As filed with the Securities and Exchange Commission on January 16, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
HOLMES PRODUCTS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 506 04-2768914
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
233 FORTUNE BOULEVARD
MILFORD, MASSACHUSETTS 01757
(508) 634-8050
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
SEE TABLE OF ADDITIONAL REGISTRANTS
---------------
Jordan A. Kahn
President and Chief Executive Officer
Holmes Products Corp.
233 Fortune Boulevard
Milford, Massachusetts 01757
(508) 634-8050
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies of all communications to:
Michael L. Andresino, Esq.
Posternak, Blankstein & Lund, L.L.P.
100 Charles River Plaza
Boston, Massachusetts 02114-2723
(617) 973-6100
---------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
----------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=======================================================================================================================
Amount Proposed Proposed
Title of Each Class of to be Maximum Offering Maximum Aggregate Amount of
Securities to be Registered Registered Price Per Note Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9-7/8% Senior Subordinated Notes,
Series B $105,000,000 $1,000.00 $105,000,000 $30,975
- -----------------------------------------------------------------------------------------------------------------------
Guarantees of 9-7/8% Senior Subordinated Notes,
Series B $105,000,000 (1) (1) None (1)
=======================================================================================================================
</TABLE>
(1) No separate consideration will be received for the guarantees of the 9-7/8%
Senior Subordinated Notes, Series B, by certain subsidiaries of Holmes
Products Corp.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
---------------
<TABLE>
<CAPTION>
TABLE OF ADDITIONAL REGISTRANTS(1)
==============================================================================================
Exact Name of Registrant State or Other Jurisdiction Primary Standard Industrial
As Specified in its Charter of Incorporation or Organization Classification Code Number
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Holmes Manufacturing Corp. Massachusetts 506
- ----------------------------------------------------------------------------------------------
Holmes Air (Taiwan) Corp. Massachusetts 506
==============================================================================================
</TABLE>
(1) The address, including zip code, and telephone number, including area code,
of the additional Registrants' principal executive offices is 233 Fortune
Boulevard, Milford, Massachusetts 01757, (508) 634-8050.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 16, 1998
[RED_HERRING]
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
[/RED_HERRING]
PRELIMINARY PROSPECTUS
HOLMES (R)
OFFER TO EXCHANGE
UP TO $105,000,000 OF
9-7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ANY AND ALL OF THE OUTSTANDING
9-7/8% SENIOR SUBORDINATED NOTES DUE 2007
OF
HOLMES PRODUCTS CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON ---------- , 1998, UNLESS EXTENDED.
Holmes Products Corp., a Massachusetts corporation (the "Issuer"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and, together with this Prospectus, the "Exchange Offer"), to
exchange an aggregate of up to $105,000,000 principal amount of 9-7/8% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for an identical face amount of the issued and outstanding 9-7/8% Senior
Subordinated Notes due 2007 (referred to individually as the "144A Notes" and
"Reg S Notes"; collectively as the "Series A Notes"; and, together with the
Exchange Notes, the "Notes") of the Issuer from the Holders (as defined herein)
thereof in integral multiples of $1,000 principal amount. As of the date of
this Prospectus, there are $105,000,000 in aggregate principal amount of the
Series A Notes outstanding. The terms of the Exchange Notes are identical in
all material respects to the Series A Notes, except that the Exchange Notes
have been registered under the Securities Act, and therefore will not bear
legends restricting their transfer described in the Registration Rights
Agreement (as defined herein), the provisions of which generally will terminate
as to all of the Notes upon the consummation of the Exchange Offer. The
Exchange Notes will be obligations of the Issuer evidencing the same
indebtedness as the Series A Notes, and will be entitled to the benefits of the
same Indenture (as defined herein). See "The Exchange Offer."
Interest on the Exchange Notes will be payable semi-annually in arrears on
May 15 and November 15 of each year, commencing on May 15, 1998. The Exchange
Notes will mature on November 15, 2007. The Exchange Notes are redeemable at
any time on or after November 15, 2002 at the option of the Issuer, in whole or
in part, at the redemption prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. Upon the occurrence of a
Change of Control (as defined herein), each holder of the Exchange Notes may
require the Issuer to purchase all or a portion of such holder's Exchange Notes
at a purchase price equal to 101% of the principal amount thereof, together
with accrued and unpaid interest, if any, to the date of purchase. See
"Description of the Exchange Notes -- Repurchase at the Option of the Holders."
The Exchange Notes will be unsecured senior subordinated obligations of
the Issuer and, as such, will be subordinated in right of payment to all
existing and future senior indebtedness of the Issuer. The Exchange Notes will
rank pari passu in right of payment with all other existing and future senior
subordinated indebtedness, if any, of the Issuer, and senior in right of
payment to all existing and future subordinated indebtedness, if any, of the
Issuer. The Exchange Notes will be guaranteed, jointly and severally, on a
senior subordinated basis (the "Guarantees") by the Issuer's Domestic
Restricted Subsidiaries (the "Guarantors" and, together with the Issuer and its
other subsidiaries on a consolidated basis, the "Company"). The Guarantees will
be unsecured senior subordinated obligations of the Guarantors and will be
subordinated to all existing and future senior indebtedness of the Guarantors.
See "Description of the Exchange Notes -- Subsidiary Guarantees." As of
September 30, 1997, on a pro forma basis after giving effect to the
Transactions (as defined herein), the Company and the Guarantors would have had
approximately $34.6 million in aggregate principal amount of Senior Debt (as
defined herein) outstanding, including guarantees of the Company's obligations
under the Credit Facility (as defined herein).
See "Risk Factors" beginning on page 13 for a discussion of certain
factors that should be considered by participants in the Exchange Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE. UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
The Date of this Prospectus is , 1998.
<PAGE>
The Company will accept for exchange any and all validly tendered Series A
Notes on or prior to the Expiration Date (as defined herein). Tenders of Series
A Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date; otherwise such tenders are irrevocable. The Exchange Offer
is not conditioned upon any minimum principal amount of Series A Notes being
tendered for exchange. For certain conditions to the Exchange Offer, see "The
Exchange Offer -- Conditions."
The Series A Notes were offered and sold on November 19, 1997 in a
transaction not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof. In general, the Series A
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act.
The Exchange Notes are being offered hereby in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement. The
Company has agreed to pay the expenses of the Exchange Offer. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties, the
Company believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for Series A Notes may be offered for resale, resold or otherwise
transferred by any person in whose name Series A Notes are registered on the
books of the Company or any other person who has obtained a properly completed
bond power from the registered holder (a "Holder") thereof (other than any such
Holder that is an "affiliate" of the Company within the meaning of Rule 405
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such Holder's business
and such Holder does not intend to participate and has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. In some cases, certain broker-dealers may be required to
deliver a prospectus in connection with the resale of such Exchange Notes.
This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with any resale of Exchange Notes
received in exchange for such Series A Notes where such Series A Notes were
acquired by such broker-dealer for its own account as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company). The Company has agreed that it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale.
Prior to this Exchange Offer, there has been no public market for the
Notes. If a market for the Exchange Notes should develop, the Exchange Notes
could trade at a discount from their principal amount. The Company does not
intend to list the Exchange Notes on any securities exchange nor does the
Company intend to apply for quotation of the Exchange Notes on the NASDAQ
National Market or other quotation system. BancBoston Securities Inc. and
Lehman Brothers Inc. (the "Initial Purchasers") have indicated to the Company
that they intend to make a market in the Notes, but are not obligated to do so
and such market-making activities may be discontinued at any time. As a result,
no assurance can be given that an active trading market for the Exchange Notes
will develop.
The Exchange Notes issued pursuant to this Exchange Offer will be issued
in the form of a Global Exchange Note (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depository"
or "DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global Exchange Note representing the Exchange
Notes will be shown on, and transfers thereof will be effected through, records
maintained by DTC and its participants. Notwithstanding the foregoing, Series A
Notes held in certificated form will be exchanged solely for Certificated
Exchange Notes (as defined herein). After the initial issuance of the Global
Exchange Note, Certificated Exchange Notes will be issued in exchange for the
Global Exchange Note only on the terms set forth in the Indenture. See
"Description of the Exchange Notes -- Book-Entry, Delivery and Form."
All statements, other than statements of historical fact, included in this
Prospectus, including without limitation the statements under "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," are, or may be, forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Without limiting the foregoing, the words "believes," "anticipates," "intends,"
"plans," "expects," and similar expressions are intended to identify
forward-looking statements. Various economic and competitive factors could
cause actual results or events to differ materially from those discussed in
such forward-looking statements, including without limitation, the Company's
degree of leverage, the integration of future acquisitions, the Company's
dependence on major customers and key personnel, competition, risks associated
with foreign manufacturing, risks of the retail industry, potential product
liability claims, and the other factors discussed in this Prospectus with
respect to the Company's business, including those set forth under "Risk
Factors." Accordingly, such forward-looking statements do not purport to be
predictions of future events or circumstances and may not be realized.
----------------
i
<PAGE>
AVAILABLE INFORMATION
The Issuer has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and
the rules and regulations promulgated thereunder, covering the Exchange Notes
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission and to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
For further information with respect to the Issuer and the Notes,
reference is made to such Registration Statement. A copy of the Registration
Statement can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W. Washington, D.C. 20549, and at the Regional Offices of the Commission at 7
World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials can be obtained from the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates. The Commission maintains an Internet web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is http://www.sec.gov.
While any Series A Notes remain outstanding, the Company will make
available, upon request, to any Holder and any prospective purchaser of Series
A Notes the information required pursuant to Rule 144A(d)(4) under the
Securities Act during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act. Any such request should be directed to the
Company at 233 Fortune Boulevard, Milford, Massachusetts 01757, Attention:
Chief Financial Officer (telephone number (508) 634-8050).
Upon completion of the Exchange Offer, the Issuer will become subject to
the informational requirements of the Exchange Act, and in accordance
therewith, will file reports and other information with the Securities and
Exchange Commission.
------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE ISSUER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE
HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE ISSUER SINCE THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
ii
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus, and is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Market data (including market share data) used
throughout this Prospectus were obtained from internal Company surveys,
independent market research companies and industry publications. Independent
market research companies and industry publications generally indicate that the
information provided by them or contained therein has been obtained from
sources believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. The Company has not independently verified such
market data. Similarly, internal Company surveys, while believed by the Company
to be reliable, have not been verified by any independent sources. Unless
otherwise specified, all market share data contained in this Prospectus are
estimates by the Company measured in units sold. Unless the context otherwise
requires, references in this Prospectus to "Holmes" and the "Company" are to
Holmes Products Corp. and its subsidiaries after giving effect to the
Transactions.
The Company
Holmes is a leading developer, manufacturer and marketer of quality,
branded home comfort products, including fans, heaters, humidifiers and air
purifiers. The Company believes that it has the leading U.S. market share in
each of these product categories, which, in the aggregate, accounted for
approximately 91.0% of the Company's net sales for the twelve months ended
September 30, 1997. In addition, the Company markets and distributes
dehumidifiers and a variety of decorative and home office lighting products.
The Company believes that its strong market position and success are
attributable to its continuous product innovation, engineering and
manufacturing expertise, close customer partnerships, breadth of product
offerings and reputation for quality. From 1993 to 1996, Holmes' net sales
increased from $61.8 million to $194.3 million, a compound annual growth rate
of 46.5%. For the twelve months ended September 30, 1997, after giving pro
forma effect to the Transactions, the Company would have had net sales, net
income, and EBITDA (as defined) of $185.3 million, $4.9 million, and $26.5
million, respectively.
The Company's products are sold to consumers through major retail
channels, including mass merchants, do-it-yourself home centers, warehouse
clubs, hardware stores and national drugstore chains. Representative customers
include Wal-Mart, Kmart, Target, Home Depot, Costco, BJ's Wholesale Club,
TruServ (formerly True Value and ServiStar) and Walgreens. The Company believes
that the strength, scope and visibility of its retail account base provide a
competitive advantage with respect to brand recognition, shelf space and
penetration of the consumer market.
Holmes was founded in 1982 by its current Chief Executive Officer, Jordan
A. Kahn, an innovator in the home comfort market with over 30 years of industry
experience. Holmes opened its first manufacturing facility in China in 1989,
and currently operates two facilities in China where it manufactures its
products and electric motors for use in its products. The Company also produces
electric motors for manufacturers of other electric appliances. The Company's
vertically integrated manufacturing facilities provide the Company with control
over the production process and product quality. These facilities also enhance
operational flexibility and allow the Company to quickly respond to changes in
consumer demand and to specialized production needs. The Company maintains
offices in Hong Kong and Taiwan that are responsible for sourcing raw
materials, processing orders and shipping the Company's products. The Company
coordinates product development, marketing, sales and distribution from the
Company's Milford, Massachusetts headquarters. The Company markets and
distributes products primarily under the Holmes[RegTM] brand name.
The principal executive offices of the Company are located at 233 Fortune
Boulevard, Milford, Massachusetts 01757 and the telephone number is (508)
634-8050.
Competitive Strengths
The home comfort product market is highly competitive and fragmented. The
Company believes successful industry participants (i) deliver quality products
in a timely and cost effective manner, (ii) provide innovative product
introductions, (iii) offer a broad line of product categories across the entire
home comfort appliance market and (iv) provide value-added services to
retailers. Holmes believes that the following factors contribute to the
1
<PAGE>
Company's position as a leader in the home comfort appliance market and serve
as the foundation for the Company's growth strategy:
Leading Market Share. Holmes believes that it has the leading U.S. market
share in each of the Company's four primary product categories: fans, heaters,
humidifiers and air purifiers. Management estimates that total retail sales of
these products in the United States exceeded $1.0 billion in 1996. Management
believes that the Company's leading market share provides Holmes with a
competitive advantage in terms of retail account relations and enhanced brand
awareness.
Innovation in Product Design. The Company has established a reputation for
innovation in product design, incorporating functional enhancements as well as
aesthetic improvements. Management believes that innovation in these areas has
contributed to the growth of the home comfort industry. In creating new
products, the Company seeks to develop product concepts and features not
offered in the marketplace, and which the Company can produce at strategic
price points. Holmes typically has introduced more than 20 new stock keeping
units ("SKUs") annually (excluding new color introductions of previous models)
to its primary home comfort product offerings. The Company's expenditures for
product development and tooling totaled $10.2 million for the twelve months
ended September 30, 1997.
Product innovations by the Company include:
[bullet] Oscillating heater
[bullet] Warm mist humidifier
[bullet] Accutemp[RegTM] digital temperature control
[bullet] Oscillating window fan
[bullet] Air purifier with sound conditioning feature
[bullet] Twin ceramic heater
New products and product line extensions introduced since January 1, 1994
accounted for a majority of the Company's net sales during the year ended
December 31, 1996. Management believes product innovation will continue to
stimulate demand for the Company's products. In addition, management believes
that product innovations provide opportunities to earn higher gross margins for
both the Company and the retailer.
Strong Retailer Network. The Company has established strong relationships
with leading retailers in each of the major channels of retail distribution.
The Company's 25 largest accounts represented 73.5% of net sales in 1996, with
the three largest, Wal-Mart, Kmart and Target, representing 40.2% of net sales
in 1996. The Company believes that home comfort products provide retailers with
higher profit potential than many alternative product offerings. Management
believes that this profit potential, together with the Company's strong
relationships with its retail customers, has led many retailers to increase
shelf space for the Company's products. Over the years, Holmes has also
received a number of awards from its customers in recognition of the Company's
contribution to retailers' profitability and success, including Vendor of the
Year in 1996 from Target, True Value, Pamida and Venture Stores.
Focus on the Retailer and the Consumer. Holmes has established a
reputation among leading retailers for quality products, timely shipment and
value-added assistance in merchandising. The Company works with current and
potential retail customers to develop products at strategic price points that
meet consumer needs. Holmes also employs an in-house graphics team to develop
attractive and informative product packaging designed to educate the consumer
at the point of purchase. In addition, Holmes works closely with each retailer
to develop customized product displays, point-of-purchase signage and
educational materials. The Company also provides after-sale consumer services
such as a toll-free consumer information line.
Low Cost / High Quality Manufacturer. Management believes that Holmes is
both a low cost manufacturer and a quality leader in the home comfort industry.
The Company manufactures the majority of its products at its customized
production facilities in China. The Company believes that it has a cost
advantage as a result of its degree of vertical integration, purchasing power
and low labor costs. In addition, by operating its own vertically integrated
manufacturing facilities, Holmes has control over the quality of its products
from design through final distribution. Through rigorous control of the
manufacturing process, Holmes has established a strict quality control system
to ensure the highest quality of products.
Design and Engineering Expertise. Through its engineering expertise and
state-of-the-art technology, Holmes is able to rapidly and cost effectively
develop new products. The Company uses advanced CAD software in conjunction
with laser-based stereolithography to design and engineer new products. These
combined
2
<PAGE>
technologies allow the Company to design and produce prototypes of new products
quickly, thus enabling Holmes to accurately assess the feasibility, cost and
tooling requirements of new products before manufacturing the products. The
Company believes it is one of only a few U.S. manufacturers to employ
stereolithography technology and thereby enjoys a competitive advantage in the
design and rapid prototyping of new products and product line extensions. These
technologies also enhance the sales process by allowing customers to view
working samples of new products before they are tooled. The Company has reduced
the average time from product conception to market introduction from
approximately 20 months three years ago to approximately nine months currently.
Talented Senior Management Team with Significant Equity Ownership. Holmes
has an experienced and entrepreneurial management team, with an average of over
11 years of industry experience. The Company's Chief Executive Officer, Jordan
A. Kahn, founded the Company in 1982 and is recognized as an innovator in the
home comfort appliance industry. The Company's senior management team also
includes Stanley Rosenzweig (Chief Operating Officer), Gregory F. White
(Executive Vice President, Sales and Marketing) and Tommy Liu (Managing
Director of the Company's Far East operations). The Company's senior management
team owns an aggregate of approximately 25.7% of the Company's common stock.
Business Strategy
The Company's strategy is to achieve further growth in net sales,
profitability and cash flow by: (i) increasing sales of existing products; (ii)
introducing new product categories and product line extensions; and (iii)
expanding geographically. The Company intends to implement this strategy by
pursuing the following initiatives:
Further Penetrate Existing Distribution Channels. The Company believes
that it can further penetrate its existing distribution channels as a result of
favorable industry dynamics and the Company's strong relationships with mass
merchant retailers, the fastest growing segment in retail distribution. Holmes
currently sells to the largest, most sophisticated mass merchant retailers and
believes it is well suited to grow this business with both existing and new
customers. Management believes that mass merchants will continue to consolidate
their vendor base and focus on a smaller number of sophisticated suppliers that
can (i) provide a broad array of differentiated, quality products, (ii)
efficiently and consistently fulfill logistical requirements and volume demands
and (iii) provide full product support from design to point of sale and
after-market service with the consumer. Holmes believes that it is well
situated to capitalize on these trends.
Develop New Distribution Channels. The Company continues to develop new
channels of distribution by providing customized product offerings that appeal
to the specific needs of each channel. Since 1996, Holmes has successfully
marketed select products through an arrangement with the QVC electronic
retailing network. In addition, Holmes recently introduced a new line of
humidifiers and air purifiers, called Family Care[RegTM], to be marketed
through national drugstore chains. The Company has also partnered with Gerry
Baby Products to market the Company's products under the Gerry brand name and
expand into the juvenile products distribution channel.
Pursue Targeted Marketing Opportunities. As part of the Company's growth
strategy, the Company has established several strategic alliances in order to
promote awareness of the Company's products. For example, the Company has
established a marketing affiliation with the Allergy and Asthma Foundation of
America and has developed a strategic marketing partnership with the Brita
Products Company, a subsidiary of Clorox Company, to market a new humidifier
that integrates the Brita[RegTM] water filter. The Company has also entered
into a variety of cross-merchandising relationships with other manufacturers
including Stanley Tools, Toro, Vaseline and Benadryl.
