendance at Board Meetings...........................................................7
3.04 Affirmative Covenants..................................................................8
3.05 Series C Preferred and Exchange Note Covenants.........................................9
3.06 Allocation of the Purchase Price......................................................19
3.07 Current Public Information............................................................19
Section 4. Transfer of Purchased Securities...............................................................19
4.01 General Provisions....................................................................19
4.02 Rule 144A.............................................................................19
4.03 Legend Removal........................................................................19
Section 5. Representations and Warranties of the Company..................................................20
5.01 Organization, Corporate Power and Licenses............................................20
5.02 Capital Stock and Related Matters.....................................................20
5.03 Series C Preferred, Warrants, Warrant Stock and Common Stock..........................21
- i -
<PAGE>
Page
5.04 Subsidiaries; Investments.............................................................21
5.05 Authorization; No Breach..............................................................22
5.06 Financial Statements..................................................................22
5.07 Absence of Undisclosed Liabilities....................................................23
5.08 No Material Adverse Change............................................................23
5.09 Absence of Certain Developments.......................................................23
5.10 Tax Matters...........................................................................24
5.11 Contracts and Commitments.............................................................25
5.12 Intellectual Property Rights..........................................................26
5.13 Litigation, etc.......................................................................26
5.14 Brokerage.............................................................................26
5.15 Governmental Consent, etc.............................................................27
5.16 Insurance.............................................................................27
5.17 Employees.............................................................................27
5.18 Compliance with Laws..................................................................27
5.19 Affiliated Transactions...............................................................27
5.20 Disclosure............................................................................28
5.21 Knowledge.............................................................................28
Section 6. Representations and Warranties of Sellers......................................................28
6.01 Organization and Good Standing........................................................28
6.02 Execution of Agreement................................................................28
6.03 Authorization; No Breach..............................................................28
6.04 Ownership of Purchased Securities.....................................................29
Section 7. Representations and Warranties of Purchasers...................................................29
7.01 Purchaser's Investment Representations................................................29
7.02 Organization and Good Standing........................................................29
7.03 Execution of Agreement................................................................29
7.04 Authorization; No Breach..............................................................29
Section 8. Definitions....................................................................................30
8.01 Definitions...........................................................................30
Section 9. Miscellaneous..................................................................................33
9.01 Expenses..............................................................................33
9.02 Remedies..............................................................................34
9.03 Legend................................................................................34
9.04 Consent to Amendments.................................................................34
9.05 Survival of Representations and Warranties............................................34
9.06 Treatment of the Preferred Stock......................................................35
- ii -
<PAGE>
Page
9.07 Successors and Assigns................................................................35
9.08 Capital and Surplus; Special Reserves.................................................35
9.09 Severability..........................................................................35
9.10 Counterparts..........................................................................35
9.11 Descriptive Headings; Interpretation..................................................35
9.12 Governing Law.........................................................................36
9.13 Notices...............................................................................36
9.14 No Strict Construction................................................................36
9.15 Indemnification.......................................................................36
</TABLE>
- iii -
<PAGE>
DESA HOLDINGS CORPORATION
PURCHASE AGREEMENT
THIS AGREEMENT is made as of October 9, 1998, by and among JWC
Equity Funding, Inc. ("JWC"), and UBS Capital LLC ("UBS") (UBS and JWC
collectively, "Sellers"), and the Persons listed on the Schedule of Purchasers
attached hereto (collectively referred to herein as the "Purchasers" and
individually as a "Purchaser") and Desa Holdings Corporation (the "Company").
Except as otherwise indicated herein, capitalized terms used herein are defined
in Section 7 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
1.01 Authorization of Securities.
The Company has issued to Sellers an aggregate of 18,849.84110
shares of Series C 12% Senior Redeemable Exchangeable Pay-In-Kind Preferred
Stock (the "Series C Preferred") of which 17,600 shares were issued as part of
the recapitalization of the Company on November 26, 1997, and the balance of
which shares were issued to Sellers as a paid-in-kind dividend as of June 30,
1998.
Together with the Series C Preferred purchased as part of the
recapitalization, the Sellers also acquired warrants to purchase an aggregate of
463,231.9468 shares of the nonvoting common stock, par value $.01 per share, of
the Company. Through purchases in the recapitalization and subsequent
transactions, the Sellers also hold an aggregate of 3,986,995.9831 shares of the
common stock, par value $.01 per share, of the Company (the "Voting Common").
1.02 Purchase and Sale of the Series C Preferred, Warrants,
and the Voting Common. Subject to the terms and conditions set forth in this
Agreement, and in reliance on the representations and warranties contained
herein, at the Closing, Sellers shall sell, transfer, assign and deliver to each
Purchaser and, each Purchaser shall purchase from Sellers the number of shares
of Series C Preferred and Voting Common, along with warrants to purchase the
number of warrant shares of the non-voting common stock, par value $.01 per
share, of the Company set forth opposite such Purchaser's name on the Schedule
of Purchasers attached hereto (the "Original Purchased Securities"). In
consideration for the Original Purchased Securities, Purchasers shall pay to
Sellers the purchase price set forth opposite such Purchaser's name on the
Schedule of Purchasers on the Closing Date (the "Purchase Price"). Each purchase
of Original Purchased Securities hereunder by a Purchaser constitutes a separate
purchase and each Purchaser and each Seller shall not be jointly or otherwise
responsible for any Original Purchased Securities not set forth opposite such
Purchaser's and Seller's name on the Schedule of Purchasers and Sellers attached
hereto. At the Closing (as defined herein), the Company agrees to issue to each
Purchaser warrants, in the form of Exhibit A (the "Warrants"), to purchase
shares of Voting Stock (the "Warrant Shares") as set forth
<PAGE>
opposite such Purchaser's name on the Schedule of Purchasers and Sellers
attached hereto, in exchange for the warrants purchased by the Purchasers from
the Sellers herein (the Original Purchased Securities plus the Warrants to
Purchase Warrant Shares, collectively, the "Purchased Securities").
1.03 The Closing. Subject to satisfaction of the conditions
and upon the terms hereunder, the closing of the separate purchases and sales of
the Purchased Securities (the "Closing") shall take place at 10:00 a.m. (C.S.T.)
on October 9, 1998, or at such other place or on such other date as may be
mutually agreeable to each Purchaser. At the Closing, each Seller shall deliver
stock certificates and warrants evidencing the Original Purchased Securities
being sold by such Seller, together with instruments of transfer duly endorsed,
and the Company shall deliver to each Purchaser stock certificates and warrants
evidencing the Original Purchased Securities to be purchased by such Purchaser,
registered in such Purchaser's or its nominee's name, upon payment of the
Purchase Price thereof by wire transfer of immediately available funds to
accounts specified by the Sellers to the Purchasers in writing prior to the
Closing, in the aggregate amount set forth opposite such Purchaser's name on the
Schedule of Purchasers.
At the Closing, the Company will deliver to the Purchasers the
Warrants, registered in such Purchaser's or its nominee's name, as set forth
opposite such Purchaser's name on the Schedule of Purchasers and Sellers
attached hereto, against delivery to the Company by the Purchasers of the
warrants purchased by them herein.
Section 2. Conditions of Each Purchaser's Obligation at the Closing. In
the event that any of the following conditions are not satisfied, then no
Purchaser shall be obligated to proceed with the purchase of the Purchased
Securities. The obligation of each Purchaser to purchase and pay for the
Purchased Securities at the Closing is subject to the satisfaction as of the
Closing of the following conditions:
2.01 Representations and Warranties; Covenants. The
representations and warranties contained in Section 5 and Section 6 hereof shall
be true and correct in all material respects at and as of the Closing as though
then made, except to the extent of changes caused by the transactions expressly
contemplated herein, and Sellers and the Company shall have performed in all
material respects all of the covenants required to be performed by such party
hereunder prior to the Closing.
2.02 Stockholders Agreement. The Company, the Purchasers,
Sellers and each other holder of capital stock of the Company shall have entered
into an Amended and Restated Stockholders Agreement in form and substance as set
forth in Exhibit B attached hereto (the "Amended Stockholders Agreement"), and
the Amended Stockholders Agreement shall be in full force and effect as of the
Closing without further amendment or modification.
2.03 Tagalong Agreement. The Company, J.W. Childs Equity
Partners, L.P. and the Purchasers shall have entered into a Preferred Stock
Tagalong Agreement in form and substance
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<PAGE>
as set forth in Exhibit C attached hereto (the "Preferred Tagalong Agreement"),
and the Preferred Tagalong Agreement shall be in full force and effect as of the
Closing without further amendment or modification.
2.04 Sale of Purchased Securities to Each Purchaser. Sellers
shall have simultaneously sold to each Purchaser the Purchased Securities to be
purchased by such Purchaser hereunder at the Closing and shall have received
payment therefor in full.
2.05 Securities Law Compliance. Sellers and the Company shall
have made all filings under all applicable federal and state securities laws
necessary to consummate the sale of the Purchased Securities pursuant to this
Agreement in compliance with such laws.
2.06 Senior Documents. The Company shall be in compliance in
all material respects with each and every provision of the Senior Credit
Facility and the Senior Subordinated Note Indenture.
2.07 Opinion of the Company's Counsel. Each Purchaser shall
have received from Sullivan & Worcester LLP, counsel for JWC and the Company, an
opinion addressed to each Purchaser, dated the date of the Closing that is in
form and substance as set forth in Exhibit D hereto.
2.08 Closing Documents. (i) At or before the Closing, JWC
shall have delivered to each Purchaser all of the following documents:
(a) an Officer's Certificate (or equivalent
document), dated the date of the Closing, certifying its
compliance with the conditions specified in Sections 2.01 and
2.05;
(b) certified copies of the resolutions duly adopted
by its board of directors (or equivalent body) authorizing the
execution, delivery and performance of this Agreement and each
of the other agreements and documents contemplated hereby; and
(c) such other documents relating to the transactions
contemplated hereby as any Purchaser or its special counsel
may reasonably request.
(ii) at or before the Closing, UBS shall have delivered to
each Purchaser all of the following documents:
(a) an Officer's Certificate (or equivalent
document), dated the date of the Closing, certifying its
compliance with the conditions specified in Sections 2.01 and
2.05;
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<PAGE>
(b) an Officer's Certificate (or equivalent document)
certifying that all limited liability company action required
to duly authorize the execution, delivery and performance of
this Agreement and each of the other agreements and documents
contemplated hereby by UBS has been taken; and
(c) such other documents relating to the transactions
contemplated hereby as any Purchaser or its special counsel
may reasonably request.
(iii) At or before the Closing, the Company shall have
delivered to each Purchaser all of the following documents:
(a) an Officer's Certificate, dated the date of the
Closing, certifying its compliance with the conditions
specified in Sections 2.01, 2.05 and 2.06;
(b) certified copies of the resolutions duly adopted
by the Company's board of directors authorizing the execution,
delivery and performance of this Agreement and each of the
other agreements and documents contemplated hereby;
(c) copies of all third party and governmental
consents, approvals and filings required in connection with
the consummation of the transactions hereunder (including,
without limitation, all blue sky law filings and waivers of
all preemptive rights and rights of first refusal); and
(d) such other documents relating to the transactions
contemplated hereby as any Purchaser or its special counsel
may reasonably request.
2.09 Proceedings. All corporate and other proceedings taken or
required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to each Purchaser and its special counsel.
2.10 Expenses. At the Closing, the Company shall have
reimbursed the Purchasers for the fees and expenses of their special counsel as
provided in Section 9.01 hereof.
2.11 Compliance with Applicable Laws. The purchase of
Purchased Securities by each Purchaser hereunder shall not be prohibited by any
applicable law or governmental rule or regulation and shall not subject such
Purchaser to any penalty, liability or, in such Purchaser's sole judgment, other
onerous condition under or pursuant to any applicable law or governmental rule
or regulation, and the purchase of the Purchased Securities by each Purchaser
hereunder shall be permitted by laws, rules and regulations of the jurisdictions
and governmental authorities and agencies to which such Purchaser is subject.
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<PAGE>
2.12 Waiver. Any condition specified in this Section 2 may be
waived if consented to by each Purchaser; provided that no such waiver shall be
effective against any Purchaser unless it is set forth in a writing executed by
such Purchaser.
Section 3. Covenants.
3.01 Financial Statements and Other Information. The Company
covenants that it shall deliver to each Purchaser (so long as such Purchaser
holds any Series C Preferred or Exchange Notes) and to each Holder of at least
10% of the outstanding shares of Series C Preferred or Exchange Notes:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period ending after the date hereof
(other than the last month of each fiscal year), unaudited consolidated
statements of income and cash flows of the Company and its Subsidiaries
for such monthly period and for the period from the beginning of the
fiscal year to the end of such month, and unaudited consolidated
balance sheets of the Company and its Subsidiaries as of the end of
such monthly period, setting forth in each case comparisons to the
Company's annual budget and to the corresponding period in the
preceding fiscal year, and all such statements shall, except as
otherwise noted therein, be prepared in accordance with generally
accepted accounting principles, consistently applied (subject to normal
year-end adjustments and the addition of footnotes) and shall be
certified by the Company's chief financial officer;
(ii) within 45 days after the end of each fiscal quarter
ending after the date hereof, an Officer's Certificate stating that
neither the Company nor any of its Subsidiaries is in default under any
of its agreements evidencing indebtedness in an amount greater than $10
million or, if any such default exists, specifying the nature and
period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;
(iii) within 90 days after the end of each fiscal year ending
after the date hereof, consolidated statements of income and cash flows
of the Company and its Subsidiaries for such fiscal year, and
consolidated balance sheets of the Company and its Subsidiaries as of
the end of such fiscal year, setting forth in each case comparisons to
the Company's annual budget and to the preceding fiscal year,
accompanied by a report, without material qualification, of an
independent accounting firm of recognized national standing to the
effect that such financial statements have been prepared, except as may
be otherwise noted therein, in accordance with generally accepted
accounting principles consistently applied; provided, however, that if
the Company is required to file a Form 10-K, delivery of a copy thereof
shall satisfy this Section 3.01(iii);
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<PAGE>
(iv) within 90 days after the commencement of each fiscal
year, projected monthly balance sheets and statements of income for
such fiscal year prepared by management of the Company;
(v) promptly upon the discovery thereof, notice of any
litigation or administrative proceeding to which the Company or any of
its subsidiaries shall have hereafter become a party which has or is
reasonably likely to have a material adverse effect on the business,
assets or financial condition of the Company and its subsidiaries taken
as a whole;
(vi) promptly upon any executive officer of the Company
obtaining knowledge of any default, on the part of the Company or any
of its Subsidiaries, with respect to indebtedness for borrowed money
involving in excess of $25,000,000 in principal amount, a notice
specifying the nature and period of existence and the action the
Company or any of its subsidiaries has taken, is taking or proposes to
take with respect thereto;
(vii) within ten days after transmission thereof, copies of
all financial statements, proxy statements, reports and any other
general written communications which the Company sends to its
stockholders and copies of all registration statements and all reports
on Form 10-K, 10-Q or 8-K (or such successor forms as may be adopted)
which it files with the Securities and Exchange Commission or with any
securities exchange on which any of its securities are then listed;
(viii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any
Person entitled to receive information under this Section 3.01 may
reasonably request.
The Company acknowledges that each of the financial statements referred to in
Section 3.01 shall be true and correct in all material respects as of the dates
and for the periods stated therein, subject in the case of the unaudited
financial statements to changes resulting from normal year-end adjustments.
Except as otherwise required by law or judicial order or decree or by any
governmental agency or authority, each Person entitled to receive information
regarding the Company and its Subsidiaries pursuant to this Agreement, including
without limitation, Sections 3.01, 3.02 and 3.03 hereof, agrees to keep
confidential the information obtained by it hereunder, except such information
and materials as (A) are or become generally available to the public other than
as a result of a disclosure in violation of this Agreement, (B) was
independently acquired or developed by such Person without violating any of its
obligations under this Agreement, or (C) becomes available to such Person on a
nonconfidential basis from a person who is not and was not to such Person's
knowledge bound by a confidentiality obligation to the Company, or is not and
was not otherwise prohibited from transmitting such information or materials to
such Person. Notwithstanding the foregoing, each of the Purchasers shall have
the right to disclose such information or materials to (i) any prospective
purchaser of Purchased Securities owned by such Purchaser; provided that such
prospective
- 6 -
<PAGE>
purchaser shall have executed and delivered a confidentiality and nondisclosure
agreement in form and substance reasonably satisfactory to the Company and (ii)
to such Purchaser's Affiliates, accountants, lawyers, bankers and other
professionals, as reasonably necessary and (iii) as required by applicable law.
Each of the Purchasers acknowledges that securities laws prohibit any person who
has received material non-public information regarding the Company or its
subsidiaries from purchasing or selling securities of the Company or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities. Each of the Purchasers agrees that it will not, at any time that it
has received material non-public information regarding the Company or its
subsidiaries, purchase or sell securities of the Company in violation of such
securities laws or communicate such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities in violation of such securities laws.
3.02 Inspection of Property. The Company covenants with each
Purchaser that, for so long as such Purchaser and its Affiliates hold in the
aggregate at least one quarter (1/4) of the number of shares (subject to
appropriate adjustment to reflect any split or combination of shares) of Series
C Preferred (or the equivalent in principal amount of Exchange Notes) originally
purchased by them hereunder, or, if earlier, until the Public Float Date (as
defined in the Amended Stockholders Agreement), the Company shall permit any
representatives who are designated by such Purchaser upon reasonable notice, at
reasonable intervals, and during normal business hours, at such Purchaser's
expense, to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
discuss the affairs, finances and accounts of the Company and its Subsidiaries
with the directors and executive officers and independent accountants of the
Company and its Subsidiaries; provided, however, that the right to discuss the
affairs, finances and accounts of the Company and its Subsidiaries with such
accountants shall exist only when the Company is not a reporting company under
the Securities Act of 1934. The presentation of an executed copy of this
Agreement by any Purchaser to the Company's independent accountants shall
constitute the Company's permission to its independent accountants to
participate in discussions with such Persons.