Leverage Core Competencies to Expand Product Offerings. The Company
believes that its product development capabilities, established distribution
network, marketing skills and ability to identify customer needs uniquely
position it to successfully enter into new product categories within the
portable appliance industry, either through internal growth or selective
acquisitions. For example, in 1993, Holmes introduced a line of decorative and
home office lighting products. The Company believes that it can successfully
enter additional product categories based on the Company's core competencies
within the household and portable appliance industry. In addition to its core
appliance business, the Company designs, develops and sells electric motors to
original equipment manufacturers, including Frigidaire.
3
<PAGE>
Expand into New Geographic Regions. The Company believes that the European
and Asian home comfort markets are underdeveloped and represent significant
growth opportunities. As a result, the Company has begun to focus on marketing
its products in these regions. The Company currently sells its products in
Europe and Asia on an original equipment manufacturer basis and, in August
1996, launched the sale of branded home comfort products in France.
In furtherance of its strategic objectives, the Company may from time to
time engage in discussions regarding mergers, acquisitions or other types of
business combination transactions with third parties in the consumer products
industry. The provisions of the Credit Facility permit the Company to make
acquisitions that satisfy certain criteria.
The Transactions
Prior to the closing of a series of transactions on November 26, 1997,
including the issuance of the Series A Notes, the Company operated as Holmes
Products Corp. ("Holmes U.S."), through which the Company conducted its
operations in the United States, and Holmes Products (Far East) Limited
("Holmes Far East"), through which the Company conducted its manufacturing and
sourcing operations in the Far East. Holmes U.S. and Holmes Far East were
indirect subsidiaries of the Pentland Group plc (together with its
subsidiaries, "Pentland"). In addition, Jordan A. Kahn, the founder of the
Company and the Company's President and Chief Executive Officer, owned a
minority interest in Holmes U.S. and Holmes Far East.
Pursuant to a Stock Purchase and Redemption Agreement, a Stock Purchase
Agreement and a Shareholders/Executives Agreement (the "Transactions
Agreements"), (i) Pentland and Mr. Kahn contributed their shares of Holmes Far
East to Holmes U.S., as a result of which Holmes Far East became a wholly owned
subsidiary of Holmes U.S., (ii) affiliates of Berkshire Partners LLC ("Berkshire
Partners"), certain members of the Company's senior management and certain other
investors purchased approximately $16.5 million of capital stock of Holmes U.S.
from the Company and approximately $9.7 million of capital stock of Holmes U.S.
from Mr. Kahn (collectively, the "Berkshire Equity Investment"), the proceeds of
which Holmes U.S. used to repay certain outstanding indebtedness, (iii) Mr. Kahn
and Pentland retained equity interests in Holmes U.S. with an implied value of
approximately $7.0 million and $1.8 million, respectively (valued on the basis
of the Berkshire Equity Investment), and (iv) Holmes U.S. used available cash,
the net proceeds from the Series A Notes and borrowings under a new $100.0
million senior credit facility (the "Credit Facility") to redeem a portion of
the capital stock of Holmes U.S. owned by Pentland, to repay certain outstanding
borrowings of the Company and to pay certain expenses of the transactions (the
transactions referred to in clauses (i) through (iv), including the issuance of
the Series A Notes and the initial borrowings under the Credit Facility, are
collectively referred to herein as the "Transactions").
As a result of the Transactions, the Company is currently owned
approximately 69.2% by Berkshire Partners and certain other investors,
approximately 25.7% by Mr. Kahn and other members of senior management and 5.1%
by Pentland. In addition, in connection with the Transactions, the Company
issued a warrant to Pentland to purchase 5% of the common stock of the Company,
which is exercisable upon the occurrence of certain liquidity events generally
occurring within two years following the closing of the Transactions.
4
<PAGE>
The following table sets forth the sources and uses of funds in connection
with the closing of the Transactions on November 26, 1997, certain of which
amounts are subject to a post-closing audit (in thousands):
<TABLE>
<S> <C>
Sources:
Available cash ............................................. $ 8,000
Credit Facility (1)(2) .................................... 30,807
Senior Subordinated Notes ................................. 105,000
Berkshire Equity Investment (2)(3) ........................ 16,488
--------
Total cash sources to the Company ........................ 160,295
Berkshire Equity Investment (2)(4) ........................ 9,727
Equity value retained by existing stockholders (7) ......... 8,785
--------
Total sources .......................................... $178,807
========
Uses:
Repayment of existing indebtedness (5) ..................... $ 79,903
Redemption of Pentland equity (2) ........................ 62,058
Management bonuses (6) .................................... 7,734
Estimated fees and expenses (6) ........................... 10,600
--------
Total cash uses by the Company ........................... 160,295
Purchase of equity by Berkshire from Mr. Kahn (2)(4) ...... 9,727
Equity value retained by existing stockholders (7) ......... 8,785
--------
Total uses ............................................. $178,807
========
</TABLE>
- ------------
(1) The Credit Facility provides for total availability of $100.0 million. See
"Description of Credit Facility."
(2) Subject to final working capital adjustments.
(3) Represents the portion of the Berkshire Equity Investment used to acquire
capital stock of Holmes U.S. from the Company.
(4) Represents the portion of the Berkshire Equity Investment used to acquire
capital stock of Holmes U.S. from Mr. Kahn.
(5) The indebtedness repaid in connection with the Transactions was classified
as current liabilities on the Company's balance sheet and bore interest,
as of November 26, 1997, at a weighted average rate of 7.93% per annum
exclusive of non-interest bearing amounts due to affiliates.
(6) Pursuant to the Transactions Agreements, the purchase price of the capital
stock from Pentland and Mr. Kahn was reduced by the amount of the
management bonuses and $1.8 million of the fees and expenses of the
Transactions.
(7) Valued on the basis of the Berkshire Equity Investment.
Berkshire Partners
Berkshire Partners is an active investor in the private equity market,
managing four investment funds capitalized with $725 million. The firm's
investment strategy is to seek companies that have attractive growth prospects
and to partner with talented management teams who retain meaningful ownership
stakes. Through its 13-year investment history, Berkshire Partners has
developed specific industry experience in several areas including various
manufacturing sectors, retailing and related services, surface transportation
and wireless communications. The firm's transactions have taken various forms
including leveraged buyouts, recapitalizations, privatizations, industry
consolidations and growth equity investments. Over the past decade, Berkshire
Partners has been an investor in 48 operating companies with combined revenues
in excess of $4 billion.
5
<PAGE>
The Series A Offering
<TABLE>
<S> <C>
The Series A Notes .................. The Series A Notes were sold by the Company in the Offering on
November 19, 1997, and were subsequently resold to (i) Qualified
Institutional Buyers (as defined herein) pursuant to Rule 144A under the
Securities Act, and (ii) outside the United States in reliance on Regulation
S under the Securities Act in a manner exempt from registration under
the Securities Act.
Registration Rights Agreement ...... In connection with the Offering, the Company entered into the
Registration Rights Agreement, which grants Holders of the Series A
Notes certain exchange and registration rights. The Exchange Offer is
intended to satisfy such exchange and registration rights, which generally
terminate upon the consummation of the Exchange Offer.
The Exchange Offer
Securities Offered .................. $105,000,000 in aggregate principal amount of 9-7/8% Senior
Subordinated Notes due 2007, Series B.
The Exchange Offer .................. $1,000 principal amount of the Exchange Notes in exchange for each
$1,000 principal amount of Series A Notes. As of the date hereof,
$105,000,000 in aggregate principal amount of Series A Notes are
outstanding. The Company will issue the Exchange Notes to Holders on
or promptly after the Expiration Date. The terms of the Exchange Notes
are substantially identical in all material respects (including principal
amount, interest rate and maturity) to the terms of the Series A Notes for
which they may be exchanged pursuant to the Exchange Offer, except that
the Exchange Notes are freely transferable by holders thereof (other than
as provided herein), and are not subject to any covenant regarding
registration under the Securities Act. See "The Exchange Offer." Other
than compliance with applicable federal and state securities laws,
including the requirement that the Registration Statement be declared
effective by the Commission, there are no material federal or state
regulatory requirements to be complied with in connection with the
Exchange Offer.
Interest Payments .................. The Exchange Notes will bear interest from November 26 , 1997, the date
of consummation of the issuance of the Series A Notes, or the most recent
interest payment date to which interest on such Series A Notes has been
paid, whichever is later. Accordingly, Holders of Series A Notes that are
accepted for exchange will not receive interest on such Series A Notes
that is accrued but unpaid at the time of tender, but such interest will be
payable on the first interest payment date after the Expiration Date.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Minimum Condition ............... The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Series A Notes being tendered for exchange.
Expiration Date .................. 5:00 p.m., New York City time, on , 1998 unless the
Exchange Offer is extended, in which case the term "Expiration Date"
means the latest date and time to which the Exchange Offer is extended.
Exchange Date .................. The date of acceptance for exchange of the Series A Notes will be the
first business day following the Expiration Date.
Withdrawal Rights ............... Tenders may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. See "The Exchange Offer -- Withdrawal
of Tenders."
Acceptance Of Series A Notes And The Company will accept for exchange any and all Series A Notes that
Delivery Of Exchange Offer are properly tendered in the Exchange Offer prior to 5:00 p.m., New York
Notes ........................... City time, on the Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer -- Terms of the Exchange
Offer."
Conditions To The Exchange Offer . The Exchange Offer is subject to certain customary conditions, which
may be waived by the Company. See "The Exchange Offer --
Conditions."
Procedures For Tendering Series A To tender pursuant to the Exchange Offer, a Holder must complete, sign
Notes ........................... and date the accompanying Letter of Transmittal, or a facsimile thereof,
have the signatures therein guaranteed if required by instruction 4 of the
Letter of Transmittal and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the Series A Notes and any
other required documentation to the Exchange Agent (as defined herein)
at the address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. See "The Exchange Offer -- Procedures for
Tendering" and "Plan of Distribution." By executing the Letter of
Transmittal, each Holder will represent to the Company that, among other
things, the Holder or the person receiving such Exchange Notes, whether
or not such person is the Holder, is acquiring the Exchange Notes in the
ordinary course of business and that neither the Holder nor any such other
person intends to participate or has any arrangement or understanding
with any person to participate in the distribution of such Exchange Notes.
In lieu of physical delivery of the certificates representing Series A Notes,
tendering Holders may transfer Series A Notes pursuant to the procedure
for book-entry transfer as set forth under "The Exchange Offer --
Procedures for Tendering."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Special Procedures For Beneficial Any beneficial owner whose Series A Notes are registered in the name
Owners .............................. of a broker, commercial bank, trust company or other nominee and who
wishes to tender in the Exchange Offer should contact such registered
holder promptly and instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner wishes to tender on
such beneficial owner's own behalf, such beneficial owner must, prior to
completing and executing the Letter of Transmittal and delivering the
Series A Notes, either make appropriate arrangements to register
ownership of the Series A Notes in such beneficial owner's name or
obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time. See "The
Exchange Offer -- Procedures for Tendering."
Guaranteed Delivery Procedures ...... Holders of Series A Notes who wish to tender their Series A Notes and
whose Series A Notes are not immediately available or who cannot
deliver their Series A Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to the Exchange Agent
(or comply with the requirements for book-entry transfer) prior to the
Expiration Date must tender their Series A Notes according to the
guaranteed delivery procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
Federal Income Tax Consequences ...... The issuance of the Exchange Notes to Holders pursuant to the terms set
forth in this Prospectus will not constitute an exchange for federal income
tax purposes. Consequently, no gain or loss would be recognized by
Holders upon receipt of the Exchange Notes. See "The Exchange Offer
-- Certain Federal Income Tax Consequences of the Exchange Offer."
Use Of Proceeds ..................... There will be no proceeds to the Company from the exchange of Series
A Notes pursuant to the Exchange Offer.
Exchange Agent ..................... State Street Bank and Trust Company is serving as exchange agent (the
"Exchange Agent") in connection with the Exchange Offer. See "The
Exchange Offer -- Exchange Agent."
</TABLE>
8
<PAGE>
Summary of Terms of the Exchange Notes
The form and terms of the Exchange Notes are the same as the form and
terms of the Series A Notes (which they replace) except that (i) the Exchange
Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof, and (ii) the holders of Exchange
Notes generally will not be entitled to further registration rights under the
Registration Rights Agreement, which rights generally will be satisfied when
the Exchange Offer is consummated. The Exchange Notes will evidence the same
debt as the Series A Notes and will be entitled to the benefits of the
indenture pursuant to which the Series A Notes were issued (the "Indenture").
See "Description of the Exchange Notes."
<TABLE>
<S> <C>
Securities Offered ...... $105.0 million aggregate principal amount of 9-7/8% Senior Subordinated
Notes due 2007, Series B.
Maturity .................. November 15, 2007.
Interest .................. The Exchange Notes will bear interest at the rate of 9-7/8% per annum,
payable semi-annually in arrears on May 15 and November 15 of each
year, commencing on May 15, 1998.
Guarantees ............... The Exchange Notes will be guaranteed by all of the Company's existing
Domestic Restricted Subsidiaries (the "Guarantors"), and all Domestic
Restricted Subsidiaries created or acquired by the Company in the future.
The Guarantors do not currently have any material assets or operations.
Ranking .................. The Exchange Notes will be general unsecured obligations of the
Company and will be subordinated in right of payment to all existing and
future Senior Debt of the Company. As of September 30, 1997, after
giving pro forma effect to the Transactions, the Company would have had
approximately $34.6 million of Senior Debt outstanding, including
outstanding borrowings under the Credit Facility. In addition, the
Company would have had $67.3 million of additional borrowings
available under the Credit Facility.
Optional Redemption ...... Except as set forth below, the Exchange Notes will not be redeemable
at the option of the Company prior to November 15, 2002. Thereafter,
the Exchange Notes will be subject to redemption at any time at the option
of the Company, in whole or in part, at the redemption prices set forth
herein, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the redemption date. In addition, at any time prior to November
15, 2000, the Company may redeem up to an aggregate of $33.0 million
in principal amount of Exchange Notes at a redemption price equal to
109.875% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date,
with the net cash proceeds of one or more sales of Equity Interests (other
than Disqualified Stock) of the Company, provided that at least $72.0
million in principal amount of Exchange Notes remains outstanding
immediately following each such redemption.
Change of Control ......... In the event of a Change of Control, the Company will be required to
make an offer to each holder of Exchange Notes to repurchase all or any
part of such holder's Exchange Notes at a repurchase price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the repurchase date.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Covenants .................. The Indenture contains certain covenants that, among other things, limit
the ability of the Company and its Restricted Subsidiaries (as defined)
to incur additional Indebtedness (as defined), pay dividends, repurchase
Equity Interests or make other Restricted Payments (as defined), create
Liens (as defined), enter into transactions with Affiliates (as defined), sell
assets or enter into certain mergers and consolidations. See "Description
of the Exchange Notes."
Registration Rights ...... The Registration Rights Agreement provides that if (i) the Issuer is not
required to file the Exchange Offer Registration Statement or permitted
to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) in certain
circumstances, a Holder notifies the Company prior to the 20th day
following consummation of the Exchange Offer (a) that it is prohibited
by law or Commission policy from participating in the Exchange Offer
or (b) that it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (c) that it is a broker-dealer
and owns Series A Notes acquired directly from the Issuer or an affiliate
of the Issuer, the Issuer will file with the Commission a shelf registration
statement (the "Shelf Registration Statement") to cover resales of the
Series A Notes by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement.
The interest rate on the Series A Notes is subject to increase under certain
circumstances if the Company is not in compliance with its obligations
under the Registration Rights Agreement. See "Description of the
Exchange Notes -- Registration Rights; Liquidated Damages."
Lack Of Prior Market For The The Exchange Notes will be new securities for which there is currently
Exchange Notes ............ no established trading market. The Company does not intend to apply for
listing of the Exchange Notes on any national securities exchange or for
quotation of the Exchange Notes on any automated dealer quotation
system. The Company has been advised by the Initial Purchasers that they
presently intend to make a market in the Exchange Notes, although they
are under no obligation to do so and may discontinue any market-making
activities at any time without notice. Accordingly, no assurance can be
given as to the liquidity of the trading market for the Exchange Notes or
that an active public market for the Exchange Notes will develop. If an
active trading market for the Exchange Notes does not develop, the
market price and liquidity of the Exchange Notes may be adversely
affected. If the Exchange Notes are traded, they may trade at a discount
from their initial offering price, depending on prevailing interest rates,
the market for similar securities, the performance of the Company and
certain other factors. See "Risk Factors -- Absence of Public Market for
the Exchange Notes."
</TABLE>
Risk Factors
Holders of the Series A Notes should carefully consider the matters set
forth under "Risk Factors," as well as the other information and financial
statements and data included in this Prospectus, prior to deciding to tender
their Series A Notes in the Exchange Offer.
10
<PAGE>
Summary Financial Data
The following summary historical financial data for the years ended
December 31, 1994, 1995 and 1996 have been derived from the audited
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus. The summary historical financial data as of September 30, 1997 and
for the nine months ended September 30, 1996 and 1997 have been derived from
the unaudited Consolidated Financial Statements of the Company included
elsewhere in this Prospectus. In the opinion of management, these unaudited
Consolidated Financial Statements include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the
financial position and results of operations of the Company for these periods.
Due to the seasonality of operations and other factors, the results of
operations for interim periods are not necessarily indicative of results that
may be expected for the full year. The summary unaudited pro forma data as of
September 30, 1997 and for the year ended December 31, 1996, the nine months
ended September 30, 1997 and the twelve months ended September 30, 1997 have
been derived from the Unaudited Pro Forma Condensed Financial Statements
included elsewhere in this Prospectus. The unaudited pro forma data do not
purport to represent what the Company's financial position or results of
operations actually would have been if the transactions referred to therein had
been consummated on the date or for the periods indicated, or what such results
will be for any future date or for any future period. The following information
should be read in conjunction with "Selected Financial Data," "Unaudited Pro
Forma Condensed Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements, including the notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Pro Forma
Year Ended December 31, -------------------------------- Twelve Month
------------------------------------------ Ended
Pro Forma Pro Forma September 30,
1994 1995 1996 1996(1) 1996 1997 1997(1) 1997(1)
--------- -------- --------- ---------- --------- --------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales ............................. $114,509 $178,132 $194,331 $194,331 $145,814 $136,767 $136,767 $185,284
Cost of goods sold .................... 84,672 141,226 145,915 143,931 114,928 102,442 100,773 131,265
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit .......................... 29,837 36,906 48,416 50,400 30,886 34,325 35,994 54,019
Selling, general and administrative
expenses ............................. 17,522 22,500 27,308 26,659 19,384 21,432 21,669 28,706
Product development expenses ........... 2,742 3,154 5,520 5,520 3,045 3,637 3,637 6,112
-------- -------- -------- -------- -------- -------- -------- --------
Operating profit .................... 9,573 11,252 15,588 18,221 8,457 9,256 10,688 19,201
Interest expense ....................... 2,104 5,231 6,570 14,798 5,072 4,850 10,828 14,372
Other income, net .................... 261 349 398 398 108 84 84 374
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
minority interest .................... 7,730 6,370 9,416 3,821 3,493 4,490 (56) 5,203
Income tax expense (benefit) ........... 3,214 2,614 2,787 549 680 292 (1,526) 315
Minority interest in net income
of majority-owned subsidiaries(2) .... 282 518 408 -- 140 220 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income .......................... $ 4,234 $ 3,238 $ 6,221 $ 3,272 $ 2,673 $ 3,978 $ 1,470 $ 4,888
======== ======== ======== ======== ======== ======== ======== ========
Other Data:
EBITDA(3) ............................. $ 12,798 $ 16,098 $ 22,774 $ 25,407 $ 13,313 $ 14,187 $15,619 $ 26,462
EBITDA margin(3) ....................... 11.2% 9.0% 11.7% 13.1% 9.1% 10.4% 11.4% 14.3%
Depreciation and amortization ........ $ 2,981 $ 4,509 $ 6,867 $ 6,867 $ 4,803 $ 4,973 $ 4,973 $ 7,037
Capital expenditures ................. 8,821 9,706 8,594 8,594 6,484 3,601 3,601 5,711
Cash flows from operating activities .. 7,728 5,524 2,802 2,802 623 (691) (691) 1,488
Cash flows from investing activities .. (8,821) (9,706) (8,594) (8,594) (6,484) (4,051) (4,051) (6,161)
Cash flows from financing activities .. 2,000 5,972 6,886 6,886 9,951 8,429 8,429 5,364
Ratio of EBITDA to cash interest
expense(4) .......................... 2.0x
Ratio of total debt to EBITDA ........ 5.3x
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
As of September 30, 1997
----------------------------
Historical Pro Forma(1)
------------ -------------
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents .................. $ 8,149 $ 149
Working capital ........................... 850 78,242
Total assets .............................. 135,310 132,874
Total long-term debt ..................... 890 138,565
Total stockholders' equity (deficit) ...... 21,686 (28,758)
</TABLE>
(1) The unaudited pro forma income statement data gives effect to the
Transactions and the repurchase of the minority interest in one of the
Company's subsidiaries as if they had occurred as of January 1, 1996. The
unaudited pro forma balance sheet data gives effect to the Transactions as
if they had occurred on September 30, 1997. See "Unaudited Pro Forma
Condensed Financial Statements."
(2) In May and June 1997, the Company repurchased the shares held by the 30%
minority stockholders in one of the Company's subsidiaries for a total of
$900,000. The summary unaudited pro forma results of operations exclude
the minority interest in net income of majority-owned subsidiaries.
(3) EBITDA represents income before interest expense, income tax expense,
depreciation and amortization and the minority interest in net income of
majority-owned subsidiaries. EBITDA margin represents EBITDA as a
percentage of net sales. EBITDA is presented because it is a widely
accepted measure to provide information regarding a company's ability to
service and/or incur debt. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operations or other income
or cash flow data prepared in accordance with generally accepted
accounting principles, or as a measure of a company's profitability or
liquidity. Additionally, the Company's calculation of EBITDA may differ
from that performed by other companies, and thus the amounts disclosed for
EBITDA may not be directly comparable to those disclosed by other
companies.
(4) Cash interest expense is defined as interest expense less amortization of
debt issuance costs.
12
<PAGE>
RISK FACTORS
In addition to the other information set forth and incorporated by
reference herein, Holders of Series A Notes should carefully consider the
following information in evaluating the Company and its business before
deciding to tender the Series A Notes in the Exchange Offer. The information
contained herein includes forward-looking statements that involve a number of
risks and uncertainties. A number of factors, including those discussed below,
could cause results to differ materially from those anticipated by such
forward-looking statements. In addition, such forward-looking statements are
necessarily dependent upon assumptions, estimates and data that may be
incorrect or imprecise. Accordingly, any forward-looking statements included
herein do not purport to be predictions of future events or circumstances and
may not be realized.
Substantial Leverage
The Company is highly leveraged. As of September 30, 1997, after giving
pro forma effect to the Transactions, the Company would have had total
consolidated indebtedness of approximately $139.6 million and a total
stockholders' deficit of $28.8 million. See "Capitalization" and "Unaudited Pro
Forma Condensed Financial Statements." The Company may incur additional
indebtedness in the future, including through available borrowings under the
Credit Facility, subject to the satisfaction of certain financial tests. See
"Description of Credit Facility" and "Description of the Exchange Notes --
Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock."
The degree to which the Company is leveraged could have important
consequences to the holders of the Exchange Notes, including the following: (i)
the Company's ability to obtain additional financing in the future, or to
obtain financing at reasonable rates, for working capital, capital
expenditures, acquisitions or other purposes may be limited or impaired; (ii)
the Company's flexibility with respect to certain matters will be limited by
covenants contained in the Indenture and the Credit Facility which will limit
the ability of the Company and its subsidiaries to incur additional
indebtedness, grant liens, pay dividends, redeem capital stock, prepay certain
subordinated indebtedness and enter into mergers and other similar
transactions; and (iii) the Company's degree of leverage may make it more
vulnerable to economic downturns, limit its ability to pursue other business
opportunities and reduce its flexibility in responding to changing business and
economic conditions.
The Company's ability to generate cash for the repayment of debt,
including the Exchange Notes, will be dependent upon the future performance of
the Company's business, which will in turn be subject to financial,
competitive, economic and other factors affecting the operations of the
Company, including certain factors beyond its control.
Subordination of the Exchange Notes
The Exchange Notes will be unsecured obligations of the Company and will
be subordinated in right of payment to all current and future Senior Debt of
the Company, including all indebtedness of the Company under the Credit
Facility. In addition, the guarantees of the Exchange Notes will be
subordinated to all current and future Senior Debt of the Guarantors, including
the Guarantors' obligations under the Credit Facility. See "Description of the
Exchange Notes -- Subordination." As of September 30, 1997, after giving pro
forma effect to the Transactions, the Company would have had approximately
$34.6 million of Senior Debt outstanding, including outstanding borrowings
under the Credit Facility. In addition, the Company would have had $67.3
million of additional borrowings available under the Credit Facility. As a
result of the subordination provisions of the Indenture, in the event of a
liquidation or insolvency involving the Company, holders of the Exchange Notes
may recover less ratably than creditors of the Company who are holders of
Senior Debt. The Indenture will permit the Company to incur additional Senior
Debt, subject to certain financial tests. See "Description of the Exchange
Notes -- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock."
Product Liability
The Company faces exposure to product recalls and product liability claims
in the event that its products are alleged to have manufacturing or safety
defects or to have resulted in injury or other adverse effects. Although the
Company maintains product liability insurance in amounts that management
believes are reasonable, there can be no assurance that the Company will be
able to maintain its product liability insurance on acceptable terms, if at
all, in the future or that product liability claims will not exceed the amount
of the Company's insurance coverage.
13
<PAGE>
The Company does not maintain product recall insurance. As a result, there can
be no assurance that product recalls and product liability claims will not have
a material adverse effect on the Company's financial condition or results of
operations. See "Business -- Legal Proceedings."
Dependence on Major Customers
The three largest retail customers of the Company, Wal-Mart, Kmart and
Target, each accounted for over 10%, and in the aggregate 40.2%, of the
Company's net sales in 1996. The Company does not have long-term agreements
with its major customers, and purchases are generally made through the use of
individual purchase orders. A significant reduction in purchases by any of
these customers could have a material adverse effect on the Company's business.
See "Business -- Sales and Marketing."
Retail Industry
The Company's products are sold to consumers through major retail
channels, including mass merchants, do-it-yourself home centers, warehouse
clubs, hardware stores and national drugstore chains. As a result, the
Company's business and financial results fluctuate with the financial condition
of its retail customers and the retail industry generally. Certain of the
Company's retail customers have filed for bankruptcy protection in recent
years. Management monitors and evaluates the credit status of its customers and
attempts to adjust sales terms as appropriate. Additionally, the Company has
entered into agreements whereby receivables from certain pre-determined
customers, up to specified limits, can be sold in the event the customer
defaults on payment. Despite these efforts, a bankruptcy filing by a
significant customer could have a material adverse affect on the Company. See
Note 10 of Notes to Consolidated Financial Statements.
Risks of Non-U.S. Operations
The Company manufactures a significant portion of its products, and
substantially all of the motors used in the Company's products, in China. The
Company also sources a significant proportion of the raw materials used in the
manufacture of its products outside the United States. In addition, the
Company's strategy includes increasing sales to customers outside of the United
States. International operations are subject to risks including labor unrest,
political instability, restrictions on transfers of funds, import and export
duties and quotas, domestic and international customs and tariffs, unexpected
changes in regulatory environments, difficulty in obtaining distribution and
support and potentially adverse tax consequences. Labor in China has
historically been readily available at relatively low cost to the Company as
compared to labor costs applicable in other nations. China has experienced
rapid social, political and economic change in recent years. There can be no
assurance that labor will continue to be available to the Company in China at
costs consistent with historical levels. A substantial increase in labor costs
in China could have a material adverse effect on the Company. Although China
currently enjoys "most favored nation" trading status with the United States,
the United States government has in the past proposed to revoke such status and
to impose higher tariffs on products imported from China in response to human
rights abuse in China and the failure by the Chinese government to protect U.S.
intellectual property rights in China. There can be no assurance that any of
the foregoing factors will not have a material adverse effect on the Company's
ability to increase or maintain its international sales or importing
activities, its financial condition or its results of operations.
The Company's international operations also subject the Company to
currency exchange rate risk. In particular, in recent months, a number of Asian
countries have experienced currency devaluations and other turbulent economic
conditions. Although the Company's international operations have not
historically been impacted by changes in currency exchange rates, changes in
currency exchange rates, as well as other economic conditions outside the
United States, could have an adverse effect on the Company's financial
condition or results of operations.
Risks Associated with Development of New Products
The Company believes that its future success will depend in part upon its
ability to continue to make innovations in its existing products and to
develop, manufacture and market new products. There can be no assurance that
the Company will be successful in the introduction, marketing and manufacture
of any of its new products or product innovations or that the Company will be
able to develop and introduce in a timely manner new products or innovations to
its existing products which satisfy customer needs or achieve market
acceptance. The failure to develop products and introduce them successfully and
in a timely manner could have a material adverse effect on the Company's
financial condition or results of operations.
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Dependence on Manufacturing Facilities
A substantial portion of the Company's net sales are derived from the sale
of products manufactured or assembled at the Company's two manufacturing
facilities located in China. One of the facilities manufactures substantially
all of the motors utilized in the Company's products. The second facility
manufactures many of the remaining components and assembles most of the
Company's products. These manufacturing facilities are subject to hazards that
could result in material damage to any such facility. Any such damage to either
facility, or prolonged interruption in the operations of either facility for
repairs, labor disruption or other reasons, could have a material adverse
effect on the Company's financial condition and results of operations. See
"Business -- Manufacturing."
Cost and Availability of Raw Materials
Plastic resin, copper wire and corrugated paper are significant raw
materials used in the manufacture and packaging of the Company's products.
Because the primary resource used in manufactured plastics is petroleum, the
cost and availability of plastic for use in the Company's products varies to a
great extent with the price of petroleum. In addition, copper wire and
corrugated paper prices can fluctuate significantly. The Company's inability to
acquire sufficient raw materials at reasonable prices would affect the
Company's ability to maintain its margins and could result in a material
adverse effect on the Company's financial condition or results of operations.
Seasonality
Sales of the Company's products are highly seasonal, and counter-seasonal
weather can adversely affect the Company's results of operations. Sales of the
Company's fans and dehumidifiers to retailers are highest in the first and
second quarters of each year, with an average of 85.7% and 77.6% of gross sales
of fans and dehumidifiers, respectively, generated during the first and second
quarters in each of the last three years. Sales of the Company's heaters,
humidifiers and air purifiers to retailers are highest in the third and fourth
quarters of each year, with an average of 95.0%, 90.3% and 68.4% of gross sales
of heaters, humidifiers and air purifiers, respectively, generated during the
third and fourth quarters in each of the last three years. Counter-seasonal
summer weather could adversely affect sales of fans and dehumidifiers and could
result in increased returns of these products to the Company by retailers in
subsequent quarters and in lower purchases by retailers in the following year
due to high inventory levels. Similarly, counter-seasonal winter weather could
adversely affect sales of heaters and humidifiers and could result in increased
returns in subsequent quarters and in lower purchases by retailers in the
following year. Sales of air purifiers are less subject to seasonal weather
patterns, but follow the seasonal pattern of the retail industry generally,
with highest sales to retailers in the third and fourth quarter in anticipation
of the Christmas selling season. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Seasonality."
Competition
The markets for the Company's products are highly competitive. The Company
believes that competition is based upon several factors, including price,
access to retail shelf space, product features and enhancements, brand names,
new product introductions, marketing support and distribution systems. The
Company competes with established companies, a number of which have
substantially greater facilities, personnel, financial and other resources than
those of the Company. The Company also competes with importers and foreign
manufacturers of unbranded products. In addition, the consumer home comfort
product industry has recently experienced some consolidation of existing
manufacturers, each generating annual sales which are significantly higher than
those of the Company. Large consumer product companies have from time to time
entered the market for consumer home comfort products and may do so in the
future. There can be no assurance that the Company will be able to compete
successfully against current and future sources of competition or that the
competitive pressures faced by the Company will not adversely affect its
profitability or financial performance. See "Business -- Competition."
Dependence on Key Personnel
The continued success of the Company will depend significantly on the
efforts and abilities of its key executive officers, including Jordan A. Kahn,
its President and Chief Executive Officer, Stanley Rosenzweig, its Chief
Operating Officer, Gregory F. White, its Executive Vice President, Sales and
Marketing, and Tommy Liu, Managing Director of Holmes' Far East operations. The
loss of the services of one or more of these individuals could have a material
adverse effect on the business of the Company. In connection with the
Transactions, Messrs. Kahn,
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Rosenzweig, White and Liu have entered into new employment agreements with
Holmes which provide for their continued employment in their present
capacities. See "Management." The Company maintains a nominal amount of "key
man" life insurance coverage on Messrs. Kahn and Rosenzweig.
Control by Principal Stockholders
Berkshire Partners, certain members of the Company's senior management,
including Jordan A. Kahn, and certain other investors beneficially own
approximately 94.9% of the Company's outstanding common stock. These
stockholders have the ability to elect or remove any or all of the Company's
directors and to control substantially all corporate actions. The interests of
the Company's stockholders may conflict with the interests of the holders of
the Exchange Notes in certain circumstances. See "Share Ownership."
Restrictions on Company under the Credit Facility and the Indenture
The Credit Facility and the Indenture impose restrictions that affect,
among other things, the ability of the Company to incur debt, pay dividends,
sell assets, create liens, make capital expenditures and investments, and
otherwise enter into certain transactions outside the ordinary course of
business. The Credit Facility also requires the Company to maintain specified
financial ratios and meet certain financial tests. The ability of the Company
to continue to comply with the covenants and restrictions may be affected by
events beyond its control. The breach of any of these covenants or restrictions
would result in a default under the Credit Facility and the Indenture, in which
case the lenders under the Credit Facility could elect to declare all amounts
borrowed thereunder, together with accrued interest, to be due and payable,
foreclose on the assets securing the Credit Facility or cease to provide
additional revolving loans or letters of credit, which could have a material
adverse effect on the Company. In the event of a default under the Credit
Facility, the subordination provisions of the Indenture may also restrict
payments with respect to the Exchange Notes. See "--Subordination of the
Exchange Notes," "Description of Credit Facility" and "Description of the
Exchange Notes."
Change of Control
In the event of a Change of Control, the Company will be required to make
an offer to repurchase all or any part of each holder's Exchange Notes at a
repurchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the repurchase
date. The source of funds for any such repurchase would be the Company's
available cash or cash generated from operations or other sources, including
borrowings, sales of equity or funds provided by a new controlling person.
However, there can be no assurance that sufficient funds will be available at
the time of any Change of Control to make any required repurchases of the
Exchange Notes tendered. In addition, the Credit Facility prohibits the Company
from making any such required repurchases. The failure of the Company to offer
to repurchase Exchange Notes, or to repurchase Exchange Notes tendered,
following a Change of Control will result in a default under the Indenture,
which could lead to a cross-default under the Credit Facility and under the
terms of other indebtedness of the Company. In such a case, the subordination
provisions of the Indenture may limit the ability of the holders of the
Exchange Notes to receive payment in respect of their Notes. See "Description
of Credit Facility," "Description of the Exchange Notes -- Subordination" and "
- -- Repurchase of the Exchange Notes at the Option of Holders -- Change of
Control."
Subsidiary Guarantees
The Exchange Notes are guaranteed by the Company's two Domestic Restricted
Subsidiaries. The Guarantors currently do not have any material assets or
operations. The Company conducts a substantial portion of its operations,
including its manufacturing operations, through foreign subsidiaries. These
subsidiaries will not be guarantors of the Exchange Notes.
Absence of Public Market for the Exchange Notes
The Exchange Notes are being offered to the holders of the Series A Notes.
The Series A Notes were offered and sold in November 1997 (i) to "Qualified
Institutional Buyers" (as defined in Rule 144A under the Securities Act) and
(ii) outside the United States in reliance on Regulation S under the Securities
Act and are eligible for trading in the Private Offering, Resales and Trading
through Automated Linkages ("PORTAL") market.
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The Exchange Notes will be a new class of securities for which there
currently is no established trading market. Although the Exchange Notes will
generally be permitted to be resold or otherwise transferred by nonaffiliates
of the Company without compliance with the registration requirements under the
Securities Act, the Company does not intend to apply for listing of the
Exchange Notes on any national securities exchange or for quotation of the
Exchange Notes on any automated dealer quotation system. Although the Initial
Purchasers have informed the Company that they currently intend to make a
market in the Exchange Notes, the Initial Purchasers are not obligated to do
so, and any such market-making may be discontinued at any time without notice.
The liquidity of any market for the Exchange Notes will depend upon the number
of holders of the Exchange Notes, the interest of securities dealers in making
a market in the Exchange Notes and other factors. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Exchange
Notes. If an active trading market for the Exchange Notes does not develop, the
market price and liquidity of the Exchange Notes may be adversely affected. If
the Exchange Notes are traded, they may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for
similar securities, the performance of the Company and certain other factors.
The liquidity of, and trading markets for, the Exchange Notes may also be
adversely affected by general declines in the market for non-investment grade
debt. Such declines may adversely affect the liquidity of, and trading markets
for, the Exchange Notes independent of the financial performance of, or
prospects for, the Company.
Fraudulent Conveyance Matters
The obligations of the Company under the Exchange Notes, and the
application of the net proceeds therefrom in connection with the Transactions,
may be subject to review under various laws for the protection of creditors,
including federal and state fraudulent conveyance and fraudulent transfer laws,
if a bankruptcy case or other lawsuit (including in circumstances where
bankruptcy is not involved) is commenced by or on behalf of any creditor of the
Company or a representative of any of the Company's creditors. If a court in
such case or lawsuit were to find that, at the time the Company issued the
Exchange Notes or at the time of the Transactions, the Company (i) intended to
hinder, delay or defraud any existing or future creditor or (ii) did not
receive fair consideration or reasonably equivalent value for issuing the
Exchange Notes or in connection with the Transactions, and the Company either
(a) was insolvent or rendered insolvent by reason thereof, (b) was engaged or
was about to engage in a business or transaction for which its remaining
unencumbered assets constituted unreasonably small capital or (c) intended to
or believed that it would incur debts beyond its ability to pay such debts as
they matured or became due, such court could void the Company's obligations
under the Exchange Notes, subordinate the Exchange Notes to other indebtedness
of the Company, direct that holders of the Exchange Notes return any amounts
paid thereunder to the Company or to a fund for the benefit of its creditors or
take other action detrimental to the holders of the Exchange Notes.
The measure of insolvency for purposes of the foregoing will vary
depending upon the law of the jurisdiction being applied. Generally, however, a
company will be considered insolvent at a particular time if the sum of its
debts, including contingent liabilities, at that time is greater than the
then-fair value of its assets or if the fair saleable value of its assets at
that time is less than the amount that would be required to pay its probable
liability on its existing debts as they become absolute and mature. There can
be no assurance, however, as to what standard a court would apply to evaluate
the parties' intent or to determine whether the Company was insolvent at the
time of, or rendered insolvent upon consummation of, the Transactions or that,
regardless of the standard, a court would determine that the Company was
insolvent at the time of, or rendered insolvent upon consummation of, the
Transactions.