3.03 Attendance at Board Meetings. The Company covenants with
each Purchaser that, (i) for so long as such Purchaser and its Affiliates hold
in the aggregate at least one-quarter (1/4) of the number of shares (subject to
appropriate adjustment to reflect any split or combination of shares) of Series
C Preferred (or the equivalent in principal amount of Exchange Notes) originally
purchased by them hereunder, or, if earlier, until the Public Float Date (as
defined in the Amended Stockholders Agreement), and (ii) at any time, prior to
or after the Public Float Date, during which the right of the holders of Series
C Preferred to elect a director pursuant to Section 6(c) of the Certificate
shall have been suspended pursuant to Section 6(c)(v) of the Certificate and
during which such Purchaser or its Affiliates hold any shares of Series C
Preferred, the Company shall give such Purchaser notice of each meeting of its
board of directors and each committee thereof at the same
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<PAGE>
time and by the same means as such notice is provided to members of the board or
such committee, and the Company shall permit a single representative of such
Purchaser and its Affiliates to attend as an observer all meetings of its board
of directors and all committees thereof; and each such representative shall be
given the opportunity to listen to telephonic meetings. Any such representative
shall recuse himself or herself from any such meeting during the board of
directors' or the committee's discussions, deliberations and voting on matters
with respect to which the board of directors or the committee determines, in
good faith, such representative's presence presents a conflict of interest. Each
representative shall be entitled to receive all written materials and other
information (including, without limitation, copies of meeting minutes) given to
directors in connection with such meetings at the same time such materials and
information are given to the directors. If the Company takes any action by
written consent in lieu of a meeting of its board of directors or of any
committee thereof, the Company shall give a copy thereof to each such
representative promptly following the effective date of such consent.
3.04 Affirmative Covenants. The Company covenants with the
Holders that so long as any Series C Preferred or Exchange Notes remains
outstanding, the Company shall, and shall cause each Subsidiary to:
(i) cause to be done all things necessary to maintain,
preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its businesses
where failure to so comply would have a material adverse effect on the
financial condition, assets or business of the Company and its
Subsidiaries taken as a whole;
(ii) maintain and keep its properties in good repair, working
order and condition, and from time to time make all repairs, renewals
and replacements which in the reasonable opinion of the Company are
necessary, so that its businesses may be properly and advantageously
conducted at all times;
(iii) pay and discharge when payable all taxes, assessments
and governmental charges imposed upon its properties or upon the income
or profits therefrom (in each case before the same becomes delinquent
and before penalties accrue thereon) and all material claims for labor,
materials or supplies which if unpaid would by law become a Lien upon
any of its property unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on
its books with respect thereto;
(iv) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which would reasonably
be expected to have a material adverse effect upon the financial
condition, assets, or business of the Company and its Subsidiaries
taken as a whole;
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<PAGE>
(v) apply for and continue in force with good and responsible
insurance companies such types and amounts of insurance as the
Company's executive officers, after consultation with an accredited
insurance broker, shall have determined to be necessary or appropriate
to protect the Company from the insurable hazards or risks associated
with the conduct of the Company's business, except that the Company or
any Subsidiary may effect worker's compensation or similar insurance in
respect of operations in any state or other jurisdiction either through
an insurance fund operated by such state or other jurisdiction or by
causing to be maintained a system or systems of self-insurance which is
in accord with applicable laws;
(vi) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each case are required in accordance with
generally accepted accounting principles, consistently applied.
3.05 Series C Preferred and Exchange Note Covenants.
Notwithstanding anything to the contrary in the Certificate, including the
Exchange Note attached as Exhibit A to the Certificate, the Purchasers or
Holders (as designated) shall have additional and independent rights as set
forth in the following covenants:
(i) Payment Covenant. In addition to and without limiting in
any way the obligations of the Company under the Certificate or the
Exchange Notes, the Company covenants with the Purchasers that all
amounts actually paid after the date hereof in cash by the Company in
respect of the Series C Preferred or the Exchange Notes to any
Purchaser (or its Affiliates) shall be paid by wire transfer.
(ii) Notice Covenant. In addition to and without limiting in
any way the obligations of the Company set forth in Section 4(b)(i) of
the Certificate or Section 2.2(a) of the Exchange Note, the Company
covenants with the Holders that notice of Change of Control shall be
given to the holders of Series C Preferred or Exchange Notes not less
than thirty (30) days prior to such Change of Control, to the extent
the Company has knowledge of the matters to be set forth therein. Such
notice shall set forth, in addition to the statements described in
Sections 4(b)(i)(A), (B), and (C) of the Certificate or Sections
2.2(a)(i), (ii), and (iii) of the Exchange Note, the Company's
calculation and estimate of the amount of Cash Available for Redemption
as of the date of the Change of Control if any Senior Subordinated
Notes will remain outstanding after such Change of Control; provided,
however, that any failure to give or receive such notice or any defect
therein shall not affect the legality or validity or effectiveness of
any such Change of Control.
(iii) Repurchase Covenants. In addition to and without
limiting in any way the obligations of the Company under the
Certificate or the Exchange Notes, the Company covenants with the
Holders that, in the event of a Change of Control (as defined in the
Senior Subordinated Note Indenture), to the extent that the Company may
do so in compliance with
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<PAGE>
and without causing (with or without the lapse of time or the giving of
notice or both) a breach or violation of or default or event of default
under any law or any note, bond, debenture, indenture or other
agreement or instrument governing indebtedness for borrowed money of
the Company or Desa International, Inc. at the time applicable to the
Company or Desa International, Inc. (including, without limitation, the
Senior Subordinated Note Indenture, the Credit Agreement, dated as of
November 26, 1997, among Desa International, Inc., the Company, the
banks, financial institutions and other institutional lenders listed on
the signature pages thereof as the initial lenders, the initial issuing
bank and the swing line bank named therein, NationsBank, N.A., as
administrative agent, UBS Securities LLC as co- arranger and
documentation agent and NationsBanc Montgomery Securities, Inc. as co-
arranger and syndication agent, as amended and in effect from time to
time (the "Credit Agreement"), and any indentures, credit or loan
agreements hereafter executed in connection with any refinancing or
replacement of the Senior Subordinated Note Indenture or the Credit
Agreement):
(a) Offer to Repurchase.
(I) Initial Offer to Repurchase. Within 10
business days after a Change of Control (as defined
in the Senior Subordinated Note Indenture), the
Company shall, unless the Company shall have
theretofore given notice of either the optional
redemption by the Company of all of the outstanding
shares of Series C Preferred pursuant to Section
4(a)(i) of the Certificate or of all of the Exchange
Notes pursuant to Section 2.1 of the Exchange Notes,
make an Offer to Repurchase. On the Repurchase Date
specified in such Offer to Repurchase, the Company
shall (A) accept for payment the lesser of
(i) all of the shares of Series C
Preferred or Exchange Notes validly tendered
by each Holder thereof pursuant to such
Offer to Repurchase on or prior to the
Expiration Date for such Offer to Repurchase
and
(ii) such number of shares of Series
C Preferred or Exchange Notes held of record
by such Holder as shall equal the product of
(a) all of the shares of Series C Preferred
Stock or Exchange Notes validly tendered by
such Holder in accordance with such Offer to
Repurchase multiplied by (b) a fraction, the
numerator of which shall be equal to the
Cash Available for Repurchase, determined as
provided in this Section as of such
Repurchase Date, and the denominator of
which shall be equal to the aggregate of the
Repurchase Price, as of such Repurchase Date
for all of the shares of Series C Preferred
Stock or Exchange Notes so validly tendered
by Holders of Series C Preferred Stock or
Exchange Notes;
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<PAGE>
(B) pay to the Holders thereof the Repurchase Price
therefor in cash; (C) cancel and retire each
surrendered certificate representing shares of Series
C Preferred or Exchange Note validly tendered; and,
(D) in case fewer than all the shares represented by
any certificate validly tendered pursuant to such
Offer to Repurchase are to be repurchased, issue a
new certificate representing the remaining shares or,
in case less than all of the outstanding principal
amount of any Exchange Note validly tendered pursuant
to such Offer to Repurchase is to be repurchased, the
Company shall, at its option, either return to the
Holder thereof such Exchange Note with appropriate
notation of payment or issue a new Exchange Note or
Notes to such Holder in an aggregate principal amount
equal to the then unpaid principal amount hereof, in
either case without cost to the Holder hereof.
(II) Subsequent Offers to Repurchase. Within
10 business days after each June 30th and December
31st occurring at least three months after such
Change of Control (as defined in the Senior
Subordinated Note Indenture), unless none of the
Series C Preferred or Exchange Notes shall remain
outstanding, the Company shall make an Offer to
Repurchase. On the Repurchase Date specified in such
Offer to Repurchase, the Company shall (A) accept for
payment the lesser of
(i) all of the shares of Series C
Preferred or Exchange Notes validly tendered
by each Holder thereof pursuant to such
Offer to Repurchase on or prior to the
Expiration Date for Offer to Repurchase and
(ii) such number of shares of Series
C Preferred or Exchange Notes held of record
by such Holder as shall equal the product of
(a) all of the shares of Series C Preferred
Stock or Exchange Notes validly tendered by
such Holder in accordance with such Offer to
Repurchase multiplied by (b) a fraction, the
numerator of which shall be equal to the
Cash Available for Repurchase, determined as
provided in this Section as of such
Repurchase Date, and the denominator of
which shall be equal to the aggregate of the
Repurchase Price, as of such Repurchase
Date, for all of the shares of Series C
Preferred Stock or Exchange Notes validly
tendered by Holders of Series C Preferred
Stock or Exchange Notes;
(B) pay to the Holders thereof the Repurchase Price
therefor in cash; (C) cancel and retire each
surrendered certificate representing shares of Series
C Preferred or Exchange Note validly tendered; and,
(D) in case fewer than all the shares represented by
any certificate validly tendered pursuant to such
Offer to Repurchase are to be repurchased, issue a
new certificate
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<PAGE>
representing the remaining shares or, in case less
than all of the outstanding principal amount of any
Exchange Note validly tendered pursuant to such Offer
to Repurchase is to be repurchased, the Company
shall, at its option, either return to the Holder
thereof such Exchange Note with appropriate notation
of payment or issue a new Exchange Note or Notes to
such Holder in an aggregate principal amount equal to
the then unpaid principal amount hereof, in either
case without cost to the Holder hereof.
(III) The Company acknowledges and agrees
that notwithstanding anything to the contrary under
this Section 3.05(iii):
(A) if at any Repurchase Date for
any Offer to Repurchase (x) there is not in
force or effect any note, bond, debenture,
indenture or other agreement or instrument
governing indebtedness for borrowed money of
the Company or Desa International, Inc.
applicable to the Company or Desa
International, Inc. (including, without
limitation, the Senior Subordinated Note
Indenture and the Credit Agreement) or (y)
one or more notes, bonds, debentures,
indentures or other agreements or
instruments governing indebtedness for
borrowed money of the Company or Desa
International, Inc. is in force and effect,
but no such note, bond, debenture or other
agreement or instrument restricts or
prohibits the purchase, redemption or other
acquisition or retirement for value of the
Series C Preferred or Exchange Notes, then
in either case (x) or (y) the Company will
be obligated on and subject to the
provisions of this Section 3.05(iii) to
accept for payment the lesser of
(i) all of the shares of
Series C Preferred or Exchange Notes
validly tendered by each Holder
thereof pursuant to such Offer to
Repurchase on or prior to the
Expiration Date for such Offer to
Repurchase and
(ii) such number of shares
of Series C Preferred or Exchange
Notes held of record by such Holder
as shall equal the product of (a)
all of the shares of Series C
Preferred Stock or Exchange Notes
validly tendered by such Holder in
accordance with such Offer to
Repurchase multiplied by (b) a
fraction, the numerator of which
shall be equal to the maximum dollar
amount of shares of Series C
Preferred or the Exchange Notes that
the Company could, on such date,
purchase, redeem or otherwise
acquire or retire for value without
causing (with or without the lapse
of time or the giving of notice or
both) a breach or violation of or
default or
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<PAGE>
event of default under any law, and
the denominator of which shall be
equal to the aggregate of the
Repurchase Price, as of such
Repurchase Date, for all of the
shares of Series C Preferred Stock
or Exchange Notes validly tendered
by Holders of Series C Preferred
Stock or Exchange Notes; and
(IV) For purposes of this Section
3.05(iii)(a):
(A) "Cash Available for Repurchase"
shall mean, as of any date, the maximum
dollar amount of shares of Series C
Preferred or the Exchange Notes that the
Company could, on such date, purchase,
redeem or otherwise acquire or retire for
value without causing (with or without the
lapse of time or the giving of notice or
both) a breach or violation of or default or
event of default under any law or any note,
bond, debenture, indenture or other
agreement or instrument governing
indebtedness for borrowed money of the
Company or Desa International, Inc. at the
time applicable to the Company or Desa
International, Inc. (including, without
limitation, the Senior Subordinated Note
Indenture, the Credit Agreement and any
indentures, credit or loan agreements
hereafter executed in connection with any
refinancing or replacement of the Senior
Subordinated Note Indenture or the Credit
Agreement).
(B) "Offer to Repurchase" shall mean
a written offer to each registered Holder of
Series C Preferred or Exchange Notes at such
Holder's address appearing in the records of
the Company on the date of the Offer to
Repurchase, offering to purchase in cash all
outstanding shares of Series C Preferred or
Exchange Notes, on and subject to the terms
and provisions of this Section, at the
Repurchase Price, and unless otherwise
required by applicable law, each Offer to
Repurchase shall specify an expiration date
(the "Expiration Date") of such Offer to
Repurchase which shall be, subject to any
contrary requirements of applicable law, not
less than 30 days or more than 60 days after
the date of such Offer to Repurchase, and a
settlement date (the "Repurchase Date") for
purchase of the Series C Preferred or
Exchange Notes within five business days
after the Expiration Date, and shall (i)
include written notice of the occurrence of
such Change of Control, (ii) specify the
place at which certificates for shares of
Series C Preferred Stock or Exchange Notes
may be surrendered for repurchase pursuant
to such Offer to Repurchase and the
Expiration Date and Repurchase Date for such
Offer to Repurchase, (iii) set forth the
aggregate number of shares of Series C
Preferred or aggregate principal amount of
Exchange Notes outstanding at the date of
such
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<PAGE>
Offer to Repurchase, (iv) set forth the
Company's estimate of the amount of Cash
Available for Repurchase as of the date of
such Offer to Repurchase and calculation
thereof (to the extent applicable) and (v)
state that each Holder electing to tender
any shares of Series C Preferred or Exchange
Note pursuant to such Offer to Repurchase
will be required to surrender such the
certificate representing such shares or such
note at the place or places specified in
such Offer to Repurchase prior to the close
of business on the Expiration Date (such
certificate or note being, if the Company so
requires, duly endorsed by, or accompanied
by a written instrument of transfer in form
satisfactory to the Company duly executed
by, the Holder thereof or his attorney duly
authorized in writing).
(C) "Repurchase Price" shall mean,
as of any particular Repurchase Date, an
amount equal to, (i) in the case of any
share of Series C Preferred, as of any
particular Repurchase Date, the Liquidation
Value (as defined in the Certificate) of
such share of Series C Preferred Stock or,
(ii) in the case of any Exchange Note, as of
any particular Repurchase Date, the
outstanding principal amount of such
Exchange Note, without premium, but together
with all accrued and unpaid interest
thereon.
(V) Notwithstanding anything under Section
3.05 to the contrary, the Company acknowledges and
agrees that nothing in this Section 3.05 shall, or
shall be construed to, limit the Company's
obligations under this Section 3.05(iii) to
repurchase shares of Series C Preferred or Exchange
Notes by reason of the amount of cash or cash
equivalents held by the Company or Desa
International, Inc. on any Repurchase Date or the
undrawn amount available to the Company or Desa
International, Inc. as of any Repurchase Date under
any credit or loan agreements, as amended and in
effect from time to time, to which the Company or
Desa International, Inc.
may be a party as borrower.
(iv) Remedies Covenant. In addition to any remedies set forth
in the Certificate and Exchange Note but subject to Section 6(c)(v) of
the Certificate, the Purchasers shall have the right to pursue all
remedies at law or equity for any failure to redeem Series C Preferred
or Exchange Note in accordance with the Certificate or Exchange Note
and this Agreement.
(v) Voting Covenants.
In addition to and without limiting in any way the obligations
of the Company under the Certificate or the Exchange Note, the Company covenants
with the Holders that the Company shall not:
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(a) without the prior written consent of the Holders
who hold at least 75% of the then outstanding Series C
Preferred or Exchange Notes, directly or indirectly declare or
pay any dividends or make any distributions upon any Junior
Security (other than legally issued dividends payable in
Junior Securities);
(b) without the prior written consent of the Holders
who hold at least 75% of the then outstanding Series C
Preferred or Exchange Notes, directly or indirectly redeem,
purchase or otherwise acquire, or permit any Subsidiary to
redeem, purchase or otherwise acquire, any Junior Security or
directly or indirectly redeem, purchase or make any payments
with respect to any stock appreciation rights, phantom stock
plans or similar rights or plans other than any redemption or
purchase in Junior Securities; provided, however, that the
Company shall be allowed to repurchase, redeem or acquire any
Junior Security from employees or former employees of Desa
International, Inc. in an aggregate amount not to exceed the
sum of $500,000 in any fiscal year; provided, however, that
proceeds used to redeem or acquire any Junior Security from
employees or former employees of Desa International, Inc.
shall be excluded to the extent of the aggregate cash proceeds
received by the Company or Holdings from any reissuance of
Junior Securities during the same fiscal year.