The Company's obligations under the Exchange Notes will be guaranteed by
the Guarantors, and the guarantees of the Exchange Notes also may be subject to
review under various laws for the protection of creditors, including federal
and state fraudulent conveyance and fraudulent transfer laws, if a bankruptcy
case or a lawsuit (including in circumstances where bankruptcy is not involved)
is commenced by or on behalf of any creditor of a Guarantor or a representative
of any such creditors. In such a case, the analysis set forth above would
generally apply, except that the Guarantees could also be subject to the claim
that, since the guarantees were incurred for the benefit of the Company (and
only indirectly for the benefit of the Guarantors), the obligations of the
Guarantors thereunder were incurred for less than reasonably equivalent value
or fair consideration. A court could void a Guarantor's obligation under its
guarantee of the Exchange Notes, subordinate the guarantee to other
indebtedness of a Guarantor, direct that holders of the Exchange Notes return
any amounts paid under a guarantee to the relevant Guarantor or to a fund for
the benefit of its creditors, or take other action detrimental to the holders
of the Exchange Notes.
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Restrictions on Transfer
The Series A Notes were offered and sold by the Company in a private
offering exempt from registration pursuant to the Securities Act and have been
resold pursuant to Rule 144A and Regulation S and other exemptions under the
Securities Act. As a result, the Series A Notes may not be reoffered or resold
by purchasers except pursuant to an effective registration statement under the
Securities Act or pursuant to an applicable exemption from such registration,
and the Series A Notes are legended to restrict transfer as aforesaid. Each
Holder (other than any Holder who is an affiliate or promoter of the Company)
who duly exchanges Series A Notes for Exchange Notes in the Exchange Offer will
receive Exchange Notes that are freely transferable under the Securities Act.
Holders who participate in the Exchange Offer should be aware, however, that if
they accept the Exchange Offer for the purpose of engaging in a distribution,
the Exchange Notes may not be publicly reoffered or resold without complying
with the registration and prospectus delivery requirements of the Securities
Act. As a result, each Holder accepting the Exchange Offer will be deemed to
have represented, by its acceptance of the Exchange Offer, that it acquired the
Exchange Notes in the ordinary course of business and that it is not engaged
in, and does not intend to engage in, a distribution of the Exchange Notes. If
existing Commission interpretations permitting free transferability of the
Exchange Notes following the Exchange Offer are changed prior to consummation
of the Exchange Offer, the Company will use its best efforts to register the
Series A Notes for resale under the Securities Act. See "Prospectus Summary --
The Exchange Offer" and "Description of the Exchange Notes Registration Rights;
Liquidated Damages."
The Series A Notes currently may be sold pursuant to the restrictions set
forth in Rule 144A, Rule 501(a)(1), (2), (3) or (7) or Regulation S under the
Securities Act or pursuant to another available exemption under the Securities
Act without registration under the Securities Act. To the extent that Series A
Notes are tendered and accepted in the Exchange Offer, the trading market for
the untendered and tendered but unaccepted Series A Notes could be adversely
affected.
Exchange Offer Procedures
Issuance of the Exchange Notes for Series A Notes pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of such
Series A Notes, a properly completed, duly executed Letter of Transmittal and
all other required documents. Therefore, Holders desiring to tender their
Series A Notes in exchange for Exchange Notes should allow for sufficient time
to ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to the tenders of Series A Notes for
exchange. Any Series A Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer, the registration rights under the
Registration Rights Agreement generally will terminate. In addition, any Holder
who tenders pursuant to the Exchange Offer for the purpose of participating in
a distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Series A Notes, where such Series A Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "The Exchange Offer."
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company
believes are the material terms of the Exchange Offer, including those set
forth in the Letter of Transmittal distributed with this Prospectus. This
summary is qualified in its entirety by reference to the full text of the
documents underlying the Exchange Offer, copies of which are filed as exhibits
to the Registration Statement of which this Prospectus is a part, and are
incorporated by reference herein.
Purpose and Effect of the Exchange Offer
In connection with the sale of the Series A Notes pursuant to the Purchase
Agreement, dated November 19, 1997 (the "Purchase Agreement"), among the
Company, the Guarantors and the Initial Purchasers, the Initial Purchasers
became entitled to the benefits of the Registration Rights Agreement, dated as
of November 26, 1997, among the Company, the Guarantors and the Initial
Purchasers (the "Registration Rights Agreement").
Under the Registration Rights Agreement, the Company and the Guarantors
agreed to (a) file a registration statement in connection with a registered
exchange offer within 60 days after November 26, 1997, the date the Series A
Notes were issued (the "Issue Date"), (b) use best efforts to cause such
registration statement to become effective under the Securities Act within 120
days of the Issue Date, (c) use best efforts to keep such registration
statement effective until the closing of the Exchange Offer and (d) use best
efforts to cause such registered Exchange Offer to be consummated within 30
days after the effective date of such registration statement. Within the
applicable time periods, the Company will endeavor to register under the
Securities Act all of the Exchange Notes pursuant to a registration statement
under which the Company will offer each Holder of Series A Notes the
opportunity to exchange any and all of the outstanding Series A Notes held by
such Holder for Exchange Notes in an aggregate principal amount equal to the
aggregate principal amount of Series A Notes tendered for exchange by such
Holder. Subject to limited exceptions, the Exchange Offer being made hereby, if
commenced and consummated within such applicable time periods, will satisfy
those requirements under the Registration Rights Agreement. In such event, the
Series A Notes would remain outstanding and would continue to accrue interest,
but would not retain any rights under the Registration Rights Agreement.
Holders of Series A Notes seeking liquidity in their investment would have to
rely on exemptions to registration requirements under the securities laws,
including the Securities Act. A copy of the Registration Rights Agreement has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The term "Holder" with respect to the Exchange Offer means any
person in whose name the Series A Notes are registered on the books of the
Company or any other person who has obtained a properly completed bond power
from the registered holder.
Because the Exchange Offer is for any and all Series A Notes, the
principal amount of Series A Notes tendered and exchanged in the Exchange Offer
will reduce the principal amount of Series A Notes outstanding. Following the
consummation of the Exchange Offer, Holders who did not tender their Series A
Notes generally will not have any further registration rights under the
Registration Rights Agreement, and such Series A Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such Series A Notes could be adversely affected. The Series A Notes
are currently eligible for sale pursuant to Rule 144A, Rule 501(a)(1), (2), (3)
or (7) or Regulation S through the PORTAL Market. Because the Company
anticipates that most Holders of Series A Notes will elect to exchange such
Series A Notes for Exchange Notes due to the absence of restrictions on the
resale of Exchange Notes under the Securities Act, the Company anticipates that
the liquidity of the market for any Series A Notes remaining after the
consummation of the Exchange Offer may be substantially limited. See
"Description of the Exchange Notes -- Registration Rights; Liquidated Damages"
and "Risk Factors -- Absence of Public Market for the Exchange Notes."
Terms of the Exchange Offer
Upon the terms and conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal, the Company will accept all Series A Notes
properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Series A
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Series A Notes pursuant to the Exchange Offer.
The form and terms of the Exchange Notes are the same as the form and
terms of the Series A Notes except that (i) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
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the transfer thereof, and (ii) the holders of Exchange Notes generally will not
be entitled to certain rights under the Registration Rights Agreement, which
rights generally will terminate upon consummation of the Exchange Offer. The
Exchange Notes will evidence the same debt as the Series A Notes and will be
entitled to the benefits of the Indenture.
Holders of Series A Notes do not have any appraisal or dissenters' rights
in connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Series A
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders of Series A Notes for the purpose of receiving the Exchange Notes from
the Company and delivering Exchange Notes to such Holders.
If any tendered Series A Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein, the
certificate for any such unaccepted Series A Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders of Series A Notes who tender pursuant to the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Transmittal Letter, transfer taxes with respect to the
exchange of Series A Notes pursuant to the Exchange Offer. The Company will pay
all charges and expenses, other than certain applicable taxes, in connection
with the Exchange Offer. See "-- Fees and Expenses."
Expiration Date; Extensions; Amendments
The Exchange Offer shall remain open for acceptance for a period of not
less than 20 business days (the "Exchange Period"). The Expiration Date will be
5:00 p.m., New York City time, on ___________, 1998, unless the Company, in its
sole discretion, extends the Exchange Offer, in which case the Expiration Date
will be the latest business day to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record Holders an announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
Such announcement may state that the Company is extending the Exchange Offer
for a specified period of time.
The Company reserves the right (i) to delay accepting any Series A Notes,
to extend the Exchange Offer or to terminate the Exchange Offer and not accept
Series A Notes not previously accepted if any of the conditions set forth under
" -- Conditions" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the Holders of such
amendment, and the Company will extend the Exchange Offer for a period of five
to ten business days, depending upon the significance of the amendment and the
manner of disclosure to Holders, if the Exchange Offer would otherwise expire
during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service or other comparable service.
Interest on the Exchange Notes
Interest on the Exchange Notes is payable semi-annually on May 15 and
November 15 of each year at the rate of 9-7/8% per annum. The Exchange Notes
will bear interest from November 26, 1997, the date of issuance of the Series A
Notes, or the most recent interest payment date to which interest on such
Series A Notes has been paid, whichever is later. Accordingly, Holders of
Series A Notes that are accepted for exchange will not receive interest that is
accrued but unpaid on the Series A Notes at the time of tender, but such
interest will be payable in respect of the Exchange Notes delivered in exchange
for such Series A Notes on the first interest payment date after the Expiration
Date.
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Procedures for Tendering
Only a Holder of Series A Notes may tender such Series A Notes pursuant to
the Exchange Offer. To tender pursuant to the Exchange Offer, a Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by instruction 4 of the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile, together with the Series A Notes and any other required documents,
to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date. Delivery of the Series A Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
The tender by a Holder of Series A Notes and the acceptance thereof by the
Company will constitute an agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF SERIES A NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR SERIES A NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT SUCH TENDER FOR SUCH HOLDERS.
Any beneficial Holder whose Series A Notes are registered in the name of
such Holder's broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact such registered holder promptly and
instruct such registered holder to tender on his behalf. If such beneficial
Holder wishes to tender on such beneficial Holder's behalf, such beneficial
Holder must, prior to completing and executing the Letter of Transmittal and
delivering his Series A Notes, either make appropriate arrangements to register
ownership of the Series A Notes in such Holder's name or obtain a properly
completed bond power from the registered holder. The transfer of record
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Series A
Notes tendered pursuant thereto are tendered (i) by a registered Holder who has
not completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantees must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Series A Notes listed therein, such Series A Notes
must be endorsed or accompanied by appropriate bond powers and a proxy which
authorizes such person to tender the Series A Notes on behalf of the registered
Holder, in each case signed as the name of the registered Holder or Holders
appears on the Series A Notes with the signature thereon guaranteed by an
Eligible Institution.
If the Letter of Transmittal or any Series A Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
the Company, provide evidence satisfactory to the Company of their authority to
so act must be submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect
to the Series A Notes at the DTC for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution that
is a participant in the DTC may make book-entry delivery of the Series A Notes
by causing the DTC to transfer such Series A Notes into the Exchange Agent's
account with respect to the Series A Notes in accordance with the DTC's
procedures for such transfer. Although delivery of the Series A Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
DTC, a Letter of Transmittal properly completed and duly executed with any
required
21
<PAGE>
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the DTC does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Series A Notes and withdrawal of the tendered
Series A Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Series A Notes not properly tendered or any Series
A Notes the Company's acceptance of which would, in the opinion of counsel for
the Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Series A Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including, the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Series A Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Series A Notes, nor shall any of them
incur any liability for failure to give such notification. Tenders of Series A
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Series A Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost to such Holder by the Exchange
Agent to the tendering Holders of Series A Notes, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration
Date.
Guaranteed Delivery Procedures
Holders who wish to tender their Series A Notes and (i) whose Series A
Notes are not immediately available, or (ii) who cannot deliver their Series A
Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent (or comply with the procedures for book-entry transfer) prior to
the Expiration Date, may effect a tender if:
(i) the tender is made through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Series A Notes, the
certificate or registration number or numbers of such Series A Notes and
the principal amount of Series A Notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within five business days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificates(s) representing the Series A Notes to be
tendered in proper form for transfer (or a confirmation of book-entry
transfer of such Series A Notes into the Exchange Agent's account at the
Depository) and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(iii) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Series A Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Series A Notes into the Exchange Agent's
account at the Depository) and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Series A Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Series A Notes pursuant to the Exchange Offer, a
written or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at the address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Series A Notes to be
withdrawn (the "Depositor"), (ii) identify the Series A Notes to be withdrawn
(including the certificate or registration number(s) and principal amount of
such Series A Notes, or, in the case of notes transferred by book-entry
transfer, the name and number of the account at the DTC to be credited), (iii)
be signed by the Depositor in the same manner as the original signature on the
Letter of Transmittal by which
22
<PAGE>
such Series A Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee (as
defined herein) with respect to the Series A Notes register the transfer of
such Series A Notes into the name of the Depositor withdrawing the tender, (iv)
specify the name in which any such Series A Notes are to be registered, if
different from that of the Depositor and (v) include a statement that such
Holder is withdrawing such Holder's election to have such Series A Notes
exchanged. All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Series A
Notes withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer, and no Exchange Notes will be issued with respect
thereto unless the Series A Notes so withdrawn are validly retendered. Any
Series A Notes which have been tendered but which are not accepted for payment
will be returned to the Holder thereof without cost to such Holder as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Series A Notes may be retendered by
following one of the procedures described under " -- Procedures for Tendering"
at any time prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, the Company shall
not be required to accept for exchange, or to exchange Exchange Notes for, any
Series A Notes, and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Series A Notes, if:
(i) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(ii) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Series A
Notes and return all tendered Series A Notes to the tendering Holders, (ii)
extend the Exchange Offer and retain all Series A Notes tendered prior to the
expiration of the Exchange Offer subject, however, to the rights of Holders to
withdraw such Series A Notes (see " -- Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Series A Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and, depending upon the significance of
the waiver and the manner of disclosure to the registered Holders, the Company
will extend the Exchange Offer for a period of five to ten business days if the
Exchange Offer would otherwise expire during such five to ten business-day
period.
Exchange Agent
State Street Bank and Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
23
<PAGE>
<TABLE>
<S> <C> <C>
By Mail By facsimile Transmission By Hand or Overnight
(registered or certified (for eligible institutions only): Delivery:
mail recommended): (617) 664-5232
State Street Bank and To Confirm by Telephone State Street Bank and
Trust Company or for Information Call: Trust Company
Corporate Trust Department (617) 973-6292 Corporate Trust Department
P.O. Box 778 4th Floor
Boston, MA 02102-0078 Two International Place
Boston, MA 02110
</TABLE>
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone or in person by officers and regular employees of
the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however,
will pay the Exchange Agent reasonable and customary fees for its services and
will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith and pay other registration expenses, including fees and
expenses of the Trustee, filing fees, blue sky fees and printing and
distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Series A Notes pursuant to the Exchange Offer. If, however,
certificates representing Exchange Notes or Series A Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be registered or issued in the name of any person other than the person signing
the Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Series A Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered holder or
any other person) will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the
Series A Notes, which is the aggregate principal amount of the Series A Notes,
as reflected in the Company's accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized in
connection with the Exchange Offer. The cost of the Exchange Offer will be
deferred and amortized over the term of the Exchange Notes.
Resale of the Exchange Notes
Under existing Commission interpretations, the Exchange Notes would, in
general, be freely transferable after the Exchange Offer by any holder of such
Exchange Notes (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 of the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes acquired pursuant to the
Exchange Offer are obtained in the ordinary course of such holder's business,
and such holder does not intend to participate, and has no arrangement or
understanding to participate, in the distribution of such Exchange Notes. Any
holder who tenders pursuant to the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the
Exchange Notes may not rely on the position of the staff of the Commission
enunciated in Exxon Capital Holdings Corporation (available May 13, 1988) or
Morgan Stanley & Co., Incorporated (available June 5, 1991) or similar
interpretive letters, but rather must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. In addition, any such resale transaction should
be covered by an effective registration statement containing the selling
security holders information required by Item 507 of Regulation S-K of the
Securities Act.
Each broker-dealer that received Exchange Notes for its own account in
exchange for Series A Notes, where such Series A Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
24
<PAGE>
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Company has agreed to make available a prospectus meeting the requirements of
the Securities Act to any such broker-dealer for use in connection with any
resale of any Exchange Notes acquired in the Exchange Offer. A broker-dealer
which delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
By tendering pursuant to the Exchange Offer, each Holder will represent to
the Company, among other things, that (i) the Exchange Notes acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of its
business, (ii) neither the holder nor any such other person has an arrangement
or understanding with any person to participate in the distribution of the
Exchange Notes, and (iii) the holder and any such other person acknowledge that
if they participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (a) they must, in the absence of an exemption therefrom, comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such holder incurring liability
under the Securities Act for which such holder is not indemnified by the
Company. Further, by tendering in the Exchange Offer, each holder that may be
deemed an "affiliate" (as defined in Rule 405 of the Securities Act) of the
Company will represent to the Company that such holder understands and
acknowledges that the Exchange Notes may not be offered for resale, resold or
otherwise transferred by that Holder without registration under the Securities
Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
Consequences of Failure to Exchange
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Series A Notes who do not tender their Series A Notes generally will
not have any further registration rights under the Registration Rights
Agreement or otherwise. Accordingly, any Holder that does not exchange such
Holder's Series A Notes for Exchange Notes will continue to hold the untendered
Series A Notes and will be entitled to all the rights and limitations
applicable thereto under the Indenture, except to the extent that such rights
or limitations, by their terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
The Series A Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Series
A Notes may be resold only (i) to the Company (upon redemption thereof or
otherwise), (ii) pursuant to an effective registration statement under the
Securities Act, (iii) so long as the 144A Notes are eligible for resale
pursuant to Rule 144A under the Securities Act, to a Qualified Institutional
Buyer in a transaction meeting the requirements of Rule 144A, (iv) outside the
United States to a foreign person pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S
thereunder, (v) pursuant to an exemption from registration under the Securities
Act provided by Rule 144 thereunder (if available) or Rule 501 (a)(1), (2), (3)
or (7) or (vi) to an Accredited Investor in a transaction exempt from the
registration requirements of the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States or other
applicable jurisdiction. See "Risk Factors -- Restrictions on Transfer."
Other
Participation in the Exchange Offer is voluntary, and Holders should
carefully consider whether to accept. Holders are urged to consult their
financial and tax advisors in making their own decision on what action to take.
The Company may in the future seek to acquire untendered Series A Notes,
to the extent permitted by applicable law, in open market or privately
negotiated transactions, through subsequent exchange offers or otherwise. The
Company has no present plans to acquire any Series A Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Series A Notes.
25
<PAGE>
In any state where the Exchange Offer does not fall under a statutory
exemption to the blue sky rules, the Company has filed the appropriate
registrations and notices, and has made the appropriate requests, to permit the
Exchange Offer to be made in such state.
Certain Federal Income Tax Consequences of the Exchange Offer
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
Department regulations (the "Regulations") and existing administrative
interpretations and court decisions. There can be no assurance that the
Internal Revenue Service (the "IRS") will not take a contrary view, and no
ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders of the Series A Notes (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. Each Holder of Series A Notes should consult his, her or its own tax
advisor as to the particular tax consequences of exchanging such Holder's
Series A Notes for Exchange Notes, including the applicability and effect of
any state, local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Series A Notes
pursuant to the terms set forth in this Prospectus will not constitute an
exchange for United States federal income tax purposes because such exchange
does not represent a significant modification of the debt instruments.
Consequently, no gain or loss would be recognized by Holders of the Series A
Notes upon receipt of the Exchange Notes, and ownership of the Exchange Notes
will be considered a continuation of ownership of the Series A Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of
the Exchange Notes, a Holder's basis in the Exchange Notes should be the same
as such Holder's basis in the Series A Notes exchanged therefore. A Holder's
holding period for the Exchange Notes should include the Holder's holding
period for the Series A Notes exchanged therefor. The issue price, original
issue discount inclusion and other tax characteristics of the Exchange Notes
should be identical to the issue price, original issue discount inclusion and
other tax characteristics of the Series A Notes exchanged therefor.
See also "Certain United States Federal Tax Considerations for Non-United
States Holders."