(c) without the prior written consent of the Holders
who hold at least 75% of the then outstanding Series C
Preferred or Exchange Notes, liquidate, dissolve or effect a
consolidation, merger, combination, recapitalization or any
other form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership
or any other non-corporate entity which is treated as a
partnership for federal income tax purposes) in which the
rights of the Holders under the Certificate, this Agreement or
the Exchange Notes, as in effect immediately prior to such
transaction, are adversely affected, provided, however, that
no such vote shall be required with respect to such
transaction if the Company has redeemed or redeems, to the
extent requested by the holders of Series C Preferred or
Exchange Notes, Series C Preferred at the Redemption Price or
the outstanding principal amount of Exchange Notes plus all
accrued and unpaid interest due under the Exchange Note, with
such redemptions to be fully paid in cash before such
transaction is effectuated or concurrently therewith.
(d) without the prior written consent of the Holders
of at least 75% of the then outstanding Series C Preferred,
except as expressly contemplated by this Agreement, (1)
increase the number of authorized shares of Series C Preferred
or (2) authorize or issue any additional shares of Series C
Preferred (other than as provided in Section 2(a) of the
Certificate) or (3) authorize, issue or enter into any
agreement providing for the issuance (contingent or otherwise)
of any Senior Securities or Parity Securities (as each such
term is defined in the Certificate), or any security or
obligations convertible into any Senior Securities or Parity
Securities (other than shares of Series C Preferred issued as
provided in Section 2(a) of the
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<PAGE>
Certificate) or (4) otherwise adversely affect or otherwise
impair the rights or the relative preferences and priorities
of the holders of Series C Preferred.
(e) Notwithstanding anything to the contrary in the
Certificate, so long as any Series C Preferred remains
outstanding, the Company shall not, without the prior written
consent of the holders of 100% of the then outstanding Series
C Preferred:
(1) change (A) the rate or time of payment of any
dividends on, or (B) the time or amount of any redemption of,
or (C) the amount of any payments upon liquidation of the
Company with respect to, or (D) the priorities afforded by the
provisions of Section 2(d) of the Certificate for the benefit
of, shares of Series C Preferred or (2) amend Section 4(b),
4(c) or 6 of the Certificate.
(vi) Director Election Covenants.
(a) The Company covenants with the Holders that,
following the occurrence of each Voting Rights Triggering
Event and until the expiration of the corresponding Default
Period (as defined in the Certificate), upon the written
request of the Holders who hold a majority of the Series C
Preferred at the time outstanding, the Company shall as soon
as reasonably practicable, but in any event within 5 business
days following such written request, increase the number of
directors of the Company by one (1) and fill the vacancy
created by such increase with the individual designated by the
Holders in the foregoing written request; provided, however,
that the Company shall have no obligations to create and fill
such an additional vacancy during the term of office of any
director designated in writing pursuant to this Section
3.05(vi)(a) or elected by the Holders pursuant to Section 6(c)
of the Certificate.
(b) The Company further covenants with the Holders
that, in the event that the term of office of the director
elected pursuant to Section 6(c) of the Certificate has been
terminated pursuant to Section 6(c)(v) of the Certificate, and
if the action, lawsuit or other proceeding that caused the
termination of such director's term shall no longer be
continuing but a Default Period shall be continuing, upon the
written request of the Holders who hold a majority of the
Series C Preferred at the time outstanding, the Company shall
as soon as reasonably practicable, but in any event within 5
business days following such written request, increase the
number of directors of the Company by one (1) and fill the
vacancy created by such increase with the individual
designated by the Holders in the foregoing written request.
(c) The Holders covenant with the Company that the
Holders shall cause any individual designated by them pursuant
to either of the foregoing paragraphs (a) and (b) to resign
immediately from the Board of Directors (I) as a condition
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<PAGE>
precedent to the exercise of their right under Section 6(c) of
the Certificate to vote their shares of Series C Preferred
Stock, together with the holders of any Parity Securities (as
defined in the Certificate) upon which like voting rights have
been conferred and are exercisable, to elect, as a class, an
additional one (1) director, (II) upon the commencement of any
action, lawsuit or other proceeding of a type described in
Section 6(c)(v) of the Certificate or (III) upon the
expiration of all then existing Default Periods. The Holders
and the Company hereby acknowledge and agree that (x) the
resignation of any such individual pursuant to this clause (c)
shall not disqualify such individual from serving on the Board
of Directors if subsequently designated by the Holders
pursuant to paragraph (a) or (b) of this Section 3.05(vi) or
subsequently elected to do so pursuant to Section 6(c) of the
Certificate and (y) the resignation of any such individual
pursuant to clause (I) of this paragraph (c) may be made
subject to and effective only upon the taking of office as a
director of the individual elected pursuant to Section 6(c) of
the Certificate.
(vii) Other Covenants. The Company covenants with the
Purchasers that copies of all notices required under the Certificate
shall also be given to the Purchasers in accordance with the notice
provisions herein as long as they hold Series C Preferred.
(viii) Repurchase/Prepayment Covenants.
(a) Series C Preferred. Notwithstanding any provision
of the Certificate to the contrary, the Company shall have the
right to repurchase, by delivery of not less than ten (10) and
not more than thirty (30) Business Days' prior written notice
to the holders of record of the Series C Preferred, and all
holders shall be required to sell to the Company (pro rata
according to their then current holdings), all or any part of
the outstanding shares of the Series C Preferred in increments
of 500 shares (unless all of the outstanding shares of the
Series C Preferred are being so repurchased) at a price per
share equal to the Redemption Price. Such notice shall specify
the Redemption Price and the place at which and the date,
which date shall be a Business Day, on which the shares so
called for repurchase shall be repurchased (the "Series C
Payment Date") and shall specify the shares called for
repurchase. On the Series C Payment Date for any shares of
Series C Preferred, the holders of such shares shall surrender
the certificate or certificates for such shares at the
principal office of the Company during regular business hours,
together with stock powers therefor duly endorsed in blank,
against payment by the Company of the Redemption Price, which
shall be paid in cash on the Series C Payment Date, assuming
such surrender occurs on the Series C Payment Date. From and
after the Series C Payment Date for any shares of Series C
Preferred, dividends on such shares so repurchased shall cease
to accrue, such shares shall no longer be deemed to be
outstanding, and all rights of the holders thereof as
stockholders of the Company with respect to shares so
repurchased shall cease (including any right to receive
dividends otherwise payable on any Dividend Reference Date
that accrued from the
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<PAGE>
Series C Payment Date to such Dividend Reference Date);
provided, that if the Company has withheld payment of the
Redemption Price from any Holder because certificates
representing such Holder's shares to be so repurchased have
not been surrendered at the Company's principal office
together with a stock power duly endorsed in blank, then such
Holder's right to receive the Redemption Price, without
interest, upon such surrender shall not cease; and provided,
further, that to the extent the Company defaults in the
payment of the Redemption Price on the Series C Payment Date
(or, if applicable, on a later date on which a Holder
surrenders certificates and duly endorsed stock powers), the
Series C Preferred shall remain outstanding. In case fewer
than all the shares represented by any such certificate are to
be repurchased, a new certificate shall be issued representing
the unrepurchased shares, without cost to the Holder thereof.
The Holders acknowledge and agree that the Company's
withholding of the Repurchase Price in respect of shares of
Series C Preferred pending surrender of stock certificates
representing such shares and duly endorsed stock powers as
described above shall not constitute a default in the payment
of the Redemption Price.
(b) Exchange Notes. Notwithstanding any provision of
the Exchange Note to the contrary, the Company shall have the
right to repay, by delivery of not less than ten (10) and not
more than thirty (30) Business Days' prior written notice to
the holders of record of the Exchange Notes, all or any part
of the outstanding Exchange Notes in increments of $500,000 in
principal amount of Exchange Notes, pro rata according to the
then current holdings of the holders of record of the Exchange
Notes, (unless all of the outstanding Exchange Notes are being
so prepaid), without premium but together with accrued and
unpaid interest thereon through the date of prepayment. Such
notice shall specify the place at which and the date, which
date shall be a Business Day, on which the Exchange Notes to
be so prepaid shall be prepaid (the "Prepayment Date") and
shall specify the Exchange Notes and the principal amount
thereof to be so prepaid. On the Prepayment Date for any
Exchange Note, the holder of such Exchange Note shall
surrender such Exchange Notes against payment by the Company,
which shall be made in cash on the Prepayment Date, of the
principal amount thereof to be so prepaid together with
accrued and unpaid interest thereon through the Prepayment
Date. In case less than all of the outstanding principal
amount of an Exchange Note is to be prepaid, the Company
shall, at its option, either return to the holder thereof such
Exchange Note with appropriate notation of payment or issue a
new Exchange Note to such holder in an aggregate principal
amount equal to the then unpaid principal amount thereof,
without cost to the holder thereof.
(c) The Company agrees that tendering of an affidavit
by a Holder, and an indemnity reasonably satisfactory to the
Company, that the certificates for such Series C Preferred or
Exchange Notes that are to be surrendered by that Holder on a
Series C Payment Date or Prepayment Date pursuant to Section
3.05(viii) have
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<PAGE>
been lost, stolen, destroyed or mutilated shall be tantamount
to surrender under Section 3.05(viii). The Company
acknowledges and agrees that the failure of the Company to
accept such an affidavit and such an indemnity tendered in
accordance with this section shall not constitute a failure of
the Holder to surrender its Series C Preferred or Exchange
Notes hereunder.
(ix) Dividend Accrual Covenant. Until the Repurchase Price or
Redemption Price is paid in full in cash, the shares of Series C
Preferred to be repurchased under this Agreement or redeemed under the
Certificate from any Holder shall remain outstanding and continue to
accrue dividends as provided in Section 2 of the Certificate unless the
Company has withheld such payment from Holder pending such Holder's
surrender to the Company of certificates representing the shares to be
redeemed or repurchased hereunder together with stock power therefor
duly endorsed.
(x) Authorization Covenant. The Company covenants to take all
actions necessary, and to seek all approvals and consents thereto, to
authorize and make effective an amendment to the Company's Charter, in
substantially the form of Exhibit E hereto, providing for an increase
in the number of authorized shares that are designated as Series C
Preferred from 40,000 shares to 75,000 shares, and the Holders covenant
to vote all shares of Series C Preferred and Voting Common held by them
in favor of such amendment.
3.06 Allocation of the Purchase Price. The Purchasers and the
Company acknowledge and agree that, as of the Closing, the fair market value of
the Series C Preferred shares purchased herein is $17,562,904.67 and the fair
market value of the warrants purchased herein is $415,054.86. The Purchasers and
the Company covenant and agree to allocate the Purchase Price between the shares
of Series C Preferred purchased herein and the warrants purchased herein in
accordance with such fair market values for all tax and financial accounting
purposes, including without limitation, the preparation and filing of all tax
returns.
3.07 Current Public Information. At all times after the
Company has filed a registration statement with the Securities and Exchange
Commission pursuant to the requirements of either the Securities Act or the
Securities Exchange Act, the Company shall file all reports required to be filed
by it under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Purchased Securities
may reasonably request, all with a view toward making available to such holders
the benefits of Rule 144 adopted by the Securities and Exchange Commission under
the Securities Act (as such rule may be amended from time to time) or any
similar rule or regulation hereafter adopted by the Securities and Exchange
Commission. Upon request, the Company shall deliver to any holder of Purchased
Securities a written statement as to whether it has complied with such
requirements.
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<PAGE>
Section 4. Transfer of Purchased Securities.
4.01 General Provisions. The Purchasers and the Company
acknowledge and agree that Purchased Securities, Exchange Notes and Warrant
Shares are transferable only pursuant to (i) public offerings registered under
the Securities Act, (ii) Rule 144 or Rule 144A of the Securities and Exchange
Commission (or any similar rule or rules then in force) if such rule is
available and (iii) any other legally available means of transfer.
4.02 Rule 144A. Upon the request of any Purchaser, the Company
shall promptly supply to such Purchaser or its prospective transferees all
information regarding the Company required to be delivered in connection with a
transfer pursuant to Rule 144A of the Securities and Exchange Commission.
4.03 Legend Removal. Any legend endorsed on a certificate or
instrument evidencing a security pursuant to Section 9.03 hereof shall be
removed, and the Company shall issue a certificate or instrument without such
legend to the holder of such security, (a) if such security is being disposed of
pursuant to an effective registration under the Securities Act and any
applicable state acts, or (b) if such holder provides the Company with an
opinion of counsel satisfactory to the Company to the effect that a sale,
transfer, assignment, offer, pledge or distribution (including pursuant to Rule
144 or any similar rule then in effect) for value of such security may be made
without registration and that such legend is not required to satisfy the
applicable exemption from registration.
Section 5. Representations and Warranties of the Company. As a material
inducement to the Purchasers to enter into this Agreement and purchase the
Purchased Securities hereunder, the Company hereby represents and warrants that:
5.01 Organization, Corporate Power and Licenses. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of Delaware and is qualified to do business in every jurisdiction in which
its ownership of property or conduct of business requires it to qualify except
where the failure to do so would not have a material adverse effect on the
financial condition, assets or business of the Company or its Subsidiaries. The
Company possesses all requisite corporate power and authority and all material
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses in all material respects as now conducted
and presently proposed to be conducted and to carry out the transactions
contemplated by this Agreement. The copies of the Company's and each
Subsidiary's charter documents and bylaws which have been furnished to the
Purchasers' special counsel reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
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<PAGE>
5.02 Capital Stock and Related Matters.
(i) As of the Closing and immediately thereafter, the
authorized capital stock of the Company shall consist of (a) 50,000,000
shares of Voting Common Stock, of which 15,548,692.4204 shares will be
issued and outstanding, 1,813,037.6020 shares will be reserved, and
32,638,269.9776 shares will be authorized, unreserved and unissued; (b)
3,000,000 shares of Nonvoting Common Stock will be authorized, of which
90,603.6022 will be issued and outstanding, and 2,909,396.3978
unreserved and unissued; (c) 2,000,000 shares of Preferred Stock, of
which (1) 465,000 shares have been designated Series A Cumulative
Redeemable Preferred Stock, none of which are issued and outstanding
(2) 265,000 shares have been designated Series B Cumulative Redeemable
Preferred Stock, none of which are issued and outstanding, and (3)
40,000 shares have been designated Series C Preferred, of which
18,849.84110 will be issued and outstanding, and 21,150.15890 will be
authorized, unreserved and unissued. As of the Closing, neither the
Company nor any Subsidiary shall have outstanding any stock or
securities convertible or exchangeable for any shares of its capital
stock or containing any profit participation features, nor shall it
have outstanding any rights or options to subscribe for or to purchase
its capital stock or any stock or securities convertible into or
exchangeable for its capital stock or any stock appreciation rights or
phantom stock plans, except as set forth on the attached
"Capitalization Schedule." The Capitalization Schedule accurately sets
forth the following information with respect to all outstanding options
and rights to acquire the Company's capital stock: the holder, the
number of shares covered, the exercise price and the expiration date.
As of the Closing, neither the Company nor any Subsidiary shall be
subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock or any
warrants, options or other rights to acquire its capital stock, except
as set forth on the Capitalization Schedule and except pursuant to the
Certificate. As of the Closing, all of the outstanding shares of the
Company's capital stock shall be validly issued, fully paid and
nonassessable.
(ii) Except as contained in the Amended Stockholders Agreement
and the Tagalong/Dragalong Agreement, there are no statutory or
contractual stockholders preemptive rights or rights of refusal with
respect to the purchase and sale of the Purchased Securities hereunder
or the exercise of the Warrants. The Company has not violated any
applicable federal or state securities laws in connection with the
offer, sale or issuance of any of its capital stock, and the offer and
sale of the Purchased Securities hereunder do not require registration
under the Securities Act or any applicable state securities laws. There
are no agreements between the Company's stockholders with respect to
the voting or transfer of the Company's capital stock, except for the
Amended Stockholders Agreement, the Tagalong/Dragalong Agreement and
certain stock options issued to certain members of the Company's
management.
5.03 Series C Preferred, Warrants, Warrant Stock and Common
Stock. The Series C Preferred and Common Stock are duly authorized, validly
issued and outstanding, fully
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<PAGE>
paid, and nonassessable, and the shares of Warrant Stock issuable upon exercise
of the Warrants have been reserved for issuance based upon the initial purchase
price, and when issued and paid for upon exercise of the Warrants in accordance
with the terms thereof will be duly authorized, validly issued and outstanding,
fully paid, and nonassessable. The Warrants and the certificates representing
the Series C Preferred to be delivered by the Company hereunder, and the
certificates representing the Warrant Stock to be delivered upon exercise of the
Warrants, will be genuine, and the Company has no knowledge of any fact which
would impair the validity thereof.
5.04 Subsidiaries; Investments. The attached "Subsidiary
Schedule" correctly sets forth the name of each Subsidiary, the jurisdiction of
its incorporation and the Persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, possesses all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own its properties and to carry on its businesses as
now being conducted and as presently proposed to be conducted and is qualified
to do business in every jurisdiction in which its ownership of property or the
conduct of business requires it to qualify except where failure to do so would
not have a material adverse effect on the financial condition, assets or
business of the Company and its Subsidiaries taken as a whole. All of the
outstanding shares of capital stock of each Subsidiary are validly issued, fully
paid and nonassessable, and all such shares are owned by the Company or another
Subsidiary free and clear of any Lien and not subject to any option or right to
purchase any such shares. Except as set forth on the Subsidiary Schedule,
neither the Company nor any Subsidiary owns or holds the right to acquire any
shares of stock or any other security or interest in any other Person.