26
<PAGE>
THE TRANSACTIONS; USE OF PROCEEDS
Prior to the closing of a series of transactions on November 26, 1997,
including the issuance of the Series A Notes, the Company operated as Holmes
U.S., through which the Company conducted its operations in the United States,
and Holmes Far East, through which the Company conducted its manufacturing and
sourcing operations in the Far East. Holmes U.S. and Holmes Far East were
indirect subsidiaries of Pentland. In addition, Jordan A. Kahn, the founder of
the Company and the Company's President and Chief Executive Officer, owned a
minority interest in Holmes U.S. and Holmes Far East.
Pursuant to the Transactions Agreements, (i) Pentland and Mr. Kahn
contributed their shares of Holmes Far East to Holmes U.S., as a result of
which Holmes Far East became a wholly owned subsidiary of Holmes U.S., (ii)
affiliates of Berkshire Partners, certain members of the Company's senior
management and certain other investors purchased approximately $16.5 million of
capital stock of Holmes U.S. from the Company and approximately $9.7 million of
capital stock of Holmes U.S. from Mr. Kahn, the proceeds of which Holmes U.S.
used to repay certain outstanding indebtedness, (iii) Mr. Kahn and Pentland
retained equity interests in Holmes U.S. with an implied value of approximately
$7.0 million and $1.8 million, respectively (valued on the basis of the
Berkshire Equity Investment), and (iv) Holmes U.S. used available cash, the net
proceeds from the Series A Notes and borrowings under the Credit Facility to
redeem a portion of the capital stock of Holmes U.S. owned by Pentland, to
repay certain outstanding borrowings of the Company and to pay certain expenses
of the Transactions.
As a result of the Transactions, the Company is currently owned
approximately 69.2% by Berkshire Partners and certain other investors,
approximately 25.7% by Mr. Kahn and other members of senior management and 5.1%
by Pentland. In addition, in connection with the Transactions, the Company
issued a warrant to Pentland to purchase 5% of the common stock of the Company,
which is exercisable upon the occurrence of certain liquidity events generally
occurring within two years following the closing of the Transactions. The
Company also entered into new three-year employment agreements with Mr. Kahn
and with Stanley Rosenzweig, the Company's Chief Operating Officer, Gregory F.
White, the Company's Executive Vice President, Sales and Marketing, and Tommy
Liu, Managing Director of the Company's Far East operations.
The Transactions were accounted for as a recapitalization of the Company.
As a recapitalization, the Company will retain its historical cost basis of
accounting.
There will be no proceeds to the Company from the exchange of Series A
Notes pursuant to the Exchange Offer. The following table sets forth the
sources and uses of funds in connection with the closing of the Transactions on
November 26, 1997, certain of which amounts are subject to a post-closing audit
(in thousands):
<TABLE>
<S> <C>
Sources:
Available cash ............................................. $ 8,000
Credit Facility (1)(2) .................................... 30,807
Senior Subordinated Notes ................................. 105,000
Berkshire Equity Investment (2)(3) ........................ 16,488
--------
Total cash sources to the Company ........................ 160,295
Berkshire Equity Investment (2)(4) ........................ 9,727
Equity value retained by existing stockholders (7) ......... 8,785
--------
Total sources .......................................... $178,807
========
Uses:
Repayment of existing indebtedness (5) ..................... $ 79,903
Redemption of Pentland equity (2) ........................ 62,058
Management bonuses (6) .................................... 7,734
Estimated fees and expenses (6) ........................... 10,600
--------
Total cash uses by the Company ........................... 160,295
Purchase of equity by Berkshire from Mr. Kahn (2)(4) ...... 9,727
Equity value retained by existing stockholders (7) ......... 8,785
--------
Total uses ............................................. $178,807
========
</TABLE>
27
<PAGE>
- ------------
(1) The Credit Facility provides for total availability of $100.0 million. See
"Description of Credit Facility."
(2) Subject to final working capital adjustments.
(3) Represents the portion of the Berkshire Equity Investment used to acquire
capital stock of Holmes U.S. from the Company.
(4) Represents the portion of the Berkshire Equity Investment used to acquire
capital stock of Holmes U.S. from Mr. Kahn.
(5) The indebtedness to be repaid in connection with the Transactions is
classified as current liabilities on the Company's balance sheet and bore
interest, as of November 26, 1997, at a weighted average rate of 7.93% per
annum exclusive of non-interest bearing amounts due to affiliates.
(6) Pursuant to the Transactions Agreements, the purchase price of the capital
stock from Pentland and Mr. Kahn was reduced by the amount of the
management bonuses and $1.8 million of the fees and expenses of the
Transactions.
(7) Valued on the basis of the Berkshire Equity Investment.
28
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, on an actual basis and on a pro forma basis as adjusted to
give effect to the Transactions. See "The Transactions; Use of Proceeds." The
following table should be read in conjunction with "Selected Financial Data,"
"Unaudited Pro Forma Condensed Financial Statements" and the Consolidated
Financial Statements of the Company, including the notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At September 30, 1997
-------------------------
Actual Pro Forma
---------- ------------
(In thousands)
<S> <C> <C>
Total debt, including current maturities:
Trade acceptances payable ..................... $ 45,981 $ --
Capital lease and other debt obligations ...... 1,952 1,952
Loan payable to affiliate(1) .................. 32,000 --
Credit Facility(2)(3) ........................ -- 32,675
9-7/8% Senior Subordinated Notes due 2007 ...... -- 105,000
-------- ---------
Total debt .................................... 79,933 139,627
Total stockholders' equity (deficit) (3) ......... 21,686 (28,758)
-------- ---------
Total capitalization ........................ $101,619 $ 110,869
======== =========
</TABLE>
- ------------
(1) The Company had a net payable of $4.2 million due to affiliates as of
September 30, 1997, which was repaid in connection with the Transactions.
(2) The Credit Facility provides for total availability of $100.0 million. See
"Description of Credit Facility."
(3) The pro forma amount reflects, in part, actual amounts received and paid at
the time of the closing of the Transactions on November 26, 1997.
29
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of and for the years ended
December 31, 1994, 1995 and 1996 have been derived from the audited
Consolidated Financial Statements of the Company; such Consolidated Financial
Statements as of December 31, 1995 and 1996 and for each of the three years in
the period ended December 31, 1996 are included elsewhere in this Prospectus.
The selected financial data as of and for the years ended December 31, 1992 and
1993 have been derived from the unaudited financial statements of the Company.
The selected financial data as of and for the nine months ended September 30,
1996 and 1997 have been derived from the unaudited Financial Statements of the
Company; such Financial Statements as of September 30, 1997 and for the nine
months ended September 30, 1996 and 1997 are included elsewhere in this
Prospectus. In the opinion of management, these unaudited Financial Statements
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations of the Company for these periods. Due to the seasonality of
operations and other factors, the results of operations for interim periods are
not necessarily indicative of results that may be expected for the full year.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements, including the notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------------------ --------------------
1992 1993 1994 1995 1996 1996 1997
--------- ----------- ----------- ---------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales ................................. $58,195 $61,838 $114,509 $178,132 $194,331 $145,814 $136,767
Cost of goods sold ........................ 43,568 43,720 84,672 141,226 145,915 114,928 102,442
------- ------- -------- -------- -------- -------- --------
Gross profit .............................. 14,627 18,118 29,837 36,906 48,416 30,886 34,325
Selling, general and administrative
expenses ................................. 9,209 12,717 17,522 22,500 27,308 19,384 21,432
Product development expenses ............... 1,926 1,643 2,742 3,154 5,520 3,045 3,637
------- ------- -------- -------- -------- -------- --------
Operating profit ........................... 3,492 3,758 9,573 11,252 15,588 8,457 9,256
Interest expense ........................... 980 1,215 2,104 5,231 6,570 5,072 4,850
Other income, net ........................... 409 413 261 349 398 108 84
------- ------- -------- -------- -------- -------- --------
Income before income taxes and
minority interest ........................ 2,921 2,956 7,730 6,370 9,416 3,493 4,490
Income tax expense ........................ 650 787 3,214 2,614 2,787 680 292
Minority interest in net income (loss) of
majority-owned subsidiaries(1) ............ (37) 1 282 518 408 140 220
------- ------- -------- -------- -------- -------- --------
Income before cumulative effect of
change in accounting principle ............ 2,308 2,168 4,234 3,238 6,221 2,673 3,978
Cumulative effect of change in
accounting principle ..................... -- 138(2) -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income ................................. $ 2,308 $2,306 $ 4,234 $ 3,238 $ 6,221 $ 2,673 $ 3,978
======= ======== ======== ======== ======== ======== ========
Other Data:
EBITDA(3) ................................. $ 12,798 $ 16,098 $ 22,774 $ 13,313 $ 14,187
EBITDA margin(3) ........................... 11.2% 9.0% 11.7% 9.1% 10.4%
Ratio of earnings to fixed charges(4) ...... 3.5x 3.0x 3.9x 2.1x 2.2x 1.6x 1.8x
Depreciation and amortization ............... $ 1,396 $1,759 $ 2,981 $ 4,509 $ 6,867 $ 4,803 $ 4,973
Capital expenditures ........................ 2,445 5,083 8,821 9,706 8,594 6,484 3,601
Cash flows from operating activities ...... 7,728 5,524 2,802 623 (691)
Cash flows from investing activities ...... (8,821) (9,706) (8,594) (6,484) (4,051)
Cash flows from financing activities ...... 2,000 5,972 6,886 9,951 8,429
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------------------------ ---------------------
1992 1993 1994 1995 1996 1996 1997
--------- -------------- ----------- ----------- ----------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (at end of period):
Cash and cash equivalents ............ $ 1,279 $ 667 $ 1,578 $ 3,368 $ 4,462 $ 7,458 $ 8,149
Working capital ..................... 2,306 (3,439) (5,021) (6,770) (2,883) (6,405) 850
Total assets ........................ 30,720 41,175 72,490 118,524 128,286 133,460 135,310
Long-term debt ..................... -- -- -- 217 737 613 890
Total stockholders' equity ......... 6,411 4,015(5) 8,249 11,487 17,708 14,160 21,686
</TABLE>
- ------------
(1) In May and June 1997, the Company repurchased the shares held by the 30%
minority stockholders in one of the Company's subsidiaries for a total of
$900,000.
(2) In 1993, a required change in accounting principle for accounting for
income taxes resulted in the recognition of $138,000 of income.
(3) EBITDA represents income before interest expense, income tax expense,
depreciation and amortization and the minority interest in net income of
majority-owned subsidiaries. EBITDA margin represents EBITDA as a
percentage of net sales. EBITDA is presented because it is a widely
accepted measure to provide information regarding a company's ability to
service and/or incur debt. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operations or other income
or cash flow data prepared in accordance with generally accepted
accounting principles, or as a measure of a company's profitability or
liquidity. Additionally, the Company's calculation of EBITDA may differ
from that performed by other companies, and thus the amounts disclosed for
EBITDA may not be directly comparable to those disclosed by other
companies.
(4) For purposes of determining the ratio of earnings to fixed charges,
earnings represent income before income taxes and minority interest, plus
fixed charges. Fixed charges consist of interest expense on all
indebtedness plus a portion of rental payments on operating leases that is
considered representative of the interest factor. After giving pro forma
effect to the Transactions, the Company's ratio of earnings to fixed
charges would have been 1.2x, 1.0x and 1.3x for the year ended December
31, 1996, the nine months ended September 30, 1997 and the twelve months
ended September 30, 1997, respectively.
(5) Total stockholders' equity as of December 31, 1993 reflects a reduction
attributable to a legal restructuring of the Company's Far East
operations. See Note 3 of Notes to Consolidated Financial Statements.
31
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements as of
September 30, 1997 and for the year ended December 31, 1996, the nine months
ended September 30, 1997 and the twelve months ended September 30, 1997 (the
"Pro Forma Financial Statements") have been derived by the application of pro
forma adjustments to the financial statements of the Company included elsewhere
in this Prospectus.
The Pro Forma Financial Statements give effect to the Transactions as if
they occurred on September 30, 1997 in the case of the pro forma condensed
balance sheet, and as of January 1, 1996 in the case of the pro forma condensed
income statements. The pro forma condensed income statements also reflect
employment and management agreements entered into in conjunction with the
Transactions, as well as the exclusion of minority interests in the net income
of one of the Company's subsidiaries for all periods presented as a result of
the repurchase by the Company of the minority interest in May and June 1997.
The Pro Forma Financial Statements do not purport to represent what the
Company's financial position or results of operations would have actually been
had the Transactions and the repurchase of the minority interest in fact
occurred on such dates, or to project results of operations for any future
period. The Pro Forma Financial Statements should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical Consolidated Financial Statements
of the Company, including the notes thereto, included elsewhere in this
Prospectus.
32
<PAGE>
HOLMES PRODUCTS CORP.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(In thousands)
<TABLE>
<CAPTION>
As of September 30, 1997
------------------------------------------
Actual Adjustments Pro Forma
---------- -------------- ------------
<S> <C> <C> <C>
Cash and cash equivalents ..................... $ 8,149 $ (8,000)(1) $ 149
Accounts receivable, net ........................ 37,004 37,004
Other receivables .............................. 347 347
Due from affiliates ........................... 5,588 (5,588)(2) --
Inventories .................................... 56,212 56,212
Prepaid expenses and other current assets ...... 1,289 1,289
Deferred income taxes ........................... 4,106 4,106
Income taxes receivable ........................ 889 1,313 (3) 2,202
-------- -------- ---------
Total current assets ........................... 113,584 (12,275) 101,309
-------- -------- ---------
Property and equipment, net ..................... 19,978 19,978
Deferred income taxes ........................... 425 425
Other assets .................................... 1,323 9,839 (4) 11,162
-------- -------- ---------
$135,310 $ (2,436) $ 132,874
======== ======== =========
Trade acceptances payable ..................... $ 45,981 $(45,981)(2) $ --
Current portion of capital lease
obligations and other debt .................... 1,062 1,062
Accounts payable .............................. 14,256 14,256
Accrued expenses .............................. 9,674 (754)(1) 7,749
6,563 (3)
(7,734)(5)
Loans payable to affiliate ..................... 32,000 (32,000)(2) --
Due to affiliates .............................. 9,761 (9,761)(2) --
-------- ---------- ---------
Total current liabilities ..................... 112,734 (89,667) 23,067
-------- ---------- ---------
Capital lease obligations ..................... 890 890
Credit facility ................................. -- 32,675 (2) 32,675
Senior subordinated notes ..................... -- 105,000 (2) 105,000
-------- ---------- ---------
Total liabilities .............................. 113,624 48,008 161,632
-------- ---------- ---------
Common stock, no par ........................... 702 15,727 (6) 16,529
100 (7)
Common stock, $1 par ........................... 100 (100)(7) --
Retained earnings .............................. 20,884 (5,250)(3) (45,287)
(60,921)(6)
----------
Total stockholders' equity (deficit) ......... 21,686 (50,444) (28,758)
-------- ---------- ---------
$135,310 $ (2,436) $ 132,874
======== ========== =========
</TABLE>
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(Dollars in thousands)
(1) Reflects adjustments to cash assuming consummation of the Transactions as
of September 30, 1997, computed as follows:
<TABLE>
<S> <C>
Sources of funds:
Issuance of the Series A Notes .................................... $ 105,000
Initial borrowings under the Credit Facility ........................ 32,675
Issuance of common stock to new investors ........................... 16,488
---------
Total sources ...................................................... 154,163
---------
Uses of funds:
Repayment of existing credit facility .............................. (32,000)
Repayment of trade acceptances .................................... (45,981)
Repayment of accrued interest ....................................... (754)
Repayment of amounts due to affiliates, net ........................ (4,173)
Redemption of common stock held by Pentland ........................ (60,921)
Payment of incentive compensation to certain executives (see Note 5) (7,734)
Estimated fees and expenses ....................................... (10,600)
---------
Total uses ......................................................... (162,163)
---------
Net change in cash balance .......................................... $ (8,000)
=========
</TABLE>
These amounts reflect sources and uses of funds which would be generated and
paid under the terms of the Transactions based on balances outstanding as
of September 30, 1997, and do not necessarily reflect actual amounts
received and paid upon the closing of the Transactions on November 26,
1997. See "The Transactions; Use of Proceeds."
(2) Reflects the issuance of the Series A Notes and initial borrowings under
the Credit Facility in connection with the Transactions, and repayment of
the Company's existing credit facility and affiliate borrowings, computed
as follows:
<TABLE>
<S> <C>
Long-term debt:
Issuance of the Series A Notes ........................... $ 105,000
Initial borrowings under the Credit Facility ............... 32,790
---------
Total increase in long-term debt ........................ $ 137,790
=========
Current debt:
Amount repaid under existing line of credit facility ...... $ (32,000)
Amount of trade acceptances repaid ........................ (45,981)
Amounts repaid to affiliates, net ........................ (4,173)
---------
Total decrease in current debt ........................... $ (82,154)
=========
</TABLE>
(3) Reflects incremental accruals for incentive bonus amounts which became
payable to certain executives of the Company upon consummation of the
Transactions, along with the related impact on income taxes receivable and
retained earnings. The associated expense has not been reflected in the
accompanying unaudited pro forma condensed income statements due to the
non-recurring nature of these payments. These accruals will be reflected
in the Company's actual results of operations in the fourth quarter of
1997. A portion of the executive bonuses may not result in a tax benefit
to the Company under U.S. federal tax laws; the unaudited pro forma
condensed balance sheet reflects an assumed 50% limitation on the
deductibility of these expenses. This limitation is subject to change
based upon the Company's taxable income for the year ending December 31,
1997.
(4) Reflects debt issuance costs associated with the offering of the Notes. In
addition, approximately $723 of such costs had been incurred by the
Company as of September 30, 1997, which are reflected in the Company's
historical balance sheet as of that date.
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET -- (Continued)
(Dollars in thousands)
(5) Reflects the payment of incentive compensation to certain executives upon
consummation of the Transactions, as described in Note 3 above.
(6) Reflects issuance of $15,727 of common stock to Berkshire Partners, certain
executive officers of the Company and certain other investors, net of
related costs of $761, and the redemption of $60,921 of common stock held
by Pentland pursuant to the Transactions. The issuance and redemption
prices are subject to adjustment for outstanding indebtedness and working
capital as of the date of closing. The Pro Forma Financial Statements do
not reflect any adjustment for such items; accordingly, actual amounts
will differ based on the results of operations and cash flows of the
Company between September 30, 1997 and the date of the closing of the
Transactions.
(7) Reflects the exchange of the common stock of Holmes Products (Far East)
Limited by its owners for common stock of Holmes Products Corp. in
connection with the Transactions.