5.05 Authorization; No Breach. The execution, delivery and
performance of this Agreement, the Warrants, the Amended Stockholders Agreement,
the Exchange Notes and all other agreements contemplated hereby to which the
Company is a party have been duly authorized by the Company. This Agreement, the
Warrants, the Amended Stockholders Agreement, the Exchange Notes, the
Certificate and all other agreements contemplated hereby to which the Company is
a party each constitutes a valid and binding obligation of the Company,
enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally, and except for
judicial limitations on the enforcement of the remedy of specific performance
and other equitable remedies. Except as set forth on the "No Breach; Consents"
Schedule, the execution and delivery by the Company of this Agreement, the
Stockholders Agreement and all other agreements contemplated hereby to which the
Company is a party, the offering and sale of the Purchased Securities hereunder,
and the fulfillment of and compliance with the respective terms hereof and
thereof by the Company and each Seller, do not and could not reasonably be
expected to (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation of
any lien, security interest, charge or encumbrance upon the Company's or any
Subsidiary's capital stock or assets pursuant to, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, (v) result in a
violation of, or (vi) require any authorization, consent, approval, exemption or
other action by or notice or declaration to, or filing with, any court or
administrative
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<PAGE>
or governmental body or agency pursuant to, (A) the charter or bylaws of the
Company or any Subsidiary, or (B) any law, statute, rule or regulation to which
the Company or any Subsidiary is subject, or (C) any agreement, instrument,
order, judgment or decree to which the Company or any Subsidiary is subject,
except in the case of clauses (B) and (C) only, for such conflicts, breaches,
defaults, encumbrances, rights, violations and requirements which would not have
a material adverse effect on the financial condition, assets or business of the
Company and its Subsidiaries taken as a whole.
5.06 Financial Statements. Attached hereto as the "Financial
Statements Schedule" are the following financial statements:
(i) the audited consolidated balance sheets of the Company and
its Subsidiaries as of February 28, 1998, and the related statements of
income and cash flows (or the equivalent) for the respective
twelve-month periods then ended; and
(ii) the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of May 31, 1998 (the "Latest Balance Sheet"),
and the related statements of income and cash flows (or the equivalent)
for the three-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
except that the unaudited financial statements have not been prepared in
accordance with generally accepted accounting principles and are subject to
normal year-end audit adjustments.
5.07 Absence of Undisclosed Liabilities. Except as set forth
on the attached "Liabilities Schedule," the Company and its Subsidiaries do not
have any obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known to the Company or any
Subsidiary, whether due or to become due and regardless of when asserted)
arising out of transactions entered into at or prior to the Closing, or any
action or inaction at or prior to the Closing, or any state of facts existing at
or prior to the Closing other than: (i) liabilities set forth on the Latest
Balance Sheet (including any notes thereto), (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business (none of which is a liability resulting from breach of
contract, breach of warranty, tort, infringement, claim or lawsuit), (iii) other
liabilities and obligations expressly disclosed in the other Schedules to this
Agreement, and (iv) liabilities and obligations which would not reasonably be
expected to have a material adverse effect upon the financial condition, assets
or business of the Company and its Subsidiaries taken as a whole.
5.08 No Material Adverse Change. Since February 28, 1998,
there has been no material adverse change in the financial condition, operating
results, assets, operations, business
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<PAGE>
prospects, employee relations or customer or supplier relations of the Company
and its Subsidiaries taken as a whole.
5.09 Absence of Certain Developments.
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached "Developments Schedule," since the date of
the Latest Balance Sheet, neither the Company nor any Subsidiary has:
(a) issued any notes, bonds or other debt securities
or any capital stock or other equity securities or any
securities convertible, exchangeable or exercisable into any
capital stock or other equity securities;
(b) borrowed any amount or incurred or become subject
to any liabilities, except current liabilities incurred in the
ordinary course of business and liabilities under contracts
entered into in the ordinary course of business;
(c) discharged or satisfied any Lien or paid any
obligation or liability, other than current liabilities paid
in the ordinary course of business;
(d) declared or made any payment or distribution of
cash or other property to its stockholders with respect to its
capital stock or other equity securities or purchased or
redeemed any shares of its capital stock or other equity
securities (including, without limitation, any warrants,
options or other rights to acquire its capital stock or other
equity securities);
(e) mortgaged or pledged any of its properties or
assets or subjected them to any Lien, except Liens for current
property taxes not yet due and payable and Liens incurred in
the ordinary course of business involving assets not material
in the aggregate;
(f) sold, assigned or transferred any of its tangible
assets, except in the ordinary course of business, or canceled
any debts or claims;
(g) sold, assigned or transferred any patents or
patent applications, trademarks, service marks, trade names,
corporate names, copyrights or copyright registrations, trade
secrets or other intangible assets, or disclosed any
proprietary confidential information to any Person;
(h) suffered any extraordinary losses or waived any
rights of value, other than any waiver of rights of value in
the ordinary course of business consistent with past practice;
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(i) made capital expenditures or commitments therefor
that aggregate in excess of $1,500,000;
(j) made any loans or advances to, guarantees for the
benefit of any Persons in excess of $500,000 in the aggregate;
(k) suffered any damage, destruction or casualty loss
exceeding in the aggregate $500,000, whether or not covered by
insurance; or
(l) entered into any other transaction other than in
the ordinary course of business or entered into any other
material transaction, whether or not in the ordinary course of
business.
5.10 Tax Matters.
(i) Except as set forth on the attached "Taxes Schedule": the
Company and each Subsidiary have filed all Tax Returns which they are
required to file under applicable laws and regulations; all such Tax
Returns are complete and correct in all material respects and have been
prepared in compliance with all applicable laws and regulations in all
material respects; the Company and each Subsidiary in all material
respects have paid all Taxes due and owing by them (whether or not such
Taxes are required to be shown on a Tax Return), except such as are
being contested in good faith in appropriate proceedings, and have
withheld and paid over to the appropriate taxing authority all Taxes
which they are required to withhold from amounts paid or owing to any
employee, stockholder, creditor or other third party; neither the
Company nor any Subsidiary has waived any statute of limitations with
respect to any Taxes or agreed to any extension of time with respect to
any Tax assessment or deficiency; the accrual for Taxes on the Latest
Balance Sheet would be adequate to pay all Tax liabilities of the
Company and its Subsidiaries if their current tax year were treated as
ending on the date of the Latest Balance Sheet (excluding any amount
recorded which is attributable solely to timing differences between
book and Tax income); since the date of the Latest Balance Sheet, the
Company and its Subsidiaries have not incurred any liability for Taxes
other than in the ordinary course of business; the assessment of any
additional Taxes for periods for which Tax Returns have been filed by
the Company and each Subsidiary shall not exceed the recorded liability
therefor on the Latest Balance Sheet (excluding any amount recorded
which is attributable solely to timing differences between book and Tax
income); the federal income Tax Returns of the Company and its
Subsidiaries have been audited and closed and/or the applicable statute
of limitations with respect thereto has expired for all tax years
through fiscal year 1994; no foreign, federal, state or local tax
audits or administrative or judicial proceedings are pending or being
conducted with respect to the Company, any Subsidiary, no information
related to Tax matters has been requested by any foreign, federal,
state or local taxing authority and no written notice indicating an
intent to open an audit or other review has been received by the
Company from any foreign, federal, state or local
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taxing authority; and the Company or Subsidiaries are unaware of any
material unresolved questions or claims concerning the Company's or
Subsidiary's Tax liability.
(ii) "Tax" or "Taxes" means federal, state, county, local,
foreign or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise, utility,
environmental, communications, real or personal property, capital
stock, license, payroll, wage or other withholding, employment, social
security, severance, stamp, occupation, alternative or add-on minimum,
estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not. "Tax Return" means any
return, information report or filing with respect to Taxes, including
any schedules attached thereto and including any amendment thereof.
"Affiliated Group" means any affiliated group as defined in I.R.C.
ss.1504 that has filed a consolidated return for federal income tax
purposes (or any similar group under state, local or foreign law) for a
period during which any of the Company or any of its Subsidiaries was a
member.
5.11 Contracts and Commitments.
(i) Except to the extent not reasonably likely to result in a
material adverse effect on the business, assets or financial condition
of the Company and its Subsidiaries taken as a whole or as set forth on
Schedule __: (a) all of the Company's contracts, agreements and
instruments are valid, binding and enforceable in accordance with their
respective terms; (b) the Company and each Subsidiary have performed
all obligations required to be performed by them and are not in default
under or in breach of nor in receipt of any written claim of default or
breach under any contract, agreement or instrument to which the Company
or any Subsidiary is subject; (c) no event has occurred which with the
passage of time or the giving of notice or both would result in a
default, breach or event of noncompliance by the Company or any
Subsidiary under any contract, agreement or instrument to which the
Company or any Subsidiary is subject; and (d) neither the Company nor
any Subsidiary has knowledge of any breach or threatened breach by the
other parties to any contract, agreement, instrument or commitment to
which it is a party;
(ii) The Purchasers' special counsel has been supplied with or
given access in a data room to a true and correct copy of each of the
material written instruments, plans, contracts and agreements and an
accurate description of each contract and agreement which are referred
to on the Due Diligence Requests, together with all amendments, waivers
or other changes thereto as of June 22, 1998.
5.12 Intellectual Property Rights.
There have been no written claims made against the Company or
any Subsidiary which have not been resolved asserting the invalidity, misuse or
unenforceability of any of material Intellectual Property Rights, and, to the
Company's knowledge, there are no grounds for the same,
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neither the Company nor any Subsidiary has received any written notices of, and
is not aware of any facts which indicate a likelihood of, any infringement or
misappropriation by, or conflict with, any third party with respect to such
material Intellectual Property Rights (including, without limitation, any demand
or request that the Company or any Subsidiary license any rights from a third
party) and the conduct of the Company's and each Subsidiary's business, to the
Company's knowledge, has not infringed, misappropriated or conflicted with and
does not infringe, misappropriate or conflict with any Intellectual Property
Rights of other Persons, nor would any future conduct as presently contemplated
infringe, misappropriate or conflict with any Intellectual Property Rights of
other Persons except for such infringements, misappropriations or conflicts as,
singly or in the aggregate, do not and are not reasonably likely to result in a
material adverse effect on the business, assets or financial condition of the
Company and its Subsidiaries taken as a whole or as set forth on Schedule __.
5.13 Litigation, etc. Except as set forth on the attached
"Litigation Schedule," and except for those matters which, if resolved adversely
to the Company or any Subsidiary, would not have a material adverse effect on
the business, assets or financial condition of the Company and its Subsidiaries
taken as a whole, there are no actions, suits, proceedings, orders,
investigations or claims pending or, to the best of the Company's knowledge,
threatened against or affecting the Company or any Subsidiary at law or in
equity, or before or by any governmental department, commission, board, bureau,
agency or instrumentality (including, without limitation, any actions, suit,
proceedings or investigations with respect to the transactions contemplated by
this Agreement); neither the Company nor any Subsidiary is subject to any
arbitration proceedings under collective bargaining agreements or otherwise or,
to the best of the Company's knowledge, any governmental investigations or
inquiries.
5.14 Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon any Seller or the Company or any Subsidiary. The Company shall pay, and
hold each Purchaser harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim.
5.15 Governmental Consent, etc. Except as provided on the
"Government Consent" Schedule, permit, consent, approval or authorization of, or
declaration to or filing with, any governmental authority is required in
connection with the execution, delivery and performance by the Company of this
Agreement or the other agreements contemplated hereby, or the consummation by
the Company of any other transactions contemplated hereby or thereby.
5.16 Insurance. Since February 28, 1998, neither the Company
nor any Subsidiary is in default in any material respect with respect to its
obligations under any insurance policy maintained by it, and neither the Company
nor any Subsidiary has been denied insurance coverage. The insurance coverage of
the Company and its Subsidiaries is customary for corporations of similar size
engaged in similar lines of business.
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5.17 Employees. The Company is not aware that any executive or
key employee of the Company or any Subsidiary or any group of employees of the
Company or any Subsidiary has any plans to terminate employment with the Company
or any Subsidiary. The Company is not aware that it or any Subsidiary has any
material labor relations problems (including, without limitation, any union
organization activities, threatened or actual strikes or work stoppages or
material grievances). Neither the Company, its Subsidiaries nor, to the best of
the Company's knowledge, any of their employees is subject to any noncompete or
similar covenants or agreements that materially conflict with the present or
proposed business activities of the Company and its Subsidiaries, except as
described on the "Employees" Schedule.
5.18 Compliance with Laws. Neither the Company nor any
Subsidiary has violated any law or any governmental regulation or requirement
which violation has had since February 28, 1998 or would reasonably be expected
to have a material adverse effect upon the financial condition, assets, or
business of the Company and its Subsidiaries taken as a whole, and neither the
Company nor any Subsidiary has received written notice of any such violation. To
the Company's knowledge, neither the Company nor any Subsidiary is subject to
any liability (contingent or otherwise) or corrective or remedial obligation
arising under any federal, state, local or foreign law, rule or regulation
(including the common law) relating to or regulating health, safety, pollution
or the protection of the environment ("Environmental Laws") except as described
on the "Environmental Safety" Schedule. Without limiting the generality of the
foregoing, (i) to the Company's knowledge, the Company and each Subsidiary have
obtained all material permits, licenses and authorizations required under, and
have complied in all material respects with, all Environmental Laws; and (ii) to
the Company's knowledge, no written notice has been received by the Company or
any Subsidiary regarding any violation of, or any claim, liability or corrective
or remedial obligation under, any Environmental Laws, except as set forth on the
"Environmental Safety" Schedule.
5.19 Affiliated Transactions. Except as set forth on the
attached "Affiliated Transactions Schedule," no officer, director, employee,
stockholder or Affiliate of the Company or any Subsidiary or any individual
related by blood, marriage or adoption to any such individual or any entity in
which any such Person or individual owns any beneficial interest, is a party to
any agreement, contract, commitment currently in effect or transaction with the
Company or any Subsidiary since February 28, 1998 or has any material interest
in any material property used by the Company or any Subsidiary.
5.20 Disclosure. Neither this Agreement nor any of the
exhibits or schedules hereto contain any untrue statement of a material fact or
omit a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made, not misleading.
5.21 Knowledge. As used in this Section 5, the terms
"knowledge" or "aware" shall mean and include (i) the actual knowledge or
awareness of the executive officers and directors of the Company and its
Subsidiaries and (ii) the knowledge or awareness which an executive officer
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<PAGE>
or director of the Company or its Subsidiaries would have obtained in the
conduct of his business after making reasonable inquiry and reasonable diligence
with respect to the particular matter in question.
Section 6. Representations and Warranties of Sellers. Each Seller
hereby represents and warrants to the Purchasers as to itself only as follows:
6.01 Organization and Good Standing. Such Seller is a
corporation or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization.
6.02 Execution of Agreement. Such Seller has the corporate or
limited liability company, as the case may be, power and authority to enter into
and perform its obligations under this Agreement. The execution and delivery of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by all necessary corporate or limited liability
company action, as the case may be, on the part of such Seller. This Agreement
has been duly executed and delivered by such Seller. This Agreement constitutes
the legal, valid and binding obligation of such Seller, enforceable against it
in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally, and except for judicial limitations
on the enforcement of the remedy of specific performance and other equitable
remedies.
6.03 Authorization; No Breach. The execution and delivery by
such Seller of this Agreement, and all other agreements contemplated hereby to
which such Seller is a party, do not and could not reasonably be expected to (i)
conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under, (iii) result in the creation of any lien,
security interest, charge or encumbrance upon the Company's or any Subsidiary's
capital stock or assets pursuant to, (iv) give any third party the right to
modify, terminate or accelerate any obligation under, (v) result in a violation
of, or (vi) require any authorization, consent, approval, exemption or other
action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, (A) the
organizational documents of such Seller or (B) any law, statute, rule or
regulation to which such Seller is subject, or (C) any agreement, instrument,
order, judgment or decree to which such Seller is subject except, in the case of
clauses (B) and (C) only, for such conflicts, breaches, defaults, encumbrances,
rights, violations and requirements which would not have a material adverse
effect on the financial condition, assets or business of the Company and its
Subsidiaries taken as a whole.
6.04 Ownership of Purchased Securities. Such Seller has good
and marketable title to the Purchased Securities to be sold, assigned,
transferred and delivered by it pursuant to this Agreement, free and clear of
any and all encumbrances, except as set forth in Schedule ___. Upon the sale,
assignment, transfer and delivery of such Purchased Securities to the Purchasers
at the Closing, such Seller will have sold, assigned, transferred and conveyed
to the Purchasers all of its
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right, title and interest in and to such Purchased Securities, free and clear of
any and all encumbrances and other restrictions, except as set forth on Schedule
____.
Section 7. Representations and Warranties of Purchasers. Each Purchaser
hereby represents and warrants to the Sellers as to itself only as follows:
7.01 Purchaser's Investment Representations. Such Purchaser is
acquiring the Purchased Securities purchased hereunder or acquired herein for
its own account with the present intention of holding such securities for
purposes of investment, and that it has no intention of selling such securities
in a public distribution in violation of the federal securities laws or any
applicable state securities laws; provided that nothing contained herein shall
prevent any Purchaser and subsequent holders of Purchased Securities from
transferring such securities in compliance with the provisions of Section 9.07
hereof.
7.02 Organization and Good Standing. Such Purchaser is a
corporation or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization.
7.03 Execution of Agreement. Such Purchaser has the corporate
or limited liability company, as the case may be, power and authority to enter
into and perform its obligations under this Agreement. The execution and
delivery of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary corporate or
limited liability company action, as the case may be, on the part of such
Purchaser. This Agreement has been duly executed and delivered by such
Purchaser. This Agreement constitutes the legal, valid and binding obligation of
such Purchaser, enforceable against it in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally, and
except for judicial limitations on the enforcement of the remedy of specific
performance and other equitable remedies.
7.04 Authorization; No Breach. The execution and delivery by
such Purchaser of this Agreement, and all other agreements contemplated hereby
to which such Purchaser is a party, do not and shall not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in a violation of, or (iv) require any
authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to, (A) the organizational documents of such Purchaser or (B)
any law, statute, rule or regulation to which such Purchaser is subject, or (C)
any agreement, instrument, order, judgment or decree to which such Purchaser is
subject.