35
<PAGE>
HOLMES PRODUCTS CORP.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Actual Adjustments Pro Forma
-------- ----------- ---------
<S> <C> <C> <C>
Net sales ....................................... $194,331 $194,331
Cost of goods sold .............................. 145,915 $(1,984)(1) 143,931
------- ------- -------
Gross profit ................................. 48,416 1,984 50,400
------- ------- -------
Selling, general and administrative and product (1,049)(2)
development expenses ........................... 32,828 400 (3) 32,179
------- ------- -------
Operating profit .............................. 15,588 2,633 18,221
------- ------- -------
Other income (expense)
Interest expense .............................. 6,570 8,228 (1) 14,798
Other income, net .............................. 398 398
------- ------- -------
Total other expense ........................... 6,172 8,228 14,400
------- ------- -------
Income before income taxes and minority
interest .................................... 9,416 (5,595) 3,821
Income tax expense .............................. 2,787 (2,238)(4) 549
------- ------- -------
Income before minority interest ............... 6,629 (3,357) 3,272
Minority interest in net income of majority-owned
subsidiaries ................................. 408 (408)(5) --
------- ------- -------
Net income .................................... $ 6,221 $(2,949) $ 3,272
======= ======= =======
</TABLE>
36
<PAGE>
HOLMES PRODUCTS CORP.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(In thousands)
<TABLE>
<CAPTION>
Actual Adjustments Pro Forma
---------- ------------ ---------
<S> <C> <C> <C>
Net sales ....................................... $136,767 $136,767
Cost of goods sold .............................. 102,442 $(1,669)(1) 100,773
------- ------- -------
Gross profit ................................. 34,325 1,669 35,994
------- ------- -------
Selling, general and administrative and product (63)(2)
development expenses ........................... 25,069 300 (3) 25,306
------- ------- -------
Operating profit .............................. 9,256 1,432 10,688
------- ------- -------
Other income (expense)
Interest expense .............................. 4,850 5,978 (1) 10,828
Other income, net .............................. 84 84
------- ------- -------
Total other expense ........................... 4,766 5,978 10,744
------- ------- -------
Income (loss) before income taxes and minority
interest .................................... 4,490 (4,546) (56)
Income tax expense (benefit) .................. 292 (1,818)(4) (1,526)
------- ------- -------
Income before minority interest ............... 4,198 (2,728) 1,470
Minority interest in net income of majority-owned
subsidiaries ................................. 220 (220)(5) --
------- ------- -------
Net income .................................... $ 3,978 $(2,508) $1,470
======= ======= =======
</TABLE>
37
<PAGE>
HOLMES PRODUCTS CORP.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(In thousands)
<TABLE>
<CAPTION>
Actual Adjustments Pro Forma
-------- ----------- ---------
<S> <C> <C> <C>
Net sales ....................................... $185,284 $185,284
Cost of goods sold .............................. 133,429 $(2,164)(1) 131,265
------- ------- -------
Gross profit ................................. 51,855 2,164 54,019
------- ------- -------
Selling, general and administrative and product (1,050)(2)
development expenses ........................... 35,468 400 (3) 34,818
------- ------- -------
Operating profit .............................. 16,387 2,814 19,201
------- ------- -------
Other income (expense)
Interest expense .............................. 6,348 8,024 (1) 14,372
Other income, net .............................. 374 374
------- ------- -------
Total other expense ........................... 5,974 8,024 13,998
------- ------- -------
Income before income taxes and minority
interest .................................... 10,413 (5,210) 5,203
Income tax expense .............................. 2,399 (2,084)(4) 315
------- ------- -------
Income before minority interest ............... 8,014 (3,126) 4,888
Minority interest in net income of majority-owned
subsidiaries ................................. 488 (488)(5) --
------- ------- -------
Net income .................................... $ 7,526 $(2,638) $ 4,888
======= ======= =======
</TABLE>
38
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
(Dollars in thousands)
(1) Reflects adjustments to interest expense on debt incurred in connection
with the offering of the Series A Notes and the Credit Facility in excess
of historical interest expense and financing commissions assuming
consummation of the Transactions as of January 1, 1996, computed as
follows:
<TABLE>
<CAPTION>
Nine Months Twelve Months
Year Ended Ended Ended
Dec. 31, 1996 Sep. 30, 1997 Sep. 30, 1997
------------- ------------- --------------
<S> <C> <C> <C>
Cash interest expense on the Series A Notes ............ $10,369 $7,777 $10,369
Interest expense on the Credit Facility at a LIBOR-based
rate, assumed to be 7.59%, 7.87% and 7.80% for each
of the pro forma periods, respectively, based on the
pro forma estimated average outstanding balance of
$39,458, $32,864 and $32,203 for each of the pro
forma periods, respectively ........................... 2,995 1,940 2,512
Commitment fee of 0.50% on unused availability under
the Credit Facility .................................... 302 252 339
Elimination of the Company's historical interest expense
associated with existing credit facility and affiliate
borrowings which are to be repaid in connection with
the Transactions ....................................... (6,459) (4,756) (6,217)
Amortization of debt issuance costs ..................... 1,021 765 1,021
------- ------- -------
Net increase in interest expense ........................ 8,228 5,978 8,024
Elimination of the Company's historical commissions
paid to a related entity for arranging financing,
included within cost of sales ........................... (1,984) (1,669) (2,164)
------- ------- -------
Net increase in interest and related financing
commissions ............................................. $ 6,244 $4,309 $ 5,860
======= ======= =======
</TABLE>
A 0.125% increase in the interest rate under the Credit Facility would
increase interest expense by $49, $30 and $40 for the year ended December
31, 1996, the nine months ended September 30, 1997 and the twelve months
ended September 30, 1997, respectively.
(2) Certain executives of the Company signed employment agreements at the
closing of the Transactions which specify such executives' compensation
through the term of the agreements. This adjustment reflects the
difference between the historical compensation expense recorded for these
executives and the contractual amounts reflected in the employment
agreements, computed as the specified base compensation plus the maximum
amount of annual performance bonus specified in the agreements.
(3) Reflects fees which will be paid by the Company to Berkshire Partners under
a management agreement signed in connection with the Transactions.
(4) Reflects an adjustment for the income tax effects of the items described in
Notes 1 through 3, computed at an assumed combined tax rate of 40%.
(5) In May and June 1997, the Company repurchased the shares held by the 30%
minority stockholders in one of the Company's subsidiaries for a total of
$900. The adjustment reflects the elimination of minority interest in net
income of majority-owned subsidiaries.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements, including the notes thereto, included elsewhere in this
Prospectus.
Overview
Holmes is a leading developer, manufacturer and marketer of quality,
branded home comfort products, including fans, heaters, humidifiers and air
purifiers. The Company believes that it has the leading U.S. market share in
each of these product categories, which in the aggregate accounted for
approximately 91.0% of the Company's net sales for the twelve months ended
September 30, 1997. In addition, the Company markets and distributes
dehumidifiers and a variety of decorative and home office lighting products.
The Company believes that its strong market position and success are
attributable to its continuous product innovation, engineering and
manufacturing expertise, close customer partnerships, breadth of product
offerings and reputation for quality. From 1993 to 1996, Holmes' net sales
increased from $61.8 million to $194.3 million, a compound annual growth rate
of 46.5%. For the twelve months ended September 30, 1997, after giving pro
forma effect to the Transactions, the Company would have had net sales, net
income, and EBITDA of $185.3 million, $4.9 million, and $26.5 million,
respectively.
The Company's products are sold to consumers through major retail
channels, including mass merchants, do-it-yourself home centers, warehouse
clubs, hardware stores and national drugstore chains. Representative customers
include Wal-Mart, Kmart, Target, Home Depot, Costco, BJ's Wholesale Club,
TruServ (formerly True Value and ServiStar) and Walgreens. The Company believes
that the strength, scope, and visibility of its retail account base provide a
competitive advantage with respect to brand recognition, shelf space and
penetration of the consumer market.
Results of Operations
The following table sets forth the Company's results of operations as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended September 30,
----------------------------- --------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net sales ................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ........................ 73.9 79.3 75.1 78.9 74.9
----- ----- ----- ----- -----
Gross profit ........................... 26.1 20.7 24.9 21.1 25.1
----- ----- ----- ----- -----
Selling expenses ........................... 8.4 7.1 6.8 6.8 8.2
General and administrative expenses ...... 6.9 5.5 7.2 6.5 7.5
Product development expenses ............... 2.4 1.8 2.9 2.0 2.7
----- ----- ----- ----- -----
Total operating expenses ............... 17.7 14.4 16.9 15.3 18.4
----- ----- ----- ----- -----
Operating profit ........................ 8.4 6.3 8.0 5.8 6.7
Interest and other expenses, net ......... 1.6 2.7 3.2 3.4 3.4
----- ----- ----- ----- -----
Income before income taxes and minority
interest .............................. 6.8 3.6 4.8 2.4 3.3
Income tax expense ........................ 2.8 1.5 1.4 0.5 0.2
----- ----- ----- ----- -----
Income before minority interest ......... 4.0 2.1 3.4 1.9 3.1
Minority interest in net income of majority-
owned subsidiaries ........................ 0.3 0.3 0.2 0.1 0.2
----- ----- ----- ----- -----
Net income .............................. 3.7% 1.8% 3.2% 1.8% 2.9%
===== ===== ===== ===== =====
</TABLE>
40
<PAGE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
Net Sales. Net sales decreased $9.0 million, or 6.2%, to $136.8 million
for the nine months ended September 30, 1997 from $145.8 million for the nine
months ended September 30, 1996. The decrease in net sales was primarily due to
a reduction in sales of dehumidifiers and air conditioners resulting from a
strategic management decision to reduce dehumidifier volume and eliminate the
air conditioner category because of the relatively low profit margins of these
products lines. In addition, an increase in sales of heaters was offset by
decreases in sales of fans, air purifiers and lighting products.
Cost of Goods Sold. Cost of goods sold decreased $12.5 million, or 10.9%,
to $102.4 million for the nine months ended September 30, 1997 from $114.9
million for the nine months ended September 30, 1996. As a percentage of net
sales, cost of goods sold decreased to 74.9% for the nine months ended
September 30, 1997 from 78.9% for the nine months ended September 30, 1996. The
reduction in cost of goods sold as a percentage of net sales was primarily due
to the lower sales of dehumidifiers and air conditioners, which generated lower
profit margins compared to the Company's other products, as well as efficiency
improvements in the Company's manufacturing operations.
Gross Profit. As a result of the foregoing, gross profit increased $3.4
million, or 11.0%, to $34.3 million for the nine months ended September 30,
1997 from $30.9 million for the nine months ended September 30, 1996. As a
percentage of net sales, gross profit increased to 25.1% for the nine months
ended September 30, 1997 from 21.1% for the nine months ended September 30,
1996.
Selling Expenses. Selling expenses increased $1.3 million, or 13.1%, to
$11.2 million for the nine months ended September 30, 1997 from $9.9 million
for the nine months ended September 30, 1996. As a percentage of net sales,
selling expenses increased to 8.2% for the nine months ended September 30, 1997
from 6.8% for the nine months ended September 30, 1996. The increase in selling
expenses was primarily due to an increase in co-operative advertising of higher
margin products with a number of major retailers.
General and Administrative Expenses. General and administrative expenses
increased $0.7 million, or 7.4%, to $10.2 million for the nine months ended
September 30, 1997 from $9.5 million for the nine months ended September 30,
1996. As a percentage of net sales, general and administrative expenses
increased to 7.5% for the nine months ended September 30, 1997 from 6.5% for
the nine months ended September 30, 1996. The increase in general and
administrative expenses was primarily due to additional management and
information systems support to improve operating efficiencies at the Company's
manufacturing facilities in China.
Product Development Expenses. Product development expenses increased $0.6
million, or 20.0%, to $3.6 million for the nine months ended September 30, 1997
from $3.0 million for the nine months ended September 30, 1996. As a percentage
of net sales, product development expenses increased to 2.7% for the nine
months ended September 30, 1997 from 2.0% for the nine months ended September
30, 1996. The increase in product development expenses was primarily due to
increased expenditures for outside consulting firms and engineers as part of
the Company's efforts to improve upon existing product line technology and to
provide opportunities in new product categories, and due to an increase in
patent and trademark expenses relating to product development.
Interest and Other Expenses, Net. Interest and other expenses, net
decreased $0.2 million, or 4.0%, to $4.8 million for the nine months ended
September 30, 1997 from $5.0 million for the nine months ended September 30,
1996. The decrease in interest and other expenses, net is primarily the result
of improvements in the Company's manufacturing operations where overall
controls on production and operations have resulted in significantly lower
inventory levels and related debt balances. Improved cash management has also
reduced debt balances and generated additional interest income.
Provision for Income Taxes. The Company's effective tax rate decreased to
6.5% of pre-tax income for the nine months ended September 30, 1997 from 19.5%
of pre-tax income for the nine months ended September 30, 1996. The decrease in
the effective tax rate was principally a result of an increase in the
profitability of the Company's manufacturing operations in China, which are
taxed at significantly lower rates than the Company's U.S. operations.
41
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased $16.2 million, or 9.1%, to $194.3 million
in 1996 from $178.1 million in 1995. The increase in net sales was primarily
due to an increase in sales of heaters, humidifiers, air purifiers and related
accessories which resulted from the Company's continued expansion of product
lines to improve features, performance and pricing, as well as the growing
installed base of products requiring accessories. Net sales also increased as a
result of the introduction of the air conditioner category. The increase in net
sales was offset in part by lower sales of fans and dehumidifiers as a result
of unusually cool summer weather in the United States which led to higher
product returns.
Cost of Goods Sold. Cost of goods sold increased $4.7 million, or 3.3%, to
$145.9 million in 1996 from $141.2 million in 1995. As a percentage of net
sales, cost of goods sold decreased to 75.1% in 1996 from 79.3% in 1995. The
decrease in cost of goods sold as a percentage of net sales was primarily due
to lower raw material costs. Cost of goods sold was also favorably impacted by
increased efficiencies in the Company's manufacturing operations as a result of
the opening of a new custom made facility and better management control of
production processes.
Gross Profit. As a result of the foregoing, gross profit increased $11.5
million, or 31.2%, to $48.4 million in 1996 from $36.9 million in 1995. As a
percentage of net sales, gross profit increased to 24.9% in 1996 from 20.7% in
1995.
Selling Expenses. Selling expenses increased $0.5 million, or 3.9%, to
$13.2 million in 1996 from $12.7 million in 1995. The increase in selling
expenses was primarily related to new direct advertising programs as well as an
increase in co-operative advertising programs with customers. As a percentage
of net sales, selling expenses decreased to 6.8% in 1996 from 7.1% in 1995.
General and Administrative Expenses. General and administrative expenses
increased $4.3 million, or 43.9%, to $14.1 million in 1996 from $9.8 million in
1995. As a percentage of net sales, general and administrative expenses
increased to 7.2% in 1996 from 5.5% in 1995. The increase in general and
administrative expenses was primarily due to additional management, controls
and information systems required by the Company's manufacturing operations in
order to meet the demands brought on by the rapid growth of these operations.
General and administrative expenses also increased as a result of higher
incentive compensation based on the Company's profitability.
Product Development Expenses. Product development expenses increased $2.3
million, or 71.9%, to $5.5 million in 1996 from $3.2 million in 1995. As a
percentage of net sales, product development expenses increased to 2.9% in 1996
from 1.8% in 1995. The increase in product development expenses was primarily
due to added personnel as part of the Company's strategy to invest in the
resources necessary to develop new product innovations, and the implementation
of more stringent quality control programs. Product development expenses also
increased due to an increase in patent and trademark expenses relating to
product development.
Interest and Other Expenses, Net. Interest and other expenses, net
increased $1.3 million, or 26.5%, to $6.2 million in 1996 from $4.9 million in
1995. The increase in interest and other expenses, net was primarily due to an
increase in average inventory levels, principally as a result of lower fan
sales and higher returns resulting from cool summer weather. The increase in
inventory levels and, to a lesser extent, accounts receivable resulted from a
retail industry trend to purchase more goods from the Company's warehouse
facilities rather than directly from the Company's manufacturing facilities in
China.
Provision for Income Taxes. The Company's effective tax rate decreased to
29.6% of pre-tax income in 1996 from 41.0% of pre-tax income in 1995. The
decrease in the effective tax rate was principally a result of an increase in
the profitability of the Company's manufacturing operations in China, which are
taxed at significantly lower rates than the Company's U.S. operations.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased $63.6 million, or 55.5%, to $178.1 million
in 1995 from $114.5 million in 1994. The increase in net sales was attributable
to strong volume increases across all product categories. Sales of fans were
spurred by hot summer temperatures in the United States and the introduction of
the box fan category. Sales of humidifiers, air purifiers, accessories and
lighting also increased significantly due to the expansion of product lines
with new technology, innovations and features.
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Cost of Goods Sold. Cost of goods sold increased $56.5 million, or 66.7%,
to $141.2 million in 1995 from $84.7 million in 1994. As a percentage of net
sales, cost of goods sold increased to 79.3% in 1995 from 73.9% in 1994. The
increase in cost of goods sold was primarily due to sharp increases in the
price of many of the raw materials used in the Company's manufacturing
operations, particularly plastic, copper wire and corrugated paper.
Gross Profit. As a result of the foregoing, gross profit increased $7.1
million, or 23.8%, to $36.9 million in 1995 from $29.8 million in 1994. As a
percentage of net sales, gross profit decreased to 20.7% in 1995 from 26.1% in
1994. The decrease in gross profit as a percentage of net sales was primarily
due to the increase in raw material prices, which the Company was unable to
pass on to its customers because product prices had already been set, and due
to a shift in product mix to lower margin fan and dehumidifier product lines.
Selling Expenses. Selling expenses increased $3.1 million, or 32.3%, to
$12.7 million in 1995 from $9.6 million in 1994. The increase in selling
expenses was primarily due to increased commissions, freight costs and office
support as a result of the increased sales volume. As a percentage of net
sales, selling expenses decreased to 7.1% in 1995 from 8.4% in 1994.
General and Administrative Expenses. General and administrative expenses
increased $1.9 million, or 24.1%, to $9.8 million in 1995 from $7.9 million in
1994. The increase in general and administrative expenses was primarily due to
an increase in bad debt expense related to the bankruptcy filings of several
large regional retail accounts and, to a lesser extent, an increase in
personnel to support the Company's increased sales activity. As a percentage of
net sales, general and administrative expenses decreased to 5.5% in 1995 from
6.9% in 1994.
Product Development Expenses. Product development expenses increased $0.5
million, or 18.5%, to $3.2 million in 1995 from $2.7 million in 1994. The
increase in product development expenses was primarily due to an increase in
personnel to manage quality and engineering of the substantial number of new
products introduced by the Company, as well as to provide the resources
necessary to continue new product innovation. As a percentage of net sales,
product development expenses decreased to 1.8% in 1995 from 2.4% in 1994.
Interest and Other Expenses, Net. Interest and other expenses, net
increased $3.1 million, or 172.2%, to $4.9 million in 1995 from $1.8 million in
1994. The increase was related to the additional debt required in order to
finance increased levels of inventory and accounts receivable attributable to
the growth in the Company's sales.
Provision for Income Taxes. The Company's effective tax rate decreased
slightly to 41.0% of pre-tax income in 1995 from 41.6% of pre-tax income in
1994.
Liquidity and Capital Resources
The Company historically has funded its operations through cash flows from
operations, trade credit and short-term financing provided by Pentland in the
form of bank trade acceptances and loans under a revolving credit facility.
Following the Transactions, the Company's primary liquidity requirements will
be for working capital and to service the Company's indebtedness. The Company
intends to finance its liquidity requirements with cash flows from operations
and borrowings under the Credit Facility. The Company believes that cash flows
from operations and borrowings under the Credit Facility will be sufficient to
meet the Company's liquidity needs for the foreseeable future.
The Company generated $0.6 million of cash from operations for the nine
months ended September 30, 1996, compared to $0.7 million of cash used for
operations for the nine months ended September 30, 1997. The decrease in cash
provided by operations was principally due to increased tax payments in
anticipation of the growth in the Company's taxable income. Cash provided by
operations for the years ended December 31, 1994, 1995 and 1996 was $7.7
million, $5.5 million and $2.8 million, respectively. Operating cash flows in
1996 were adversely affected due to higher inventory levels resulting from an
increase in returns of fans attributable to cool summer weather. The Company's
operating cash flows have also been affected by increased inventory levels
attributable to the growth in the Company's product offerings, as well as an
increase in customer purchases from the Company's warehouse facilities rather
than directly from the Company's manufacturing facilities in China. In
addition, cash flows were negatively impacted by increased accounts receivable
levels in 1995 due to financial difficulties experienced by several major
retailers. In 1996, increased collections of accounts receivable favorably
impacted cash flows from operations.
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Cash provided by financing activities for the years ended December 31,
1994, 1995 and 1996 and the nine months ended September 30, 1996 and 1997 was
$2.0 million, $6.0 million, $6.9 million, $10.0 million and $8.4 million,
respectively, largely reflecting borrowings to finance the increases in
inventory levels discussed above and capital expenditures.
The Company's capital expenditures, including assets acquired under
capital leases, for the nine months ended September 30, 1997 were approximately
$4.6 million, primarily for tooling for the production of new products. The
Company expects that capital expenditures for the fourth quarter of 1997 and
for 1998 will be approximately $2.6 million and $6.9 million, respectively,
primarily for tooling for new products and new computer equipment.
On May 22, 1997 and June 4, 1997, the Company reached agreements to
acquire the capital stock held by the 30% minority stockholders of one of the
Company's subsidiaries for an aggregate of $0.9 million, half of which was paid
at the closing of the acquisitions, and half of which will be payable, with
interest, after one year. See Note 15 of Notes to Consolidated Financial
Statements.
The Company entered into a Credit Facility in connection with the
Transactions. The Credit Facility consists of a $100.0 million revolving credit
commitment. The Credit Facility, and the guarantees thereof by the Company's
direct and indirect domestic subsidiaries, are secured by substantially all of
the Company's domestic and certain foreign assets. The Credit Facility and the
Indenture include certain financial and operating covenants which , among other
things, restrict the ability of the Company to incur additional indebtedness,
make investments and take other actions. See "Description of Credit Facility"
and "Description of the Exchange Notes." The ability of the Company to meet its
debt service obligations will be dependent upon the future performance of the
Company, which will be impacted by general economic conditions and other
factors. See "Risk Factors."
As a result of the consummation of the offering of the Series A Notes and
the Company's expected borrowings under the Credit Facility, the Company's
interest expense in future periods will increase substantially. See "Risk
Factors -- Substantial Leverage."
Seasonality
Sales of most of the Company's products follow seasonal patterns which
affect the Company's results of operations. In general, sales of fans and
dehumidifiers occur predominantly from January through June, and sales of
heaters and humidifiers occur predominantly from July through December.
Although air purifiers, lighting products and accessories generally are used
year-round, the nature of these products tend to draw increased sales during
the winter months when people are indoors and, as a result, sales of these
products tend to be greatest in advance of the winter months from July through
December. In addition to the seasonal fluctuations in sales, the Company
experiences seasonality in gross profit, as margins realized on fan products
tend to be lower than those realized on heater, humidifier and air purifier
products. See "Risk Factors -- Seasonality."
Year 2000 Compliance
Based upon information currently available, management does not anticipate
that the Company will incur material costs to update its computer software
programs and applications to be "Year 2000 compliant." However, to the extent
that the Company will be relying on its outside software vendors, Year 2000
compliance matters will not be entirely within the Company's direct control. In
addition, the Company has relationships with vendors, customers and other third
parties that rely on computer software that may not be Year 2000 compliant.
There can be no assurance that Year 2000 compliance failures by such third
parties will not have a material adverse effect on the Company.
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BUSINESS
Holmes is a leading developer, manufacturer and marketer of quality,
branded home comfort products, including fans, heaters, humidifiers and air
purifiers. The Company believes that it has the leading U.S. market share in
each of these product categories, which, in the aggregate, accounted for
approximately 91.0% of the Company's net sales for the twelve months ended
September 30, 1997. In addition, the Company markets and distributes
dehumidifiers and a variety of decorative and home office lighting products.
The Company believes that its strong market position and success are
attributable to its continuous product innovation, engineering and
manufacturing expertise, close customer partnerships, breadth of product
offerings and reputation for quality. From 1993 to 1996, Holmes' net sales
increased from $61.8 million to $194.3 million, a compound annual growth rate
of 46.5%. For the twelve months ended September 30, 1997, after giving pro
forma effect to the Transactions, the Company would have had net sales, net
income, and EBITDA of $185.3 million, $4.9 million, and $26.5 million,
respectively.
The Company's products are sold to consumers through major retail
channels, including mass merchants, do-it-yourself home centers, warehouse
clubs, hardware stores and national drugstore chains. Representative customers
include Wal-Mart, Kmart, Target, Home Depot, Costco, BJ's Wholesale Club,
TruServ (formerly True Value and ServiStar) and Walgreens. The Company believes
that the strength, scope, and visibility of its retail account base provide a
competitive advantage with respect to brand recognition, shelf space and
penetration of the consumer market.
Holmes was founded in 1982 by its current Chief Executive Officer, Jordan
A. Kahn, an innovator in the home comfort market with over 30 years of industry
experience. Holmes opened its first manufacturing facility in China in 1989,
and currently operates two facilities in China where it manufactures its
products and electric motors for use in its products. The Company also produces
electric motors for manufacturers of other electric appliances. The Company's
vertically integrated manufacturing facilities provide the Company with control
over the production process and product quality. These facilities also enhance
operational flexibility and allow the Company to quickly respond to changes in
consumer demand and to specialized production needs. The Company maintains
offices in Hong Kong and Taiwan that are responsible for sourcing raw
materials, processing orders and shipping the Company's products. The Company
coordinates product development, marketing, sales and distribution from the
Company's Milford, Massachusetts headquarters. The Company markets and
distributes products primarily under the Holmes[RegTM] brand name.
Competitive Strengths
The home comfort product market is highly competitive and fragmented. The
Company believes successful industry participants (i) deliver quality products
in a timely and cost effective manner, (ii) provide innovative product
introductions, (iii) offer a broad line of product categories across the entire
home comfort appliance market and (iv) provide value-added services to
retailers. Holmes believes that the following factors contribute to the
Company's position as a leader in the home comfort appliance market and serve
as the foundation for the Company's growth strategy:
Leading Market Share. Holmes believes that it has the leading U.S. market
share in each of the Company's four primary product categories: fans, heaters,
humidifiers and air purifiers. Management estimates that total retail sales of
these products in the United States exceeded $1.0 billion in 1996. Management
believes that the Company's leading market share provides Holmes with a
competitive advantage in terms of retail account relations and enhanced brand
awareness.
Innovation in Product Design. The Company has established a reputation for
innovation in product design, incorporating functional enhancements as well as
aesthetic improvements. Management believes that innovation in these areas has
contributed to the growth of the home comfort industry. In creating new
products, the Company seeks to develop product concepts and features not
offered in the marketplace, and which the Company can produce at strategic
price points. Holmes typically has introduced more than 20 new SKUs annually
(excluding new color introductions of previous models) to its primary home
comfort product offerings. The Company's expenditures for product development
and tooling totaled $10.2 million for the twelve months ended September 30,
1997.
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Product innovations by the Company include:
[bullet] Oscillating heater
[bullet] Warm mist humidifier
[bullet] Accutemp[RegTM] digital temperature control
[bullet] Oscillating window fan
[bullet] Air purifier with sound conditioning feature
[bullet] Twin ceramic heater
New products and product line extensions introduced since January 1, 1994
accounted for a majority of the Company's net sales during the year ended
December 31, 1996. Management believes product innovation will continue to
stimulate demand for the Company's products. In addition, management believes
that product innovations provide opportunities to earn higher gross margins for
both the Company and the retailer.
Strong Retailer Network. The Company has established strong relationships
with leading retailers in each of the major channels of retail distribution.
The Company's 25 largest accounts represented 73.5% of net sales in 1996, with
the three largest, Wal-Mart, Kmart and Target, representing 40.2% of net sales
in 1996. The Company believes that home comfort products provide retailers with
higher profit potential than many alternative product offerings. Management
believes that this profit potential, together with the Company's strong
relationships with its retail customers, has led many retailers to increase
shelf space for the Company's products. Over the years, Holmes has also
received a number of awards from its customers in recognition of the Company's
contribution to retailers' profitability and success, including Vendor of the
Year in 1996 from Target, True Value, Pamida and Venture Stores.
Focus on the Retailer and the Consumer. Holmes has established a
reputation among leading retailers for quality products, timely shipment and
value-added assistance in merchandising. The Company works with current and
potential retail customers to develop products at strategic price points that
meet consumer needs. Holmes also employs an in-house graphics team to develop
attractive and informative product packaging designed to educate the consumer
at the point of purchase. In addition, Holmes works closely with each retailer
to develop customized product displays, point-of-purchase signage and
educational materials. The Company also provides after-sale consumer services
such as a toll-free consumer information line.
Low Cost / High Quality Manufacturer. Management believes that Holmes is
both a low cost manufacturer and a quality leader in the home comfort industry.
The Company manufactures the majority of its products at its customized
production facilities in China. The Company believes that it has a cost
advantage as a result of its degree of vertical integration, purchasing power
and low labor costs. In addition, by operating its own vertically integrated
manufacturing facilities, Holmes has control over the quality of its products
from design through final distribution. Through rigorous control of the
manufacturing process, Holmes has established a strict quality control system
to ensure the highest quality of products.
Design and Engineering Expertise. Through its engineering expertise and
state-of-the-art technology, Holmes is able to rapidly and cost effectively
develop new products. The Company uses advanced CAD software in conjunction
with laser-based stereolithography to design and engineer new products. These
combined technologies allow the Company to design and produce prototypes of new
products quickly, thus enabling Holmes to accurately assess the feasibility,
cost and tooling requirements of new products before manufacturing the
products. The Company believes it is one of only a few U.S. manufacturers to
employ stereolithography technology and thereby enjoys a competitive advantage
in the design and rapid prototyping of new products and product line
extensions. These technologies also enhance the sales process by allowing
customers to view working samples of new products before they are tooled. The
Company has reduced the average time from product conception to market
introduction from approximately 20 months three years ago to approximately nine
months currently.
Talented Senior Management Team with Significant Equity Ownership. Holmes
has an experienced and entrepreneurial management team, with an average of over
11 years of industry experience. The Company's Chief Executive Officer, Jordan
A. Kahn, founded the Company in 1982 and is recognized as an innovator in the
home comfort appliance industry. The Company's senior management team also
includes Stanley Rosenzweig (Chief Operating Officer), Gregory F. White
(Executive Vice President, Sales and Marketing) and Tommy Liu (Managing
Director of the Company's Far East operations). The Company's senior management
team owns an aggregate of approximately 25.7% of the Company's common stock.
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Business Strategy
The Company's strategy is to achieve further growth in net sales,
profitability and cash flow by: (i) increasing sales of existing products; (ii)
introducing new product categories and product line extensions; and (iii)
expanding geographically. The Company intends to implement this strategy by
pursuing the following initiatives:
Further Penetrate Existing Distribution Channels. The Company believes
that it can further penetrate its existing distribution channels as a result of
favorable industry dynamics and the Company's strong relationships with mass
merchant retailers, the fastest growing segment in retail distribution. Holmes
currently sells to the largest, most sophisticated mass merchant retailers and
believes it is well suited to grow this business with both existing and new
customers. Management believes that mass merchants will continue to consolidate
their vendor base and focus on a smaller number of sophisticated suppliers that
can (i) provide a broad array of differentiated, quality products, (ii)
efficiently and consistently fulfill logistical requirements and volume demands
and (iii) provide full product support from design to point of sale and
after-market service with the consumer. Holmes believes that it is well
situated to capitalize on these trends.
Develop New Distribution Channels. The Company continues to develop new
channels of distribution by providing customized product offerings that appeal
to the specific needs of each channel. Since 1996, Holmes has successfully
marketed select products through an arrangement with the QVC electronic
retailing network. In addition, Holmes recently introduced a new line of
humidifiers and air purifiers, called Family Care[RegTM], to be marketed
through national drugstore chains. The Company has also partnered with Gerry
Baby Products to market the Company's products under the Gerry brand name and
expand into the juvenile products distribution channel.
Pursue Targeted Marketing Opportunities. As part of the Company's growth
strategy, the Company has established several strategic alliances in order to
promote awareness of the Company's products. For example, the Company has
established a marketing affiliation with the Allergy and Asthma Foundation of
America and has developed a strategic marketing partnership with the Brita
Products Company, a subsidiary of Clorox Company, to market a new humidifier
that integrates the Brita[RegTM] water filter. The Company has also entered
into a variety of cross-merchandising relationships with other manufacturers
including Stanley Tools, Toro, Vaseline and Benadryl.
Leverage Core Competencies to Expand Product Offerings. The Company
believes that its product development capabilities, established distribution
network, marketing skills and ability to identify customer needs uniquely
position it to successfully enter into new product categories within the
portable appliance industry, either through internal growth or selective
acquisitions. For example, in 1993, Holmes introduced a line of decorative and
home office lighting products. The Company believes that it can successfully
enter additional product categories based on the Company's core competencies
within the household and portable appliance industry. In addition to its core
appliance business, the Company designs, develops and sells electric motors to
original equipment manufacturers, including Frigidaire.
Expand into New Geographic Regions. The Company believes that the European
and Asian home comfort markets are underdeveloped and represent significant
growth opportunities. As a result, the Company has begun to focus on marketing
its products in these regions. The Company currently sells its products in
Europe and Asia on an original equipment manufacturer basis and, in August
1996, launched the sale of branded home comfort products in France.
In furtherance of its strategic objectives, the Company may from time to
time engage in discussions regarding mergers, acquisitions or other types of
business combination transactions with third parties in the consumer products
industry. The provisions of the Credit Facility permit the Company to make
acquisitions that satisfy certain criteria.
Products
Holmes is a leading developer, manufacturer and marketer of quality,
branded home comfort products, including fans, heaters, humidifiers and air
purifiers, which allow consumers to better control aspects of their home
environment, such as temperature and air quality. Management estimates that
total retail sales of these products in the United States exceeded $1.0 billion
in 1996. In addition, the Company markets and distributes dehumidifiers and a
variety of decorative and home office lighting products, including table, floor
and wall-mounted lighting products used principally in residential and
commercial settings.
Fans. The Company currently manufactures and markets approximately 60
different fan models, including table, stand, window, window-to-floor, box,
commercial grade, high velocity and oscillating fans, typically for
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purchase and use by household consumers. Retail prices for the Company's fans
range from $10 to $80. From 1993 to 1996, net sales of the Company's fans have
increased at a compound annual growth rate of 27.9%.
Heaters. Portable electric space heaters are used to heat areas of the
house not reached by central heat and to heat an individual room while that
room is in use. The Company currently manufactures and markets approximately 46
different heater models, including plastic, ceramic, metal, radiant and
baseboard styles. Retail prices for the Company's heaters range from $20 to
$70. In recent years, the Company has expanded its products to cover virtually
every segment and price point in the heater category, a strategy that has been
a key driver of recent sales growth. From 1993 to 1996, net sales of the
Company's heaters have increased at a compound annual growth rate of 41.7%.
Humidifiers. Consumers use humidifiers to provide greater comfort by
increasing moisture in the home environment. The Company currently manufactures
and markets approximately 25 different humidifiers, including cool mist, warm
mist, ultrasonic and console models that range in moisture output from one to
12 gallons per day. Retail prices for the Company's humidifiers range between
$20 and $150. The Company also sells a variety of humidifier accessories,
replacement parts and chemical treatments. From 1993 to 1996, net sales of the
Company's humidifiers have increased at a compound annual growth rate of 48.2%.
Air Purifiers. Air purifiers circulate a room's air through filters that
remove contaminants from the air. In recent years, high efficiency particulate
arresting ("HEPA") filters have come to dominate the industry. This product
category has experienced tremendous growth as consumers have become more
concerned with their home environment and have learned about the benefits of
air purifiers. The Company currently manufactures and markets 17 different air
purifier models. Retail prices for the Company's air purifiers range between
$20 and $280. Air purifiers represent one of the fastest growing niches of the
Company's home comfort appliance product line. From 1993 to 1996, net sales of
the Company's air purifiers have increased at a compound annual growth rate of
71.6%.
Filters/Accessories. Most humidifiers and air purifiers require
accessories including replacement filters and chemical treatments. The
Company's air purifiers periodically need new replacement filter cartridges and
humidifiers need new replacement wick filters. As the Company's installed base
of these products continues to expand, the Company expects that the market for
these accessories will grow as well. In addition, the Company believes that
sales of filters and accessories increase brand awareness and customer loyalty.
Dehumidifiers. Dehumidifiers are compressor-based appliances designed to
remove humidity from the air. Dehumidifiers typically are larger and heavier
than the Company's primary home comfort product categories and sell for higher
retail prices, but generally at lower profit margins. The Company currently
markets four different dehumidifier models in order to complete its product
line. In 1994, the Company entered into an arrangement with Frigidaire to
produce the Company's dehumidifiers on an original equipment manufacturer
basis.
Lighting Products. Holmes began marketing portable lighting equipment in
1993, and currently sells over 90 different lighting models. These products
complement the Company's traditional home comfort product line, provide an
additional non-seasonal category for the Company and are distributed through
the same distribution channels as the Company's home comfort appliances. The
Company's lighting products are manufactured by subcontractors in China and in
the U.S. Retail prices for the Company's products range between $10 and $100.
Electric Motors. The Company, through its wholly owned subsidiary, Raider
Motor Corp., has proven strengths in the design and manufacture of a variety of
electric motors for use in home and commercial appliances. In addition to
supplying most of the motors for Holmes' products, the Company has sufficient
manufacturing capacity to supply other manufacturers of appliances with
electric motors. The Company currently designs, develops and sells motors to
original equipment manufacturers, including Frigidaire.
Product Design and Development
The Company believes that a key to its continuing success is its ability
to develop innovative new products, employing concurrent engineering to
facilitate its efforts and accelerate the product development cycle. The
Company has an internal product design and research and development team
dedicated to developing new products and product line innovations. The team
consists of an aggregate of 48 employees located in both Milford,
Massachusetts, and in the Far East. The Company also retains the services of
outside consultants to assist its internal team. The Company's design team
works closely with the Company's manufacturing personnel to evaluate the
manufacturing efficiency and feasibility of specific design concepts and
proposed products.
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The Company believes that consumers of its products often make purchase
decisions on the basis of a product's design appeal and features, as well as
price. As a result, Holmes designs its products to be attractive to consumers.
The Company continually seeks to implement product and design innovations to
maintain the attractiveness of the Company's products in light of continually
changing consumer tastes and the retail environment.
The Company utilizes both employee and retailer feedback in identifying
new products and product enhancements. Once targeted for possible production,
the Company utilizes advanced CAD software and state-of-the-art
stereolithography prototyping equipment to design and engineer new product
prototypes. The Company believes that these technologies have improved the
speed and efficiency of the design process and the quality of the finished
products. The Company has reduced the average time from product conception to
market introduction from approximately 20 months three years ago to
approximately nine months currently.
The Company's expenditures for product development and tooling were
approximately $10.2 million for the twelve months ended September 30, 1997. New
products and product line extensions introduced since January 1, 1994 accounted
for a majority of the Company's net sales during the year ended December 31,
1996.
Quality and Safety
Holmes' commitment to quality is a critical element of its product
philosophy. To fulfill this commitment, the Company has established strict
quality programs and controls for its operations and those of its
subcontractors. The Company's products feature a number of safety
characteristics, including controls to shut off automatically when overheated
or tipped over, carrying handles for small items and indicator lights on
heaters and humidifiers. Quality control, which is coordinated by the Company's
50-person quality engineering department, begins in the design and engineering
process and extends through manufacturing, product testing, and after-sale
consumer service. The Company tests its products for performance, safety and
reliability and substantiates all product performance claims through rigorous
testing. All of the Company's products, except for accessories, replacement
pads and chemicals, carry a limited warranty, extending for periods ranging
from one to five years from the date of purchase. In addition, as part of the
product development process, Holmes submits products for safety testing by
independent laboratories, including Underwriters Laboratories, Inc. ("UL"), the
Canadian Standards Association, and similar testing laboratories in other
countries. The Company also has implemented quality programs for its major
subcontractors and has stationed Company quality control personnel at key
subcontractor manufacturing facilities, and has begun to implement the ISO 9001
quality assurance standards promulgated by the International Organization for
Standardization.
Manufacturing
The Company manufactures most of its products at its manufacturing
facilities in China. The Company's facilities are highly integrated and produce
most of the electric motors, injection molded plastic components and other
components used in the manufacturing and assembly process. The balance of the
Company's products are produced through subcontracted manufacturers in China
and the United States, generally under the supervision of the Company's
employees. The management, coordination, and control of all manufacturing
operations are centralized at the Company's principal offices in Milford,
Massachusetts.