Section 8. Definitions.
8.01 Definitions. For the purposes of this Agreement, the
following terms have the meanings set forth below:
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"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Business Day" shall mean any day, other than a Saturday,
Sunday or legal holiday, on which banks in New York, New York and Boston,
Massachusetts are permitted to be open for business.
"Certificate" shall mean the Certificate of Designation of the
Company for Preferred Stock filed on November 26, 1997 with the Secretary of
State for the State of Delaware.
"Change of Control" shall have the same meaning as in the
Certificate.
"Default Period" shall have the same meaning as in the
Certificate.
"Dividend Reference Date" shall have the same meaning as in
the Certificate.
"Due Diligence Requests" shall mean the memorandum dated May
27, 1998 summarizing the requests for documents produced by the Purchasers.
"Exchange Notes" shall have the same meaning as the term
"Notes" in Section 5(a) of the Certificate.
"Holder" means, at a particular time, a Person who is a
registered holder on the books of the Company of any shares of Series C
Preferred or any Exchange Notes as of such time.
"Indebtedness" means at a particular time, without
duplication, (i) any indebtedness for borrowed money or issued in substitution
for or exchange of indebtedness for borrowed money, (ii) any indebtedness
evidenced by any note, bond, debenture or other debt security, (iii) any
indebtedness for the deferred purchase price of property or services with
respect to which a Person is liable, contingently or otherwise, as obligor or
otherwise (other than trade payables and other current liabilities incurred in
the ordinary course of business), (iv) any commitment by which a Person assures
a creditor against loss (including, without limitation, contingent reimbursement
obligations with respect to letters of credit), (v) any indebtedness guaranteed
in any manner by a Person (including, without limitation, guarantees in the form
of an agreement to repurchase or reimburse), (vi) any obligations under
capitalized leases with respect to which a Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, or with respect to which
obligations a Person assures a creditor against loss, (vii) any indebtedness
secured by a Lien on a Person's assets and (viii) any unsatisfied obligation for
"withdrawal liability" to a "multi employer plan" as such terms are defined
under ERISA.
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"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium).
"Interest Payment Date" shall have the same meaning as in the
Certificate.
"Investment" as applied to any Person means (i) any direct or
indirect purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"I.R.C." means the Internal Revenue Code of 1986, as amended,
and any reference to any particular I.R.C. section shall be interpreted to
include any revision of or successor to that section regardless of how numbered
or classified.
"IRS" means the United States Internal Revenue Service.
"Junior Securities" shall mean (i) any shares of the Voting
Common and the nonvoting common stock of the Company and any other class or
series of stock of the Company which, by the terms of the Certificate of
Incorporation of the Company or of the instrument by which the Board of
Directors of the Company, acting pursuant to authority granted in such
Certificate of Incorporation, shall fix the relative rights, preferences and
limitations thereof, shall be junior to the Series C Preferred in respect of the
right to receive dividends or to participate in any distribution of assets
(including but not limited to any distribution of assets in connection with the
liquidation of the Company) other than by way of dividends, and (ii) any options
or warrants or similar securities or rights to acquire from the Company any
securities described in clause (i) of this definition.
"Liens" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof), any sale of receivables with recourse against the Company, any
Subsidiary or any Affiliate, any filing or agreement to file a financing
statement as debtor under the Uniform Commercial Code or any similar statute
other than to reflect ownership by a third party of property leased to the
Company or any Subsidiaries under a lease which is not in the nature of a
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<PAGE>
conditional sale or title retention agreement, or any subordination arrangement
in favor of another Person (other than any subordination arising in the ordinary
course of business).
"Officer's Certificate" means a certificate signed by the
Company's president or its chief financial officer, stating that (i) the officer
signing such certificate has made or has caused to be made such investigations
as are necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) to the best of such officer's
knowledge, such certificate does not misstate any material fact and does not
omit to state any fact necessary to make the certificate not misleading.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means shares of any class or series of
preferred stock of the Company, whether now authorized and existing or hereafter
authorized and existing.
"Purchase Price" shall mean the price paid for the Purchased
Securities identified on Schedule ___ hereto.
"Redemption Price" shall have the same meaning as in the
Certificate; provided that the Repurchase Date and Series C Payment Date shall
be a Redemption Date under the Certificate.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental
body or agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar federal law then in force.
"Senior Credit Facility" means any note, debenture, indenture
or instrument governing indebtedness for borrowed money of the Corporation,
payment under which shall be senior to the Series C Preferred or Exchange Notes.
"Senior Subordinated Note Indenture" shall have the same
meaning as in the Certificate.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned
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<PAGE>
or controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity
"Tagalong/Dragalong Agreement" means the Amended and Restated
Tagalong/ Dragalong Agreement by and between JWC Equity Funding, Inc. and UBS
Capital LLC dated August 19, 1998.
"Voting Rights Triggering Event" shall have the same meaning
as in the Certificate.
"Warrant Shares" means (i) the Common Stock issued or issuable
upon exercise of the Warrants and (ii) any Common Stock issued or issuable with
respect to the securities referred to above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
Section 9. Miscellaneous.
9.01 Expenses. The Company shall pay, (i) the reasonable fees
and expenses of one special counsel to the Purchasers arising in connection with
the negotiation and execution of this Agreement and the consummation of the
transactions contemplated by this Agreement which shall be payable at the
Closing or, if the Closing does not occur for a reason other than a breach by a
Purchaser, payable upon demand, (ii) the reasonable fees and expenses of one
counsel to the Purchasers incurred with respect to any amendments or waivers
(whether or not the same become effective) under or in respect of this
Agreement, the agreements contemplated hereby to which the Purchasers are a
party, (iii) stamp and other taxes which may be payable in respect of the
execution and delivery of this Agreement or the issuance, delivery or
acquisition of any shares of Purchased Securities or any shares issuable upon
exercise of the Warrants, (iv) the reasonable fees and expenses of one counsel
to the Purchasers incurred with respect to the enforcement of the rights granted
to the Purchasers under this Agreement in the event of a breach by the Company.
9.02 Remedies. Any Person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other
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security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
9.03 Legend. Each certificate or instrument representing
Purchased Securities shall be imprinted with a legend in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The transfer
of the securities represented by this certificate is subject to the
conditions specified in the Purchase Agreement, dated as of October 9,
1998 and as amended and modified from time to time, between the issuer
(the "Company") and certain investors. A copy of such conditions shall
be furnished by the Company to the holder hereof upon written request
and without charge."
9.04 Consent to Amendments. Except as otherwise expressly
provided herein, (i) the provisions of this Agreement that are for the benefit
of the Purchasers, as distinguished from those provisions that are for the
benefit of Holders, may be amended or waived only with the consent of the
Company, on the one hand, and the Purchasers and any of their Affiliates to whom
the Purchasers shall have transferred Purchased Securities or Exchange Notes, on
the other hand, and (ii) the other provisions of this Agreement may be amended
and the Company may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, only if the Company consented thereto
and has obtained the written consent of the Holders of at least 75% of the
outstanding Series C Preferred or Exchange Notes; provided, however, that any
amendment to Section 3.05(v)(e) shall require the written consent of the Holders
of 100% of the outstanding Series C Preferred; provided, further, that at such
time as there is no Series C Preferred or Exchange Note outstanding, all of the
provisions of this Agreement (other than Section 9.05, those representations and
warranties that shall be surviving as of such time pursuant to Section 9.05 and
the indemnification obligations under Section 9.15 in respect of such
representations and warranties) shall terminate. No other course of dealing
between the Company and the holder of any Series C Preferred or Exchange Notes
or any delay in exercising any rights hereunder or under the Amended Certificate
of Designation shall operate as a waiver of any rights of any such holders.
9.05 Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby for a
period of one (1) year following the Closing, regardless of any investigation
made by any Purchaser or on its behalf, except that the representations in
Sections 5.05 (the first and second sentences and clause (vi)(A) of the third
sentence thereof), 5.10, 6.02, 6.03 (clause (vi)(A) only), and 6.04 shall
survive until the expiration of the applicable statute of limitations.
9.06 Treatment of the Preferred Stock. The Company covenants
and agrees that (i) so long as federal income tax laws prohibit a deduction for
distributions made by the Company with respect to preferred stock, it shall
treat all distributions paid by it on the Preferred Stock as non-deductible
- 35 -
<PAGE>
dividends on all of its tax returns and (ii) it shall treat the Preferred Stock
as preferred stock in all of its financial statements and other reports and
shall treat all distributions paid by it on the Preferred Stock as dividends on
preferred stock in such statements and reports.
9.07 Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so expressed
or not; provided, however, that no provisions of this Agreement, including
without limitation, Sections 3.01 and 3.03 which are for the benefit of any
Purchaser as a "Purchaser" (as opposed to provisions for the benefit of
"Holders") under this Agreement shall be assignable (other than by operation of
law); and further provided, further, that the covenants set forth in Section
3.02 shall be assignable, in whole but not in part, by a Purchaser and its
Affiliates to an assignee so long as such assignee holds at least one-quarter
(1/4) of the number of shares (subject to appropriate adjustment to reflect any
split or combination of shares) of Series C Preferred (or the equivalent in
principal amount of Exchange Notes) originally purchased by such Purchaser. In
addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's benefit as a Holder
are also for the benefit of, and enforceable by, to the extent permitted herein,
any subsequent Holder.
9.08 Capital and Surplus; Special Reserves. The Company agrees
that the capital of the Company (as such term is used in Section 154 of the
General Corporation Law of Delaware) in respect of the Series C Preferred and
Common Stock (including the Warrant Shares), purchased or issuable, issued
pursuant to this Agreement shall be equal to the aggregate par value of such
shares and that it shall not increase the capital of the Company with respect to
any shares of the Company's capital stock at any time on or after the date of
this Agreement.
9.09 Severability. Whenever possible, each provision of this
Agreement shall 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 prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9.10 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
shall constitute one and the same Agreement.
9.11 Descriptive Headings; Interpretation. The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a substantive part of this Agreement. The use of the word "including"
in this Agreement shall be by way of example rather than by limitation.
9.12 Governing Law. The corporate law of the State of Delaware
shall govern all issues and questions concerning the relative rights and
obligations of the Company and its stockholders.
- 36 -
<PAGE>
All other issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of Delaware, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the State of Delaware or any other juris
diction) that would cause the application of the laws of any jurisdiction other
than the State of Delaware.
9.13 Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid) or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications shall be sent to each Purchaser at the address
indicated on the Schedule of Purchasers and to the Company at the address
indicated below:
Desa Holdings Corporation
c/o J. W. Childs Associates, L.P.
One Federal Street, 21st Floor
Boston, MA 02110
Attention: President
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9.14 No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
9.15 Indemnification.
(i) Sellers' Indemnification. In consideration of the
Purchasers' execution and delivery of this Agreement and purchasing the
Purchased Securities hereunder, each Seller, as to itself, shall
defend, protect, indemnify and hold harmless each Purchaser and each
other holder of Purchased Securities and all of their officers,
directors, employees and agents (including, without limitation, those
retained in connection with the transactions contem plated by this
Agreement) (collectively, the "Indemnitees") from and against any and
all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including
reasonable fees and disbursements of one counsel (the "Indemnified
Liabilities"), incurred by the Indem nitees or any of them as a result
of, or arising out of, or relating any breach of any
- 37 -
<PAGE>
representation made by such Seller hereunder in respect of which the
Indemnitee shall have given notice to such Seller.
(ii) The Company's Indemnification. In consideration of the
Purchasers' execution and delivery of this Agreement and purchasing
the Purchased Securities hereunder and in addition to all of the
Company's other obligations under this Agreement, the Company shall
defend, protect, indemnify and hold harmless each Purchaser and each
other holder of Purchased Securities and all of their officers,
directors, employees and agents (including, without limitation, those
retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Indemnitees") from and against any and
all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including
reasonable fees and disbursements of one counsel (the "Indemnified
Liabilities"), incurred by the Indemnitees or any of them as a result
of, or arising out of, or relating any breach of any representation or
covenant made by the Company hereunder in respect of which the
Indemnitee shall have given notice to the Company.
(iii) Notice of Claims. If an Indemnitee believes that it has
suffered or incurred any Indemnified Liability, it shall notify the
indemnifying party promptly in writing, and in any event within any
applicable time period specified in Section 9.05, describing such
Indemnified Liability, all with reasonable particularity and containing
a reference to the provisions of this Agreement in respect of which
such Indemnified Liability shall have occurred. If any legal action is
instituted by a third party with respect to which an Indemnitee intends
to claim any liability or expense as Indemnified Liability under this
Section, such Indemnitee shall promptly notify the indemnifying party
of such legal action.
(iv) Defense of Third Party Claims. The indemnifying party
shall have the right to conduct and control, through counsel of its own
choosing, reasonably acceptable to the Indemnitees, any third party
legal action or other claim, but any Indemnitee may, at its election,
participate in the defense thereof at its sole cost and expense;
provided, however, that if the indemnifying party shall fail to defend
any such legal action or other claim, then the Indemnitees may defend,
through counsel of their own choosing, such legal action or other
claim, and (so long as it gives the indemnifying party at least thirty
(30) days' written notice of the terms of any proposed settlement
thereof and permits the indemnifying party to then undertake the
defense thereof) settle such legal action or other claim, and to
recover from the indemnifying party the amount of such settlement or of
any judgment and any other Indemnified Liabilities incurred in
connection therewith. The indemnifying party shall not compromise or
settle any such legal action or other claim without the prior written
consent of the Indemnitee, which consent shall not be unreasonably
withheld.
- 38 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
DESA HOLDINGS CORPORATION
By /s/___________________________
Its ______________________________
JWC EQUITY FUNDING, INC.
By /s/___________________________
Its ______________________________
UBS CAPITAL LLC
By /s/___________________________
Its ______________________________
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: PPM America, Inc., as attorney in fact,
on behalf of Jackson National Life
Insurance Company
By /s/___________________________
Its ______________________________
OLD HICKORY FUND I, LLC
By: PPM America, Inc., its manager
By /s/___________________________
Its ______________________________
RELIASTAR FINANCIAL CORP.
By /s/___________________________
Its ______________________________
- 39 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF PURCHASERS AND SELLERS
SELLERS
-------------------------------------------------------------------------------------------------------
JWC Equity Funding, Inc. UBS Capital LLC
---------------------------------------------------- -------------------------------------------------
Warrants Warrants
to to
Shares of Shares of Purchase Shares of Shares of Purchase
Voting Series C Warrant Purchase Voting Series C Warrant Purchase
PURCHASERS Common Preferred Shares Price Common Preferred Shares Price
- ------------------------- ----------- ---------- ----------- --------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Jackson National Life
Insurance Company, PPM
America, Inc., as attorney
in fact, on behalf of
Jackson National Life
Insurance Company 369,424.716 9,600.34202 143,568.402 100,581.284 2,613.83358 39,088.598
Old Hickory Fund I,
LLC, PPM America, Inc.,
its manager 5,625.402 146.19810 2,186.652 1,531.598 39.80377 595.348
ReliaStar Financial Corp. 126,961.794 3,930.00000 58,771.578 34,567.206 1,070.00000 16,001.422
</TABLE>
- 40 -
<PAGE>
LIST OF EXHIBITS
Exhibit A - Warrants
Exhibit B - Amended Stockholders Agreement
Exhibit C - Preferred Tagalong Agreement
Exhibit D - Sullivan & Worcester LLP Opinion
Exhibit E - Amendment to the Company's Charter
[Exhibits have not been
included and are available upon request]
- 41 -
<PAGE>
LIST OF DISCLOSURE SCHEDULES
[Disclosure schedules have not been
included and are available upon request]
- 42 -
EXHIBIT 10.3
PREFERRED STOCK TAGALONG AGREEMENT
THIS PREFERRED STOCK TAGALONG AGREEMENT (this "Agreement") is entered
into as of October 9, 1998 by and among (i) Desa Holdings Corporation, a
Delaware corporation (as hereinafter further defined, the "Company"), (ii) J.W.
Childs Equity Partners, L.P., a Delaware limited Partnership ("JWC Equity
Partners"), (iii) JWC Equity Funding, Inc., a Delaware corporation, and (iv)
those persons listed as the Preferred Holders on the signature pages hereof (as
hereinafter further defined, the "Preferred Holders").
RECITALS
A. JWC Equity Partners owns a majority of the issued and outstanding
shares of Common Stock (as hereinafter defined) of the Company.
B. Concurrently with the execution and delivery of this Agreement, the
Preferred Holders have purchased certain shares of Preferred Stock (as
hereinafter defined) of the Company.
C. The Company and the Stockholders desire to enter into this Agreement
for the purpose of regulating certain aspects of the Stockholders' relationships
with one another.
AGREEMENT
In consideration of the foregoing recitals and the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties to this Agreement mutually agree as follows:
ARTICLE I
Definitions
For the purposes of this Agreement, the following terms shall be
defined as follows:
"1933 Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute thereto, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, all as the same shall
be in effect from time to time.
"1934 Act" shall mean the Securities and Exchange Act of 1934, as
amended, or any successor federal statute thereto, and the rules and regulations
of the Securities and Exchange Commission promulgated thereunder, all as the
same shall be in effect from time to time.
<PAGE>
"Affiliate" of a specified Person shall mean (a) a Person who, directly
or indirectly, through one or more intermediaries, controls or is controlled by
or is under common control with the specified Person or (b) a director,
executive officer or general partner of such Person.
"Bonus Option Agreement" shall mean that certain Bonus Option
Agreement, dated as of November 26, 1997, among Robert H. Elman, John M. Kelly,
Terry G. Scariot and the Company, as amended or amended and restated and in
effect from time to time.
"Business Day" shall mean any day, other than a Saturday, Sunday or
legal holiday, on which banks in New York, New York and Boston, Massachusetts
are permitted to be open for business.
"Cash Equivalents" shall mean (a) United States dollars and (b) any
securities or other property, other than any shares of common stock (or similar
equity securities of a partnership, limited liability company or trust) where
either the issuance or distribution of such securities have not been registered
under Section 5 of the 1933 Act or are subject to any "lockup agreement" or
other contractual restriction on transfer.
"Certificate of Designation" shall mean the Certificate of Designation
of the Company for the Preferred Stock filed on or about November 26, 1997 with
the Secretary of State for the State of Delaware, as from time to time in
effect.
"Common Stock" shall mean (a) shares of Common Stock, par value $.01
per share, of the Company or of Nonvoting Common Stock, par value $.01 per
share, of the Company and (b) securities (other than securities which constitute
Cash Equivalents) which holders of Common Stock receive in exchange for shares
of Common Stock, or into which shares of Common Stock are converted, pursuant to
any merger, consolidation, sale of all or substantially all of the Company's
assets or business, liquidation, dissolution or reorganization.
"Company" shall mean Desa Holdings Corporation, a Delaware corporation,
and its successors and assigns.
"Exchange" shall mean the exchange by the Company pursuant to Section 5
of the Certificate of Designation of the shares of Preferred Stock at the time
outstanding for Exchange Notes.
"Exchange Notes" shall mean any of the 12% Junior Subordinated Notes
due December 31, 2009 of the Company that may be issued by the Company pursuant
to Section 5 of the Certificate of Designation.
"Initiating Stockholders" shall have the meaning set forth therefor in
Section 2.2 of this Agreement.
"IPO" shall have the meaning set forth therefor in Section 2.1(a) of
this Agreement.
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<PAGE>
"JWC Equity Partners" shall mean J.W. Childs Equity Partners, L.P., a
Delaware limited partnership.
"JWC Equity Partners Holders" shall mean JWC Equity Partners and any
subsidiary of JWC Equity Partners (including but not limited to JWC Equity
Funding, Inc.) and shall also include Permitted Transferees of any JWC Equity
Partners Holder and direct and indirect Permitted Transferees of such Permitted
Transferees.
"JWC L.P." shall mean J.W. Childs Associates, L.P., a Delaware limited
partnership.
"JWC Representative" shall have the meaning set forth therefor in
Section 3.8 of this Agreement.
"Liquidation Value" shall, (a) as of any date prior to the Exchange,
have the meaning set forth therefor in the Certificate of Designation and, (b)
as of any date after the Exchange, mean the sum of (i) outstanding principal
amount of any Exchange Note as of such date plus (ii) all accrued and unpaid
interest thereon.
"Permitted Transfer" shall mean:
(a) a Transfer of Subject Securities by a JWC Equity Partners
Holder (i) to (A) the partners of JWC Equity Partners (or any
Affiliates of such partners) or (B) the partners, officers or employees
of JWC L.P., in either case in connection with the liquidation of JWC
Equity Partners, or (ii) to an entity or entities which are (and
continue to be) wholly owned by JWC Equity Partners;
(b) a Transfer of any Subject Securities between any JWC
Equity Partners Holder, who has become a JWC Equity Partners Holder as
a result of any Transfer permitted under clause (a)(i) of this
definition and is a natural person, and such JWC Equity Partners
Holder's spouse, children, parents or siblings (whether natural, step
or by adoption) or to a trust solely for the benefit of one or more of
any of such Persons where either (i) such JWC Equity Partners Holder
retains, as trustee or by some other means, the sole authority to vote
such Subject Securities or (ii) such JWC Equity Partners Holder does
not retain authority to vote such Subject Securities because retention
of such authority to vote such Subject Securities would be reasonably
likely to result in the inclusion of such Subject Securities in the
gross estate of such JWC Equity Partners Holder for purposes of federal
estate taxes;
(c) a Transfer of Subject Securities between any JWC Equity
Partners Holder who has become a JWC Equity Partners Holder as a result
of any Transfer permitted under clause (a)(i) of this definition and
any Affiliate of such JWC Equity Partners Holder, provided that such
Affiliate shall remain at all times an Affiliate of such JWC Equity
Partners Holder;
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<PAGE>
(d) a Transfer of Subject Securities between or among the JWC
Equity Partners Holders;
(e) a Transfer of Subject Securities between any JWC Equity
Partners Holder, who has become a JWC Equity Partners Holder as a
result of any Transfer permitted under clause (a)(i) of this definition
and is a natural person, and such JWC Equity Partners Holder's estate,
executors, legal representative, guardian or conservator, or the
Transfer of Subject Securities between the estate of any JWC Equity
Partners Holder and such JWC Equity Partners Holder's spouse, children,
parents or siblings (whether natural, step or by adoption) or to a
trust solely for the benefit of one or more of any of such Persons;
(f) (i) a bona fide pledge of Subject Securities by a JWC
Equity Partners Holder to (A) Fleet National Bank (or any Affiliate
thereof) in connection with that certain Credit and Guaranty Agreement
dated as of November 25, 1996, as from time to time in effect, by and
among Fleet National Bank, JWC Equity Funding, Inc. and JWC Equity
Partners or (B) any extension, renewal, replacement, restructuring or
refinancing of such Credit and Guaranty Agreement, whether by the same
or any other lender or lenders, or (ii) a Transfer by a pledgee upon
any bona fide foreclosure on any pledge permitted under clause (f)(i)
of this definition;
(g) (i) a bona fide pledge of Subject Securities by a JWC
Equity Partners Holder, who has become a JWC Equity Partners Holder as
a result of any Transfer permitted under clause (a)(i) of this
definition, to an institutional lender, or (ii) a Transfer by a pledgee
upon any bona fide foreclosure on any pledge permitted under clause
(g)(i) of this definition;
(h) a Transfer of Preferred Shares between any Preferred
Holder and any Affiliate of such Preferred Holder, provided that such
Affiliate shall remain at all times an Affiliate of such Preferred
Holder; and
(i) a Transfer of Preferred Shares between any Preferred
Holder and any shareholder or partner of such Preferred Holder.
No Permitted Transfer shall be effective unless and until the transferee of the
Subject Securities so Transferred executes and delivers to the JWC
Representative and the Preferred Holders an executed counterpart of this
Agreement in accordance with Section 3.11 hereof; provided, that a Permitted
Transferee which is a pledgee in connection with a Permitted Transfer effected
pursuant to clause (f)(i) or (g)(i) of the definition of "Permitted Transfer"
herein shall not be required to execute and deliver to the JWC Representative
and the Preferred Holders an executed counterpart of this Agreement in
accordance with Section 3.11 hereof until foreclosure on such pledge.
-4-
<PAGE>
"Permitted Transferee" shall mean any Person who shall have acquired
and who shall hold any Subject Securities pursuant to a Permitted Transfer.
"Person" means an individual, corporation, partnership, limited
liability company, trust, unincorporated association, government or any agency
or political subdivision thereof, or other entity.
"Preferred Holders" shall have the meaning set forth in the preamble
preceding the Recitals to this Agreement and shall also include Permitted
Transferees of the Preferred Holders and direct and indirect Permitted
Transferees of such Permitted Transferees.
"Preferred Shares" shall mean, (a) as of any date prior to the
Exchange, any shares of the Preferred Stock issued and outstanding as of such
date and (b) as of any date after the Exchange, any Exchange Notes issued and
outstanding as of such date.
"Preferred Stock" shall mean the Series C 12% Senior Redeemable
Exchangeable Pay- in-Kind Preferred Stock, par value $.01 per share, of the
Company.
"Put Event" shall have the meaning set forth therefor in Section 2.2(e)
of this Agreement.
"Put Notice" shall have the meaning set forth therefor in Section
2.2(e) of this Agreement.
"Put Option" shall have the meaning set forth therefor in Section
2.2(e) of this Agreement.
"Put Securities" shall have the meaning set forth therefor in Section
2.2(e) of this Agreement.
"Schedule of Stockholders" shall mean the Schedule of Stockholders
attached hereto as Exhibit A, as from time to time amended by the Company
pursuant to Section 3.2(b) hereof.
"Stockholder" shall mean any party hereto (other than the Company or
any of its subsidiaries), including any Person (other than the Company or any of
its subsidiaries) who hereafter becomes a party to this Agreement pursuant to
Section 3.11 hereof.
"Stockholder Group" shall mean any of (a) the JWC Equity Partners
Holders taken as a group and (b) the Preferred Holders taken as a group. None of
the Company and its subsidiaries shall in any case be deemed to be a member of
any Stockholder Group (whether or not the Company or any of its subsidiaries
holds or repurchases any securities of the Company).
"Subject Securities" shall mean, as of any date, (a) any shares of
Common Stock issued and outstanding as of such date and (b) any options,
warrants, securities and other rights to
-5-
<PAGE>
acquire, by exercise, conversion, exchange or otherwise, shares of Common Stock
or securities convertible into Common Stock, but only to the extent that such
options, warrants, securities and other rights are both, as of such date, (i)
vested under the terms thereof or under any plan, agreement or instrument
pursuant to which such options, warrants, securities and other rights were
issued, and (ii) so exchangeable, exercisable or convertible.
"Third Party" means any Person other than (a) the Company or any of its
subsidiaries and (b) any Preferred Holder.
"Transfer" shall mean to transfer, sell, assign, exchange, convert,
pledge, hypothecate, give, grant or create a security interest in or lien on,
place in trust (voting or otherwise), assign an interest in or in any other way
encumber or dispose of, directly or indirectly and whether or not by operation
of law or for value, any of the Subject Securities.
"Voting Stock" shall have the meaning set forth therefor in the
Certificate of Designation.
ARTICLE II
Transferability
2.1 Restriction on Transfers.
(a) Notwithstanding anything to the contrary contained in any
other agreement or instrument, no JWC Equity Partners Holder may
Transfer all or any portion of the Subject Securities at the time held
by such JWC Equity Partners Holder to any Person (other than in
accordance with Section 2.2 hereof) if:
(i) (A) Such Transfer is in consideration of or in
exchange for, in whole or in part, Cash Equivalents, and (B)
immediately after giving effect to such proposed Transfer, the
JWC Equity Partners Holders would in the aggregate
beneficially own a number of Subject Securities (subject to
adjustment of such number of Subject Securities by the Company
pursuant to Section 2.1(b) of this Agreement) which is less
than 46.5189% of the sum of (I) the 16,102,527.9694 Subject
Securities that are issued and outstanding at the date hereof
plus (II) the number of stock options (determined immediately
after giving effect to such proposed Transfer) granted under
the 1998 Stock Option Plan of the Company or pursuant to the
Bonus Option Agreement, but in each case only to the extent
that such options shall at the time be Subject Securities.
(ii) The consummation of such Transfer
(A) prior to the initial underwritten public
offering of the Common Stock pursuant to an effective
registration statement under the 1933 Act
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<PAGE>
(the "IPO"), would result in either (I) the JWC
Equity Partners Holders becoming the "beneficial
owner" (as such term is defined in Rule 13d-3 and
Rule 13d-5 under the 1934 Act, except that for
purposes of calculating the beneficial ownership of
any "person" (as such term is used in Section
13(d)(3) of the 1934 Act), such person shall be
deemed to have "beneficial ownership" of all
securities that such person has the right to acquire,
whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent
condition) of less than 37.2% of the Voting Stock of
the Company or Desa International, Inc. (measured by
voting power rather than number of shares) or (II)
any person (as defined above), other than the JWC
Equity Partners Holders, becoming the "beneficial
owner" (as defined above), directly or indirectly, of
40% or more of the Voting Stock of the Company or
Desa International, Inc. and such person is or
becomes, directly or indirectly, the beneficial owner
of a greater percentage of the voting power of the
Voting Stock of the Company or Desa International,
Inc., calculated on a fully diluted basis, than the
percentage beneficially owned by the JWC Equity
Partners Holders, or
(B) after the IPO, would result in any
person (as defined above), other than the JWC Equity
Partners Holders, becoming the beneficial owner (as
defined above), directly or indirectly, of 35% or
more of the Voting Stock of the Company or Desa
International, Inc. and such person is or becomes,
directly or indirectly, the beneficial owner of a
greater percentage of the voting power of the Voting
Stock of the Company or Desa International, Inc.,
calculated on a fully-diluted basis, than the
percentage beneficially owned by the JWC Equity
Partners Holders.
(b) If (i) the Company (A) pays a dividend or makes a
distribution on any class of its Common Stock in shares of any class of
its Common Stock, or (B) subdivides its outstanding shares of any class
of Common Stock into a greater number of shares, or (C) combines its
outstanding shares of any class of Common Stock into a smaller number
of shares, or (D) issues by reclassification of any class of its Common
Stock any shares of its capital stock, or (ii) the Common Stock is
exchanged for or converted into any other securities pursuant to any
merger, consolidation, sale of all or substantially all of the
Company's assets or business, liquidation, dissolution or
reorganization, then Board of Directors of the Company (or its
successor) shall appropriately adjust the number of Subject Securities
set forth in Section 2.1(a)(i) hereof. Promptly after any such
adjustment, the Company (or its successor) shall give written notice
thereof to all of the Stockholders, which written notice shall set
forth the calculation of such adjustment in reasonable detail.
(c) The provisions of this Section 2.1 hereof shall not apply
to a Transfer which is a Permitted Transfer.
-7-
<PAGE>
2.2 Tagalong. Notwithstanding anything to the contrary contained in
Section 2.1 hereof, any Transfer of Subject Securities which would not be
permitted under Section 2.1 hereof may nonetheless be consummated if, but only
if, the JWC Equity Partners Holder proposing to make such transfer shall fully
comply with the terms and conditions set forth in this Sections 2.2, as
applicable.
(a) Any one or more JWC Equity Partners Holder (the
"Initiating Stockholder") desiring to Transfer such Subject Securities
shall give not less than 15 business days prior written notice of such
intended Transfer to each Preferred Holder and to the Company and the
JWC Representative; provided that, in the event that the proposed
Transfer includes an offer by the proposed transferee or its nominee to
purchase all of the Preferred Shares at their Liquidation Value, such
notice shall be given not less than 5 business days prior to such
intended Transfer. Such notice (the "Participation Notice") shall set
forth terms and conditions of such proposed Transfer, including the
name of the proposed transferee, the number of Subject Securities
proposed to be Transferred by the Initiating Stockholder and the type
of Transfer to be effectuated and shall include a copy of the agreement
pursuant to which such proposed Transfer is intended to be effected.
Within 10 days following the delivery of the Participation Notice by
the Initiating Stockholder, each Preferred Holder shall, by notice in
writing to the Initiating Stockholder and to the Company, have the
opportunity and right to sell to the proposed transferee in such
proposed Transfer (for a purchase price equal to the Liquidation Value
thereof, which purchase price shall be payable in cash or by bank,
cashier's or certified check or by bank wire transfer, but otherwise
upon the same terms and conditions as those received by the Initiating
Stockholder) any portion or all of the Preferred Shares at the time
owned by such Preferred Holder as such Preferred Holder shall specify
in such written notice to the Initiating Stockholder and the Company.
(b) Subject to the closing of such proposed Transfer in
respect of which a Participation Notice has been delivered, each
Preferred Holder so electing to sell Preferred Shares pursuant to
Section 2.2(a) hereof ("a "Participating Preferred Holder") shall
execute and deliver to the proposed transferee at such closing (i) such
agreements for the sale and purchase of such Preferred Shares and other
agreements, instruments and certificates as the Initiating Stockholder
shall execute and deliver in connection with such proposed Transfer
(provided that no Participating Preferred Holder shall be required in
connection with such proposed Transfer (A) to make any representations
or warranties other than representations and warranties as to (I) such
Participating Preferred Holder's ownership of his, her or its Preferred
Shares to be Transferred free and clear of all liens, claims, and
encumbrances, (II) such Participating Preferred Holder's power and
authority to effect such transfer without violation of any agreements,
instruments or laws, and (III) such matters pertaining to compliance
with securities laws as the transferee may reasonably require, or (B)
to agree to indemnify any Person with respect to any matter other than
such Participating Preferred Holder's own representations, warranties
and covenants) and (ii) certificates and/or other instruments
representing the Preferred Shares to be sold by such Participating
Preferred Holder, free
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<PAGE>
and clear of all liens and encumbrances, together with stock or other
appropriate powers duly executed therefor, and shall receive in
exchange therefor at such closing the aggregate Liquidation Value
thereof, which shall be payable in cash or by bank, cashier's or
certified check or by bank wire transfer.
(c) If the prospective transferee does not purchase any of the
Preferred Shares of any Participating Preferred Holder required to be
included in such proposed Transfer pursuant to this Section 2.2
(otherwise than due to (i) the failure of such Participating Preferred
holder to comply with the provisions of Section 2.2(b) hereof or (ii)
any other fault of such Participating Preferred Holder), then the
Initiating Stockholder shall not Transfer any of its Subject Securities
in such proposed Transfer.
(d) The provisions of this Section 2.2 hereof shall not apply
to (i) any Permitted Transfer or (ii) any Transfer to which the
restrictions on Transfer set forth in Section 2.1 hereof do not apply.
2.3 Notice of Proposed Transfers. Not less than 3 business days prior
to any proposed Transfer of Subject Securities by any JWC Equity Partners
Holders (other than a Permitted Transfer or a Transfer in respect of which such
JWC Equity Partners Holders shall have given a Participation Notice), the JWC
Equity Partners Holders shall deliver to the Preferred Holders a notice
certifying whether the provisions of Section 2.2 hereof apply to such proposed
Transfer and setting forth the number of Subject Securities proposed to be
Transferred, the type of Transfer to be effectuated and calculations under
Sections 2.1(a)(i) and 2.1(a)(ii) hereof (including a report in substantially
the form of Exhibit B referred to in Section 2.4 below) giving pro forma effect
to such proposed Transfer.
2.4 Reports of Holdings of JWC Equity Partners Holders. A report
setting forth the number of Subject Securities beneficially owned by the JWC
Equity Partners Holders as of the date hereof is attached as Exhibit B to this
Agreement. On the first business day in March of each year following the date
hereof during the term of this Agreement, the JWC Equity Partners Holders will
deliver to the Preferred Holders a report, in substantially the form of such
Exhibit B, setting forth the number of Subject Securities beneficially owned by
the JWC Equity Partners Holders as of the end of the Company's immediately
preceding fiscal year.
ARTICLE III
Certain Other Provisions
3.1 Remedies.
(a) The parties to this Agreement acknowledge and agree that,
unless the aggregate amount of Proceeds (as defined in Section 3.1(b)
below) received by any JWC Equity Partners Holders in respect of a
Prohibited Transfer (as defined in Section 3.1(b) below) is equal to or
exceeds the aggregate Liquidation Value of all Preferred Shares held
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<PAGE>
by Preferred Holders as of the date of such Prohibited Transfer (or the
date of the last of a series of related Transfers that constitute a
Prohibited Transfer hereunder), monetary damages would not be a
sufficient remedy for any breach of the covenants set forth in this
Agreement and that, therefore, the covenants of the JWC Equity Partners
Holders set forth in this Agreement may be enforced in equity by a
decree requiring specific performance. Without limiting the foregoing,
in the event of any such Prohibited Transfer, the parties to this
Agreement agree that an injunction may be issued in connection
therewith. Such remedies shall be cumulative and non-exclusive and
shall be in addition to any other rights and remedies the parties may
have under this Agreement or otherwise. The JWC Equity Partners Holders
shall not oppose any motion for injunctive relief on the grounds that
monetary damages are an adequate remedy for a breach of their covenants
set forth in this Agreement, and the JWC Equity Partners Holders hereby
waive any requirement for security or the posting of any bond or other
surety in connection with any temporary or permanent award of
injunctive, mandatory or other equitable relief.
(b) If any JWC Equity Partners Holders Transfers any Subject
Securities in one or more related Transfers occurring within six months
of one another to which Section 2.2 hereof applies without having
complied in all material respects with the provisions of Section 2.2
(a), (b) and (c) hereof (collectively, a "Prohibited Transfer"), then:
(i) in the event monetary damages are determined to
be an adequate remedy for such Prohibited Transfer hereunder,
each Preferred Holder shall be entitled, subject to the
following proviso and to Section 3.1(b)(ii) below, to recover
from such JWC Equity Partners Holder as damages for such
Prohibited Transfer an amount in cash equal to the Liquidation
Value of all of the Preferred Shares held by such Preferred
Holder as of the date of such Prohibited Transfer (or the date
of the last of a series of related Transfers that constitute a
Prohibited Transfer hereunder) (the "Total Damages");
provided, however, that in no event shall any Preferred Holder
be entitled to recover Total Damages in respect of a
Prohibited Transfer unless the aggregate cash proceeds, net of
reasonable out-of-pocket fees and expenses (including but not
limited to broker's fees and underwriters discounts and
commissions) actually received, from time to time prior to the
time of the payment of the Total Damages in respect of such
Prohibited Transfer, by such JWC Equity Partners Holder either
in such Prohibited Transfer or from sale(s) or other
disposition(s) of securities or other property (other than
cash) received by such JWC Equity Partners Holder in such
Prohibited Transfer (collectively, the "Proceeds") are equal
to or exceed the aggregate Liquidation Value of all Preferred
Shares held by Preferred Holders as of the date of such
Prohibited Transfer (or the date of the last of a series of
related Transfers that constitute a Prohibited Transfer
hereunder).
(ii) Such JWC Equity Partners Holder shall pay such
Total Damages in accordance with this Section 3.1(b) against
delivery of certificates and or other
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<PAGE>
instruments representing, together with stock powers or other
appropriate instruments of assignment duly endorsed with
respect to, Preferred Shares having an aggregate Liquidation
Value as of the date of such Total Damages payment equal to
such Total Damages payment, free and clear of all claims,
liens and encumbrances.
(iii) The parties acknowledge and agree that the
remedy provided in this Section 3.1(b) is reasonable and does
not constitute a penalty.
3.2 Entire Agreement; Amendment; Termination.
(a) This Agreement sets forth the entire understanding of the
parties, and supersedes all prior agreements and all other arrangements
and communications, whether oral or written, with respect to the
subject matter hereof.
(b) The Schedule of Stockholders may be amended in a writing
signed by both the JWC Representative and the holders of a majority of
the Preferred Shares at the time held by the Preferred Holders to
reflect changes in the composition of the Stockholders and changes in
their addresses or telecopy numbers that may occur from time to time as
a result of Permitted Transfers or Transfers permitted under Article II
hereof. Amendments to the Schedule of Stockholders reflecting Permitted
Transfers or Transfers permitted under Article II hereof shall become
effective when the amended Schedule of Stockholders, and a copy of this
Agreement as executed by any new transferee or other new party hereto
in accordance with Section 3.11 hereof, are delivered to the
Stockholders.
(c) Any other amendment to this Agreement shall be in writing
and shall require the written consent of (i) either the JWC
Representative or the holders of a majority of the Subject Securities
at the time held by the JWC Equity Partners Holders and (ii) the
holders of at least 75% of the Preferred Shares at the time held by the
Preferred Holders.
(d) Without affecting any other provision of this Agreement
requiring termination of any rights or obligations of any Stockholder,
Permitted Transferee or any other transferee of Preferred Shares or
Subject Securities, the provisions of Article 2 of this Agreement shall
terminate as to such Stockholder, Permitted Transferee or other
transferee, when, pursuant to and in accordance with this Agreement,
such Stockholder, Permitted Transferee or other transferee, as the case
may be, no longer owns any Preferred Shares or Subject Securities.
(e) Notwithstanding the foregoing provisions of this Section
3.2, this Agreement may be terminated at any time upon the written
consent of (i) either the JWC Representative or the holders of a
majority of the Subject Securities at the time held by
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<PAGE>
the JWC Equity Partners Holders and (ii) the holders of at least 75% of
the Preferred Shares at the time held by the Preferred Holders.
(f) Where provisions of this Agreement contemplate that
actions be taken or notices be given by a Stockholder Group, actions
taken or notices given by the holders of a majority of the Preferred
Shares or Subject Securities, as the case may be, held in the aggregate
by such Stockholder Group shall be deemed to be actions taken or
notices given by such Stockholder Group, and the other parties hereto
are and will be entitled to rely on any action so taken or any notice
so given by such majority holders of a Stockholder Group.
3.3 Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if the invalid or
unenforceable provision were omitted.
3.4 Notices. All notices, consents and other communications required,
or contemplated under this Agreement shall be in writing and shall be delivered
in the manner specified herein or, in the absence of such specification, shall
be deemed to have been duly given (i) three Business Days after mailing by first
class certified mail, postage prepaid, (ii) when delivered by hand, (iii) upon
confirmation of receipt by telecopy, or (iv) one day after sending by overnight
delivery service, to the respective addresses of the parties set forth below:
(a) For notices and communications to the Company, to it at:
Desa Holdings Corporation
2701 Industrial Drive
Bowling Green, KY 42102
Attention: President
Telecopy: 502-781-5705
(b) For notices and communications to the JWC Equity Partners
Holders, to their respective addresses set forth in the Schedule of
Stockholders, with a copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attention: Christopher Cabot, Esq.
Telecopy: 617-338-2880
(c) For notices and communications to the Preferred Holders,
to their respective addresses set forth in the Schedule of
Stockholders, with a copy to:
Kirkland & Ellis
200 East Randolph Drive
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<PAGE>
Chicago, IL 60601
Attention: Richard Porter, Esq.
Telecopy: 312-861-2200
By notice complying with the foregoing provisions of this Section 3.4, each
party shall have the right to change the mailing address for future notices and
communications to such party.
3.5 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and to their respective permitted
transferees, successors, assigns, heirs and administrators; provided, that the
rights of any Preferred Holder under this Agreement may not be assigned except
to a Permitted Transferee of such Preferred Holder in connection with a
Permitted Transfer effected pursuant to clause (h) or (i) of the definition of
"Permitted Transfer" herein.
3.6 Recapitalizations, Exchanges, etc. The provisions of this Agreement
shall apply, to the full extent set forth herein with respect to any and all
shares of capital stock, debt securities or other securities of the Company or
any successor or assign of the Company (whether by merger, consolidation, sale
of assets or otherwise) which may be issued in respect of, in exchange for, or
in substitution of the any of the Preferred Shares or Subject Securities by
reason of a stock dividend, stock split, stock issuance, reverse stock split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise. Upon the occurrence of any such events, amounts hereunder shall be
appropriately adjusted by the Board of Directors of the Company. Promptly after
any such adjustment, the Company shall give written notice thereof to all of the
Stockholders.
3.7 JWC Representative. Each JWC Equity Partners Holder hereby
designates and appoints (and each Permitted Transferee of each such JWC Equity
Partners Holder shall be deemed to have so designated and appointed) each of
John W. Childs and Adam L. Suttin, acting singly and with full power of
substitution (the "JWC Representative"), the representative of each such Person
to perform all such acts as are required, authorized or contemplated by this
Agreement to be performed by any such Person and hereby acknowledges that the
JWC Representative shall be the only Person authorized to take any action so
required, authorized or contemplated by this Agreement by each such Person. Each
such Person further acknowledges that the foregoing appointment and designation
shall be deemed to be coupled with an interest and shall survive the death or
incapacity of such Person. Each such Person hereby authorizes (and each
Permitted Transferee shall be deemed to have authorized) the other parties
hereto to disregard any notice or other action taken by such Person pursuant to
this Agreement except for the JWC Representative. The other parties hereto are
and will be entitled to rely on any action so taken or any notice given by the
JWC Representative and are and will be entitled and authorized to give notices
only to the JWC Representative for any notice contemplated by this Agreement to
be given to any such Person. A successor to the JWC Representative may be chosen
by the holders of a majority of the Preferred Shares at the time held by the JWC
Equity Partners Holders, provided that written notice thereof is given by the
successor JWC Representative to the Preferred Holders and the other JWC Equity
Partners Holders.
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<PAGE>
3.8 Action Necessary to Effectuate the Agreement. The parties hereto
agree to take or cause to be taken all such corporate and other action as may be
necessary to effect the intent and purposes of this Agreement.
3.9 Legend on Certificate. All the certificates or other instruments
representing any Preferred Shares held by any Preferred Holder or Subject
Securities held by any JWC Equity Partners Holder which are now or hereafter
held by such Stockholder shall be subject to the terms of this Agreement and
shall have endorsed in writing, stamped or printed, thereon the following
legend:
"THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A PREFERRED STOCK TAGALONG AGREEMENT DATED
AS OF OCTOBER 9, 1998, AS AMENDED FROM TIME TO TIME, A COPY OF
WHICH IS ON FILE WITH AND AVAILABLE FROM THE SECRETARY OF THE
COMPANY UPON WRITTEN REQUEST."
3.10 Effectiveness of Transfers. Subject to Section 3.5 hereof, any
Person acquiring any Preferred Shares or Subject Securities pursuant to a
Permitted Transfer shall hold such securities pursuant to this Agreement and
such transferee shall, except as otherwise expressly stated herein, have all the
rights and be subject to all of the obligations of a Stockholder under this
Agreement automatically and without requiring any further act by such transferee
or by any parties to this Agreement. Without affecting the preceding sentence,
if such transferee is not a Stockholder on the dates of such Transfer, then such
transferee, as a condition to such Transfer, shall confirm such transferee's
obligations hereunder in accordance with Section 3.11 hereof. Each party hereto
acknowledges and agrees that no Preferred Shares or Subject Securities shall be
transferred on the Company's books and records, and no Transfer of thereof shall
be otherwise effective, unless any such Transfer is made in accordance with the
terms and conditions of this Agreement, and hereby authorizes the Company to
enter appropriate stop transfer notations on its transfer records to give effect
to this Agreement.
3.11 Additional Stockholders. Any Person acquiring any Preferred Shares
or Subject Securities pursuant to a Permitted Transfer shall, on or before the
Transfer or issuance to it of such Preferred Shares or Subject Securities, sign
and deliver to the Company a counterpart signature page hereto in form
reasonably satisfactory to the Company, the JWC Representative and the holders
of a majority of the Preferred Shares at the time held by the Preferred Holders
and shall thereby become a party to this Agreement; provided that a transferee
which is a Permitted Transferee under clause (f)(i) of the definition of
Permitted Transfer shall not be obligated so to agree until foreclosure on its
pledge.
3.12 No Waiver. No course of dealing and no delay on the part of any
party hereto in exercising any right, power or remedy conferred by this
Agreement shall operate as waiver thereof or otherwise prejudice such party's
rights, powers and remedies. No single or partial
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<PAGE>
exercise of any rights, powers or remedies conferred by this Agreement shall
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy.
3.13 Counterparts. This Agreement may be executed in two or more
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same instrument, and all signatures need not appear
on any one counterpart.
3.14 Headings, etc. All headings and captions in this Agreement are for
purposes of references only and shall not be construed to limit or affect the
substance of this Agreement. Words used in this Agreement, regardless of the
gender and number used, will be deemed and construed to include any other
gender, masculine, feminine, or neuter, and any other number, singular or
plural, as the context requires. As used in this Agreement, the word "including"
is not limiting, and the word "or" is not exclusive. The words "this Agreement",
"hereto", "herein", "hereunder", "hereof", and words or phrases of similar
import refer to this Agreement as a whole, together with any and all Schedules
and Exhibits hereto, and not to any particular article, section, subsection,
paragraph, clause or other portion of this Agreement.
3.15 Governing Law. This Agreement shall be construed under and
governed by the substantive and procedural laws of the State of Delaware
applicable to a contract executed in and wholly performed therein.
[Signatures on Following Pages]
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<PAGE>
DESA HOLDINGS CORPORATION
Preferred Stock Tagalong Agreement
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE COMPANY:
DESA HOLDINGS CORPORATION
By:/s/____________________________
Name:
Title:
THE JWC EQUITY PARTNERS HOLDERS:
J.W. CHILDS EQUITY PARTNERS, L.P.
By: J.W. Childs Advisors, L.P.,
its General Partner
By: J.W. Childs Associates, L.P.,
its General Partner
By: J.W. Childs Associates, Inc.,
its General Partner
By:/s/____________________________
Title:
JWC EQUITY FUNDING, INC.
By:/s/____________________________
Title:
<PAGE>
DESA HOLDINGS CORPORATION
Preferred Stock Tagalong Agreement
Counterpart Signature Page
THE PREFERRED HOLDERS:
JACKSON NATIONAL LIFE
INSURANCE COMPANY
By: PPM America, Inc., as attorney in fact,
on behalf of Jackson National Life
Insurance Company
By:/s/______________________________
Title:
OLD HICKORY FUND I, LLC
By: PPM America, Inc., its manager
By:/s/______________________________
Title:
RELIASTAR FINANCIAL CORP.
By/s/:______________________________
Title:
<PAGE>
Exhibit A
Schedule of Stockholders
As of October 9, 1998
[Schedule of stockholders has not been
included and is available upon request]
<PAGE>
Exhibit B
Holdings of JWC Equity Partners Holders
As of October 9, 1998
[Exhibit has not been
included and is available upon request]
EXHIBIT 10.4
THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK OR
OTHER SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE TERMS AND
CONDITIONS OF AN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED AS OF OCTOBER
9, 1998, AS AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE WITH AND
AVAILABLE FROM THE SECRETARY OF THE COMPANY.
THIS WARRANT AND THE COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS
WARRANT AND THE COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON EXERCISE HEREOF
MAY BE SOLD OR OTHERWISE TRANSFERRED ONLY IF BOTH (i) (a) THERE IS AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, OR
(b) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, UPON RECEIPT BY THE COMPANY OF AN OPINION
(SATISFACTORY AS TO FORM, SCOPE AND SUBSTANCE) OF COUNSEL ACCEPTABLE TO THE
COMPANY AS TO AN EXEMPTION THEREFROM, AND (ii) THE OTHER CONDITIONS SPECIFIED
HEREIN FOR THE TRANSFER OF THIS WARRANT ARE SATISFIED IN FULL.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE TRANSFER OF THE SECURITIES REPRESENTED
BY THIS INSTRUMENT IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE PURCHASE
AGREEMENT, DATED AS OF OCTOBER 9, 1998 AND AS AMENDED AND MODIFIED FROM TIME TO
TIME, BETWEEN THE ISSUER (THE "COMPANY") AND CERTAIN INVESTORS. A COPY OF SUCH
CONDITIONS SHALL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE.
DESA HOLDINGS CORPORATION
Warrant
No. 98W-__ October 9, 1998
Desa Holdings Corporation, a Delaware corporation (the "Company"), for
value received, hereby certifies that
<PAGE>
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___________________, or registered assigns, is entitled to purchase from the
Company _________________________________ (______________) duly authorized,
validly issued, fully paid and nonassessable shares (the "Initial Warrant
Shares") of Common Stock, par value $.01 per share (the "Voting Common Stock"
and, collectively with all other classes of common stock that the Company shall
from time to time have authority to issue, the "Common Stock"), of the Company
at the purchase price per share of $.01 (the "Initial Exercise Price"), at any
time or from time to time prior to the Expiration Date (as hereinafter defined),
all subject to the terms and conditions set forth below in this Warrant. The
Initial Exercise Price is subject to adjustment from time to time as provided in
Section 7 (hereinafter referred to, whether before or after adjustment, as the
"Exercise Price"). The Initial Warrant Shares are subject to adjustment from
time to time as to the aggregate number and kind of shares of capital stock of
the Company purchasable upon exercise of this Warrant (hereinafter referred to,
whether before or after adjustment, as the "Warrant Shares"). As used herein,
"Expiration Date" shall mean 5:00 P.M., Boston, Massachusetts time, on December
31, 2009. The Company shall give the holder of this Warrant notice of the
Expiration Date not more than 90 nor less than 30 days prior to the Expiration
Date. In the event that the Company shall fail to timely give such notice, the
Expiration Date shall be extended to a date 30 days after the date the Company
shall give such notice.
Certain capitalized terms used in this Warrant are defined in Section
9.
SECTION 1. Registration. The Company shall number and register this
Warrant, including any permitted transfer hereof, in a register. The Company may
deem and treat the registered holder of this Warrant as the absolute owner
hereof (notwithstanding any notation of ownership or other writing thereon made
by anyone) for all purposes and shall not be affected by any notice to the
contrary. Notwithstanding the foregoing, this Warrant, if properly assigned, may
be exercised by a new holder without a new Warrant first having been issued.
SECTION 2. Registration of Transfers and Exchanges. The Company shall
from time to time register any transfer of this Warrant permitted under Section
12 hereof in a Warrant register to be maintained by the Company upon surrender
hereof accompanied by a written instrument or instruments of transfer in form
reasonably satisfactory to the Company, duly executed by the
<PAGE>
-3-
registered holder hereof or by the duly appointed legal representative thereof
or by a duly authorized attorney and upon receipt of any applicable transfer
taxes or evidence satisfactory to the Company that no such tax is due. Upon any
such registration of transfer, a new Warrant of like tenor shall be issued to
the transferee(s) and the surrendered Warrant shall be canceled and disposed of
by the Company.
If such transfer of this Warrant is not made pursuant to an effective
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), the Warrant holder will, if reasonably requested by the
Company, deliver to the Company an opinion of counsel, which counsel and the
form, scope and substance of which opinion shall be reasonably satisfactory to
the Company, that this Warrant may be sold without registration under the
Securities Act, as well as:
(a) an investment covenant reasonably satisfactory to the
Company signed by the proposed transferee;
(b) an agreement by such transferee to the impression of the
restrictive investment legend set forth at the beginning of this Warrant; and
(c) an agreement by such transferee to be bound by the
provisions of this Warrant.
This Warrant may be exchanged at the option of the holder hereof, when
surrendered to the Company at its office, for another Warrant of like tenor,
including, without limitation, upon an adjustment in the Exercise Price or in
the number of Warrant Shares purchasable upon exercise of this Warrant. The
Warrant surrendered for exchange shall be canceled and disposed of by the
Company.
SECTION 3. Warrant; Exercise of Warrant. Subject to the terms of this
Warrant, the holder of this Warrant shall have the right, which may be exercised
at any time prior to the Expiration Date, to receive from the Company fully paid
and nonassessable Warrant Shares on such exercise and payment of the Exercise
Price then in effect for such Warrant Shares. No adjustments as to dividends
will be made upon exercise of this Warrant.
This Warrant may be exercised upon surrender hereof to the Company at
its office designated for such purpose (the address of
<PAGE>
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which is set forth in Section 10) with the form of election to purchase attached
hereto duly filled in and signed, upon payment to the Company of the Exercise
Price per Warrant Share, for such number of Warrant Shares in respect of which
this Warrant is then exercised. Payment of the aggregate Exercise Price shall be
made in cash or by wire transfer or by certified or bank cashier's check (or any
combination of such methods) payable to the order of the Company.
Subject to the provisions of Section 4, upon such surrender of this
Warrant and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch (and in any event within five (5)
Business Days) to or upon the written order of the holder, and in the name of
this Warrant holder, a certificate or certificates for the number of full
Warrant Shares issuable upon such exercise together with such other property
(including cash) and securities as may be then deliverable upon such exercise,
including cash for fractional Warrant Shares as provided in Section 8. Such
certificate or certificates shall be deemed to have been issued and the person
so named therein shall be deemed to have become a holder of record of such
Warrant Shares as of the date of the surrender of this Warrant and payment of
the Exercise Price.
This Warrant shall be exercisable, at the election of the holder
hereof, either in full or from time to time in part, and, in the event that this
Warrant is exercised in respect of fewer than all of the Warrant Shares issuable
on such exercise at any time prior to the Expiration Date, a new Warrant
evidencing the remaining Warrant will be issued and delivered pursuant to the
provisions of this Section and of Section 4.
The Warrant surrendered upon exercise shall be canceled and disposed of
by the Company. The Company shall keep copies of this Warrant and any notices
received hereunder available for inspection by the normal business hours at its
office.
SECTION 4. Payment of Taxes. The Company will pay all stamp and other
similar taxes in connection with the initial issuance, sale and delivery of this
Warrant, as well as all such taxes attributable to the initial issuance of
Warrant Shares upon the exercise of this Warrant and payment of the Exercise
Price.
SECTION 5. Mutilated or Missing Warrant. Upon receipt of evidence
reasonably satisfactory to the Company (an affidavit of
<PAGE>
-5-
the registered holder of this Warrant shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of this Warrant and, in the case
of any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Company (provided that, if the holder is a pension fund,
insurance company or financial institution, its own unsecured agreement of
indemnity shall be satisfactory), or, in the case of any such mutilation, upon
surrender of such certificate, the Company shall (at its expense) execute and
deliver in lieu of this Warrant a new Warrant of like kind representing the
number of Warrant Shares represented by such lost, stolen, destroyed or
mutilated Warrant.
SECTION 6. Reservation of Warrant Shares. The Company will at all times
reserve and keep available, free from preemptive or similar rights, out of the
aggregate of its authorized but unissued capital stock or its authorized and
issued capital stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of this Warrant,
the maximum number of shares of each class of capital stock constituting a part
of the Warrant Shares which may then be deliverable upon the exercise of this
Warrant. The Company shall cause all Warrant Shares of each class of Common
Stock or other securities reserved for issuance upon exercise of this Warrant to
be listed (or to be listed subject to notice of issuance) on each securities
exchange on which such shares of Common Stock or any such other securities are
then listed.
The Company or, if appointed, the transfer agent for shares of each
class of Common Stock (the "Transfer Agent") and every, subsequent transfer
agent for any shares of the Company capital stock issuable upon the exercise of
this Warrant will be irrevocably authorized and directed at all times to reserve
such number of authorized shares as shall be required for such purpose. The
Company will keep a copy of this Warrant on file with the Transfer Agent and
with every subsequent transfer agent for any shares of the Company capital stock
issuable upon the exercise of the rights of purchase represented by this
Warrant. The Company will furnish such Transfer Agent a copy of all notices of
adjustments, and certificates related thereto, transmitted to the holder
pursuant to Section 7.
The Company covenants that all Warrant Shares which may be issued upon
exercise of this Warrant will, upon payment of the Exercise Price therefor, be
validly authorized, fully paid,
<PAGE>
-6-
nonassessable, free of preemptive or similar rights and free from all taxes,
liens, charges and security interests with respect to the issue thereof.
SECTION 7. Adjustment of Exercise Price and Number of Warrant Shares
Issuable. The Exercise Price and the number of Warrant Shares issuable upon the
exercise of this Warrant are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section at any time after the date
hereof.
A. Adjustment for Change in Capital Stock.
If the Company
1. pays a dividend or makes a distribution on any class of its
Common Stock in shares of any class of its Common Stock;
2. subdivides its outstanding shares of any class of Common
Stock into a greater number of shares;
3. combines its outstanding shares of any class of Common
Stock into a smaller number of shares; or
4. issues by reclassification of any class of its Com mon
Stock any shares of its capital stock;
then the Exercise Price (subject to the provisions of subsection B of this
Section 7) and the aggregate number and kind of shares of capital stock of the
Company purchasable upon exercise of this Warrant in effect immediately prior to
such action shall be proportionately adjusted so that the holder of this Warrant
thereafter exercised may receive the aggregate number and kind of shares of
capital stock of the Company which it would have owned immediately following
such action (whether or not this Warrant was, at the time, exercisable in
accordance with the provisions thereof for shares of the class of Common Stock
affected) if such Warrant had been exercised immediately prior to such action,
as reasonably determined by the Board of Directors of the Company in good faith.
The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and
<PAGE>
-7-
immediately after the effective date in the case of a subdivision, combination
or reclassification.
If after an adjustment the holder of this Warrant upon
exercise of such Warrant may receive shares of two or more classes of capital
stock of the Company, the Board of Directors of the Company shall reasonably
determine in good faith the allocation of the adjusted Exercise Price between
the classes of capital stock. After such allocation, the exercise privilege and
the Exercise Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Section.
Such adjustment shall be made successively whenever any event
listed above shall occur.
The Company agrees to give at least ten (10) days prior
written notice to the holder of this Warrant, in the manner set forth in this
Warrant, of the record date for (i) any action or transaction to be taken or
entered into by the Company that would require any adjustment pursuant to this
Section 7 or (ii) any dividend or distribution on the Common Stock of the
Company; provided, however, that failure to give or receive such notice or any
defect therein shall not affect the legality or validity of the related action
or transaction.
B. When No Adjustment Required.
No adjustment need be made for a change in the par value or no
par value of any Common Stock.
No adjustment in the Exercise Price shall be made to the
extent that such adjustment would reduce the Exercise Price below the par value
of the Voting Common Stock. Any adjustments that are not made but deferred shall
be carried forward and taken into account in any subsequent adjustment.
C. Notice of Adjustment.
Whenever the Exercise Price is adjusted or the Company takes
any action that would require any adjustment in the Exercise Price, or the
number and type of securities or other property constituting Warrant Shares
purchasable upon exercise of this Warrant, the Company shall mail to the Warrant
holder, in the manner set forth in this Warrant, a notice of such event.
<PAGE>
-8-
A copy of such notice shall also be filed promptly by the
Company with the Transfer Agent (if other than the Company) for the Common Stock
and with each other office, if any, maintained by the Company for the exercise
of this Warrant.
D. Reorganization of the Company.
If any capital reorganization, recapitalization or
reclassification of the capital stock of the Company, or consolidation, merger
or amalgamation of the Company with another entity, or the sale, lease,
transfer, conveyance or other disposition of all or substantially all of its
assets to another entity shall be effected, then, as a condition of such
reorganization, recapitalization, reclassification, consolidation, merger,
amalgamation or sale, lease, transfer, conveyance or other disposition, lawful
and adequate provision shall be made whereby the holder of this Warrant shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant and in lieu of the Warrant Shares
to the extent immediately theretofore purchasable and receivable upon the
exercise of the rights represented by this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant Shares
immediately theretofore purchasable and receivable upon the exercise of the
rights represented by this Warrant had such reorganization, recapitalization,
reclassification, consolidation, merger, amalgamation or sale, lease, transfer,
conveyance or other disposition not taken place. In any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including without
limitation provisions for adjustment of the Exercise Price and of the number and
type of securities purchasable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof.
The Company shall not effect any such consolidation, merger,
amalgamation or sale, lease, transfer, conveyance or other disposition unless
prior to or simultaneously with the consummation thereof the successor entity
(if other than the Company) resulting from such consolidation, merger or
amalgamation or the entity purchasing or otherwise acquiring such assets shall
assume by a supplemental Warrant Agreement,
<PAGE>
-9-
reasonably satisfactory in form, scope and substance to the holder of this
Warrant (which shall be mailed or delivered to the registered holder of this
Warrant at the last address of such holder appearing on the books of the
Company) the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase. The above provisions of this paragraph shall
similarly apply to successive reorganizations, recapitalizations,
reclassification, consolidations, mergers, amalgamations, sales, leases,
transfers, conveyances or other dispositions.
If the issuer of securities deliverable upon exercise of this
Warrant under the supplemental Warrant Agreement is an Affiliate of the former,
surviving, transferee or lessee entity, that issuer shall join in the
supplemental Warrant Agreement.
E. When Issuance or Payment May Be Deferred.
In any case in which this Section shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event (i) issuing to the holder of this Warrant exercised after such record date
the Warrant Shares issuable upon such exercise over and above the Warrant Shares
issuable upon such exercise on the basis of the Exercise Price prior to such
adjustment and (ii) paying to such holder any amount in cash in lieu of a
fractional share pursuant to Section 8 hereof; provided, however, that the
Company shall deliver to such holder a due, bill or other appropriate instrument
evidencing such holder's right to receive such additional Warrant Shares and
cash upon the occurrence of the event requiring such adjustment.
SECTION 8. Fractional Interests. The Company shall not be required to
issue fractional Warrant Shares on the exercise of this Warrant. If more than
one Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable on the exercise of this Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to the Exercise Price on the day
<PAGE>
-10-
immediately preceding the date this Warrant is presented for exercise,
multiplied by such fraction.
SECTION 9. Certain Definitions. As used herein, the following terms
shall have the meanings set forth therefor below:
"Affiliate" of any person shall mean any person which, directly or
indirectly, owns or controls, is under common ownership or control with, or is
owned or controlled by, such person.
"Business Day" shall mean any day other than a Saturday or a Sunday or
a day on which commercial banking institutions in Boston, Massachusetts or New
York, New York are authorized or required by applicable law to be closed.
SECTION 10. Notices. Any notice or demand authorized by this Warrant to
be given or made by the registered holder of this Warrant to or on the Company
shall be in writing and shall be sufficiently given or made when received at the
office of the Company expressly designated by the Company at its office for
purposes of this Warrant (until the Warrant holder is otherwise notified in
accordance with this Section by the Company), as follows:
Desa Holdings Corporation
c/o J.W. Childs Associates, L.P.
One Federal Street
Boston, Massachusetts 02110
Attention: President
Any notice pursuant to this Warrant to be given by the Company to the
registered holder of this Warrant shall be in writing and shall be sufficiently
given when received by such holder at the address appearing on the Warrant
register of the Company (until the Company is otherwise notified in accordance
with this Section by such holder).
SECTION 11. No Rights or Liabilities as Stockholder. Nothing contained
in this Warrant shall be construed as conferring upon the holder hereof the
right to vote or to consent as stockholders in respect of the meetings of
stockholders or the election of members of the Board of Directors of the Company
or any other matter, or any rights whatsoever as stockholders of the Company or
as imposing any obligation on such holder to purchase any securities or as
imposing any liabilities on such holder as a
<PAGE>
-11-
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
SECTION 12. Stockholders Agreement; Restrictions on Transfer. The
holder acknowledges that it has previously executed and delivered that certain
Amended and Restated Stockholders Agreement, dated as of October 9, 1998, by and
among the Company and the Stockholders of the Company named therein (as from
time to time amended and/or restated, the "Stockholders Agreement"). The holder
further agrees that this Warrant and all Warrant Shares issued from time to time
upon exercise hereof shall be subject to the terms and conditions, including
transfer restrictions, of the Stockholders Agreement, as the same may from time
to time be amended or modified or restated in accordance with its terms. This
Warrant shall, notwithstanding any transfer of all or any portion of this
Warrant, remain subject to the terms and conditions of the Stockholders
Agreement and each transferee of this Warrant shall, by acceptance of this
Warrant, be bound by such terms and conditions.
SECTION 13. Other Provisions.
At any time after the Expiration Date, upon the written request of
the Company to the holder, the holder shall surrender this Warrant to the
Company for cancellation.
Amendments to and modifications of this Warrant may be made only by
written instrument executed by both the Company and the holder.
The headings contained in this Warrant are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Warrant.
The validity, interpretation, construction and performance of this
Warrant shall be governed by, and construed in accordance with, the internal
laws of the State of Delaware, without giving effect to any choice or conflict
of laws provision or rule that
<PAGE>
-12-
would cause the application of domestic substantive laws of any other
jurisdiction.
DESA HOLDINGS CORPORATION
By:___________________________
Title:________________________
<PAGE>
FORM OF ELECTION TO PURCHASE
[To Be Executed Upon Exercise of the Warrant]
The undersigned holder hereby represents that it is the registered
holder of this Warrant, and hereby irrevocably elects to exercise the right,
represented by this Warrant, to receive shares of Common Stock, $.01 par value,
of Desa Holdings Corporation (the "Company"), and herewith tenders payment for
such shares to the order of the Company in the amount of $_________ in
accordance with the terms hereof. The undersigned requests that a certificate
for such shares be registered in the name of the undersigned, and further that
such certificate be delivered to the undersigned at the address hereinafter set
forth. If said number of shares is less than all of the shares of Voting Common
Stock purchasable under this Warrant, the undersigned requests that a new
Warrant representing the remaining balance of such shares be registered in the
name of the undersigned, and further that such certificate be delivered to the
undersigned at the address hereinafter set forth.
Certificate to be delivered to the holder as follows:
Name:_______________________________________________
Address:____________________________________________
[______________________]
Date: _____________________ By:________________________
Name:
Title:
(Signature must conform in all
respects to the name of the
holder as specified on the
face of the Warrant, unless
Form of Assignment has been
executed)
<PAGE>
FORM OF ASSIGNMENT
[To be executed upon Transfer of the Warrant]
For value received, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto
all of the undersigned right, title and
interest to and under such Warrant to purchase shares of Voting Common Stock of
Desa Holdings Corporation (the "Company") to which such Warrant relates, and
appoints Attorney to make such transfer on the books of the Company maintained
for such purpose, with full power of substitution in
the premises.
[_______________________________]
Date: __________________________ By:_________________________
Name:
Title:
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
______________________________
(Street Address)
______________________________
(City), (State) (Zip Code)
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<S> <C>
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<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-END> NOV-28-1998
<CASH> 582
<SECURITIES> 0
<RECEIVABLES> 82,666
<ALLOWANCES> (1,705)
<INVENTORY> 51,935
<CURRENT-ASSETS> 139,761
<PP&E> 40,983
<DEPRECIATION> 25,535
<TOTAL-ASSETS> 264,370
<CURRENT-LIABILITIES> 105,514
<BONDS> 327,347
156
16,002
<COMMON> 0
<OTHER-SE> (147,753)
<TOTAL-LIABILITY-AND-EQUITY> 264,370
<SALES> 250,849
<TOTAL-REVENUES> 250,849
<CGS> 166,996
<TOTAL-COSTS> 166,996
<OTHER-EXPENSES> 53,899
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<INTEREST-EXPENSE> 20,796
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<INCOME-TAX> 4,188
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