The Company sources components for its products from suppliers in Asia,
Europe and North America and subcontracts manufacturing from producers in
China, Taiwan and the United States. The Company does not believe that it is
dependent on any single source of components or any single subcontractor or
vendor. Holmes owns all of its proprietary manufacturing designs, molds, dies,
and tooling used in production of its products. The Company believes that
ownership and control over these aspects of its operations enable it to more
easily move all or part of its operations to a new location or new
subcontractors, if necessary. In addition, the Company believes that there are
sufficient alternative sources of components, manufacturing sites, and
subcontractors available for the manufacture of its products. The Company
believes its relationships with its subcontractors are generally good. See
"Risk Factors -- Risks of Non-U.S. Operations" and " -- Dependence on
Manufacturing Facilities."
The Company purchases raw materials for its manufacturing operations from
numerous suppliers and does not believe that it is dependent on any single
source for any specific raw material or any significant portion of its raw
material purchases. See "Risk Factors -- Cost and Availability of Raw
Materials."
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Sales and Marketing
The Company's products are sold in the United States and Canada by an
internal sales staff consisting of ten sales managers with assistance from
internal sales support staff and from regional independent manufacturers'
representative organizations. The Company's sales managers are actively
involved in servicing all aspects of each retail account.
The Company currently utilizes 32 manufacturers' sales representative
organizations, all of which are paid on a commission basis. Although the
Company's manufacturers' sales representatives sell a range of consumer
products, including those of other manufacturers, they are contractually
prohibited from selling any products that compete with those of the Company.
Holmes has historically had a low rate of turnover of its sales representatives
and has therefore been able to provide continuity in its relationships with its
retailer customers.
The Company's marketing department consists of 12 individuals who are
responsible for market analysis, new product development, pricing strategy,
promotions and overall category development. The Company believes that its
packaging is one of its most powerful marketing tools because most consumers
typically purchase heaters, humidifiers and fans without the benefit of
knowledgeable retail sales staff. The Company's packaging and point-of-purchase
support provide written information and illustrations regarding product
features, usage instructions, safety features and product operation. The
Company has an in-house art department that develops over 90% of these
packaging and marketing materials on state-of-the-art desktop graphic systems.
Consumer Services
The Company maintains a customer service department and provides a
toll-free telephone number (800-5HOLMES) to assist with product assembly and
operation, respond to consumer inquiries about where to purchase Company
products, arrange for repairs of products under warranty and fill orders for
replacement items such as filters. The Company's consumer service line is
monitored and recorded to ensure consistent quality. The customer service line
enables the Company to maintain direct contact with and feedback from the end
users of its products, which the Company believes enhances brand loyalty.
Distribution
In order to respond most efficiently to the demands of its retail
customers and ensure timely delivery, particularly for those purchasing
products on a "just-in-time" basis, the Company balances direct shipments from
its manufacturing facilities with shipments from its domestic and international
warehouses. The Company leases five warehouse facilities in the United States
and Canada which provide flexible stocking in close proximity to retail
customers.
The Company's vertically integrated manufacturing capability, combined
with its domestic distribution system, contribute to its ability to deliver
products promptly and to respond quickly to re-orders and stockouts. The
Company employs an electronic data interchange ("EDI") system with selected
retail customers to expedite order and invoice processing.
Competition
The Company believes that the markets for its products are developed and
highly competitive. Management believes that competition is based upon several
factors, including price, access to retail shelf space, product features,
product enhancements, brand names, new product introductions, and marketing
support and distribution systems.
The Company competes with established companies, some of which have
substantially greater facilities, personnel, financial and other resources than
those of the Company. Holmes' major competitors include AdobeAir, Catalina
Lighting, Cheyenne, Fedders, Frigidaire, Honeywell Consumer Products (maker of
Duracraft and Enviracaire brands), Kenmore, Norelco, Rival (maker of Bionaire,
Pollenex and Patton brands), Sunbeam, Tensor and Windmere. The Company also
competes with importers and foreign manufacturers of unbranded products. See
"Risk Factors -- Competition."
Holmes believes that its most important competitive strengths are the
quality, design and competitive pricing of its products, its attention to
retailer and consumer needs, its access to major channels of distribution, the
development of new products and innovation in existing products, its ability to
provide timely shipment through its manufacturing and distribution facilities
and the capabilities of its management team.
50
<PAGE>
Properties
The following table identifies the Company's principal facilities (all of
which are leased), the primary activity at each of the facilities listed and
the expiration date of the applicable lease.
<TABLE>
<CAPTION>
Location Size Primary Use Lease Expiration
- ----------------------- --------------------- ------------------------------- -----------------
<S> <C> <C> <C>
Milford, MA 83,000 square feet Headquarters and Distribution 2001
Dongguan, China (1) 466,000 square feet Manufacturing and Assembly 2006
Dongguan, China (2) 269,000 square feet Motor Manufacturing 2004
Clinton, MA 207,000 square feet Distribution 1999
Worcester, MA (3) 156,000 square feet Distribution 2003
Vernon, CA Varies Distribution At will
Mississaugua, Ontario Varies Distribution At will
Hong Kong 10,300 square feet Office 1999
Taipei, Taiwan 1,700 square feet Office 1998
</TABLE>
- ------------
(1) These facilities are located in Guangdong Province, China, approximately 70
miles from Hong Kong. These facilities include 20 buildings on two
separate campuses that include manufacturing, assembly, warehousing, and
employee dormitory operations. The lease expiration date assumes the
exercise of the Company's options to extend the lease on the primary
manufacturing building.
(2) These facilities are located less than one-half mile from the manufacturing
and assembly facilities. These facilities include three buildings and
separate employee dormitories. The lease expiration date assumes the
exercise of the Company's options to extend the lease on the primary
manufacturing building.
(3) Includes leases in place for space currently under construction.
Employees
As of September 30, 1997, the Company employed approximately 4,000 people,
of which approximately 3,800 were located at the Company's manufacturing
facilities in Dongguan, China, approximately 67 were located in Hong Kong and
Taiwan, and 159 were located in the United States.
Regulation
The Company is subject to federal, state and local regulations concerning
the environment, occupational safety and health, trade-related issues and
consumer products safety. The Company believes that it is in material
compliance with all of such regulations. There can be no assurance, however,
that such regulations will not negatively affect the Company in the future. The
Company's operations could also be adversely affected by other regulations
relating to its foreign operations, including changes in trade laws, increased
import duties, import/export regulations and change in foreign laws. See "Risk
Factors."
Patents and Trademarks
The Company holds a number of patents and trademarks registered in the
United States, Canada, and other countries for various products and
technologies. Additional patent applications are pending in the United States,
Canada and Mexico. The Company also registers trademarks on product names and
unique features. The Company believes that none of its product lines is
dependent upon any single patent, group of patents or other intellectual
property rights. See " -- Legal Proceedings."
Legal Proceedings
Products such as fans, humidifiers, heaters, air purifiers and lighting
appliances manufactured by the Company and its competitors have features that
are the subject of numerous patents. From time to time in the course of its
business, the Company is a party to patent and trademark litigation as
plaintiff or defendant. The Company does not believe that such existing or
potential litigation will have a materially adverse effect on its business,
financial condition or results of operations.
51
<PAGE>
The Company is also a party to various actions and proceedings incident to
its normal business operations, including product liability litigation. The
Company believes that the outcome of such litigation will not have a material
adverse effect on its business, financial condition or results of operations.
The Company has product liability and general liability insurance policies in
amounts it believes to be reasonable. There can be no assurance, however, that
such insurance will be adequate to cover all potential product or other
liability claims against the Company. See "Risk Factors -- Product Liability."
52
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Positions
- -------------------------- ----- --------------------------------------------------
<S> <C> <C>
Jordan A. Kahn 55 President, Chief Executive Officer and Director
Stanley Rosenzweig 33 Chief Operating Officer and Director
Gregory F. White 33 Executive Vice President, Sales and Marketing and
Director
(Tommy) Woon Fai Liu 46 Managing Director of Holmes' Far East operations
David Dusseault 43 Chief Financial Officer
Richard K. Lubin 51 Director
Randy Peeler 33 Director
</TABLE>
Other Key Employees
The following table sets forth certain information with respect to certain
other key employees of the Company:
<TABLE>
<S> <C> <C>
Yigal Offir 35 Executive Vice President, Manufacturing
Robert Livergood 64 President, Holmes Lighting
Russell Owens 46 Senior Vice President, Director of Sales
Kathleen Kelly 33 Vice President of Sales Administration and Imports
Stephen Harris 34 Vice President, Air Purification
Neville Glenn 65 Vice President, Research and Development
Julie Garilli 33 Vice President, Human Resources
Paul Powers 33 Director of Marketing
</TABLE>
Jordan A. Kahn, founder of the Company, has served as President and Chief
Executive Officer and a director since its organization in 1982. Since 1968,
Mr. Kahn has also been President of Jordan Kahn Co., Inc., a manufacturer's
representative representing small electric personal appliance manufacturers,
including the Company, to retailers across the Northeast.
Stanley Rosenzweig has served the Company since 1991, initially as Vice
President -- Operations, and since 1993 as Chief Operating Officer and a
director. From 1987 to 1988, Mr. Rosenzweig served as a management consultant
with Bain & Company, and from 1988 to 1989 as a sales manager with Jolson
Corporation, a Canadian appliance company.
Gregory F. White has served as Executive Vice President, Sales and
Marketing since 1995, and from 1993 to 1995 as Vice President -- Marketing. He
served as Account Supervisor at Ammirati & Puris, an advertising agency, from
1992 to 1993 and as Account Manager at the advertising agency D'Arcy, Masius,
Benton & Bowles from 1991 to 1992.
(Tommy) Woon Fai Liu became Managing Director of the Company's Far East
operations upon the closing of the Transactions. From 1993 to 1997, Mr. Liu
served as Chief Financial Officer and Executive Director of Asco General
Supplies Far East Limited, a subsidiary of Pentland, as well as Executive
Director of Holmes Far East since 1994. From 1989 to 1993, Mr. Liu was Finance
Director for Johnson & Johnson Hong Kong.
53
<PAGE>
David Dusseault has served as Chief Financial Officer of the Company since
1992 and from 1988 to 1992 as Comptroller of the Company. From 1981 to 1987,
Mr. Dusseault served as Comptroller at Leach and Garner Refining.
Richard K. Lubin is a Managing Director of Berkshire Partners, which he
co-founded in 1986, and has been a director of many of the firm's
manufacturing, retailing and transportation investments, including, among
others, InteSys Technologies, Inc. and English Welsh & Scottish Railway, Ltd.
In addition, Mr. Lubin is Treasurer of the Dana-Farber Cancer Institute and a
Trustee of Beth Israel Deaconess Medical Center.
Randy Peeler is a Vice President of Berkshire Partners, where he has been
employed since 1996. From 1994 to 1996, he was responsible for new business
ventures at Health Advances, a healthcare industry consulting firm. From 1993
to 1994, he served as Chief of Staff to the Assistant Secretary for Economic
Policy at the U.S. Department of the Treasury. Prior to that, he was a
consultant with Cannon Associates.
Yigal Offir has served as Executive Vice President, Manufacturing of the
Company since 1995. From 1994 to 1995, Mr. Offir served as Director of
Engineering at Helen of Troy, Inc., a personal care and appliance company. From
1986 to 1994 he served in a variety of engineering positions at Helen of Troy,
Inc. and from 1980 to 1986 he served in the Israeli Navy.
Robert Livergood has served as President, Holmes Lighting since 1995. From
1993 to 1995, he served as Vice President, Sales of Holmes Lighting, and from
1991 to 1993 he was Vice President, Sales for the Company's Western Division.
Russell Owens has served as Senior Vice President, Director of Sales of
the Company since 1995. From 1993 to 1995 he served as Vice President, Sales
for the Company's Western Division. From 1985 to 1993, Mr. Owens was Sales
Director for Wallace Products, Inc., a manufacturer of furniture and household
products.
Kathleen Kelly has served as Vice President of Sales Administration and
Imports of the Company since 1995. She has held various positions since she
joined the Company in 1986.
Stephen Harris has served as Vice President, Air Purification Products
since 1996. From 1992 to 1996, he served as National Sales and Marketing
Manager for Air Purification Products.
Neville Glenn has served as Vice President, Research and Development of
the Company since 1996. From 1993 to 1996, Mr. Glenn served as Vice President,
Engineering. From 1991 to 1993, he acted as a consultant to the Company, and
from 1987 to 1991 he was Vice President, Engineering at Bionaire, Inc., a home
comfort products company.
Julie Garrilli has served as Vice President, Human Resources of the
Company since 1995. From 1986 to 1995 she served as Administrative Manager of
the Company.
Paul Powers joined Holmes as Director of Marketing in 1997. From 1995 to
1997, he served as Divisional Merchandise Manager, and from 1992 to 1995 as a
buyer, for Hill's Department Stores.
Compensation of Executive Officers
The following Summary Compensation Table sets forth the compensation for
the Company's Chief Executive Officer and the other three most highly
compensated executive officers of the Company who earned in excess of $100,000
in salary and bonus for the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------------- ------------
Other Annual All Other
Name and Principal Position Salary Bonus Compensation Compensation
- -------------------------------------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Jordan A. Kahn ..................... $300,000 $825,000 $31,200(1) $ --
President and Chief Executive Officer
Stanley Rosenzweig .................. 200,000 225,000 15,600(1) 632,892(2)
Chief Operating Officer
Gregory F. White ..................... 150,000 112,500 10,200(1) 4,673(3)
Executive Vice President
Sales and Marketing
(Tommy) Woon Fai Liu ............... 200,000(4) 25,000(5) -- --
Managing Director of Holmes Far East
</TABLE>
54
<PAGE>
- ------------
(1) Represents automobile allowance or annual lease payments on automobile
provided by the Company.
(2) Includes $9,500 representing the Company's matching contribution under its
401(k) plan, $77,392 paid in 1996 on account of a previous employment
agreement with the Company and $546,000 accrued for 1996 which was paid in
connection with the Transactions pursuant to the incentive compensation
agreement described under " -- Employment Agreements."
(3) Represents the Company's matching contribution under its 401(k) plan.
(4) Includes compensation paid to Mr. Liu by the Company and by an affiliate of
Pentland.
(5) Does not include any amounts paid by affiliates of Pentland for services
rendered to such affiliates.
Director Compensation
The Company may compensate its directors for services rendered in such
capacity.
Employment Agreements
Messrs. Kahn, Rosenzweig, White and Liu (the "Executives") have entered
into Employment and Non-Competition Agreements with the Company, effective as
of the closing of the Transactions, which provide for their continued
employment in their present capacities with the Company for an initial term
through December 31, 2000. Each agreement will thereafter renew for consecutive
one-year terms unless terminated by either party. Mr. Kahn's base salary is
currently $400,000 per year, Mr. Rosenzweig's base salary is currently $250,000
per year, Mr. White's base salary is currently $200,000 per year, and Mr. Liu's
base salary is currently $200,000 per year plus a $25,000 living expense
allowance per year. Each Executive is entitled to receive an annual performance
bonus for 1997. In addition, commencing January 1, 1998, each Executive is
entitled to an annual performance bonus equal to up to 50% of his base salary
based on achievement of certain performance criteria.
In conjunction with the closing of the Transactions, Mr. Kahn's previous
employment agreement was terminated for a lump-sum payment to Mr. Kahn of
$900,000, plus a payment of the bonus accrued under the terms of the agreement
for the period through the effective date of the closing of the Transactions
(estimated to be approximately $770,000). In addition, Mr. Kahn received an
additional bonus in conjunction with the closing of the Transactions of
approximately $3.1 million. Mr. Rosenzweig was party to an Incentive
Compensation Agreement with the Company providing for incentive compensation
payments in the event of a sale of the Company or certain other transactions,
including the Transactions. Pursuant to that agreement, Mr. Rosenzweig received
$2.5 million upon the closing of the Transactions. Mr. White was party to an
employment agreement with the Company providing for a lump-sum payment of
$500,000 upon the closing of the Transactions.
1997 Stock Option Plan
The Company's 1997 Stock Option Plan (the "Option Plan"), adopted in
connection with the Transactions, provides for the grant of incentive stock
options and non-qualified stock options to directors, officers, employees,
consultants and other key persons of the Company. An aggregate of 73.9 shares
of the Company's common stock have been reserved for issuance under the Option
Plan, representing approximately 13.5% of the Company's common stock on a
fully-diluted basis (subject to adjustment for stock splits and similar
events). The options and the common shares purchasable upon exercise of options
are expected to be subject to certain restrictions and vesting schedules, which
may be time- or performance-based. The exercise price of the options will
generally be equal to the fair market value of the common shares at the time of
issuance of such options.
The Option Plan is administered by the Board of Directors or a Committee
consisting of two or more directors. Subject to provisions of the Option Plan,
the Board of Directors has the authority to select optionees and determine the
terms of the options granted, including (i) the number of shares subject to
such option, (ii) when the option becomes exercisable and (iii) the exercise
price of the option; provided, however, that no option may have a term in
excess of ten years from the date of grant.
55
<PAGE>
SHARE OWNERSHIP
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock immediately following the
Transactions. Except as indicated in the footnotes to this table, the Company
believes that the persons named in this table have sole voting and investment
power with respect to all shares of common stock indicated.
<TABLE>
<CAPTION>
Percent of
Name and Address of No. of Outstanding
Beneficial Owner (1) Shares Shares(2)
- --------------------------------------------- ------ -----------
<S> <C> <C>
Berkshire Fund IV, LP (3) ............... 293.3 62.0%
c/o Berkshire Partners LLC
One Boston Place
Boston, MA 02108
Jordan A. Kahn (4) ..................... 94.6 20.0
Bain Securities, Inc.(5) ................ 27.0 5.7
Asco Investments Ltd.(6) ................ 24.1 5.1
c/o Pentland Group plc
The Pentland Centre
Squires Lane
London, England N3 2QL
Stanley Rosenzweig (4) .................. 13.5 2.9
Gregory F. White (4) .................. 8.1 1.7
(Tommy) Woon Fai Liu (4) ............... 5.4 1.1
Richard K. Lubin (7) .................. 293.3 62.0
Randy Peeler (7) ........................ 293.3 62.0
All directors and executive officers
as a group (7 persons) (4) (8)......... 121.6 25.7
</TABLE>
- ------------
(1) Unless otherwise specified, the address of each person is c/o Holmes
Products Corp., 233 Fortune Boulevard, Milford, MA 01757.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and reflects general voting power and/or investment power with
respect to securities. Shares of common stock subject to options or
warrants currently exercisable or exercisable within 60 days of the date
of this Prospectus are deemed outstanding.
(3) Includes shares beneficially owned by another investment fund affiliated
with Berkshire Fund IV, LP.
(4) Does not include any shares of common stock which may be subject to stock
options granted following the closing of the Transactions under the Option
Plan.
(5) Includes shares beneficially owned by an affiliated investment entity.
(6) Does not include shares of common stock subject to a warrant to purchase 5%
of the common stock, exercisable in certain circumstances. See "The
Transactions; Use of Proceeds."
(7) This person is affiliated with Berkshire Partners and may be deemed to
beneficially own the shares held by Berkshire Fund IV, LP and its
affiliates. This person disclaims beneficial ownership of such shares.
(8) Does not include shares referred to in Note 7.
56
<PAGE>
CERTAIN TRANSACTIONS
Pursuant to a Management Agreement ("the Management Agreement") entered
into as of the closing date of the Transactions (the "Closing Date"), Berkshire
Partners received a $1.5 million fee from the Company on the Closing Date and
will receive an annual fee of $400,000 per year for the provision of management
and advisory services to the Company. The Management Agreement is in effect for
a term of five years, provided that the Management Agreement will terminate on
the later of the first date that (i) Berkshire Partners owns less than 40.0% of
the Company's common stock on a fully diluted basis, and (ii) Berkshire
Partners owns fewer common shares than the members of the Company's management,
taken as a group, or fewer shares than any other single stockholder. On the
Closing Date, Berkshire Partners was also entitled to designate two of the
Company's directors and has the right, at its election, to increase the size of
the Board of Directors and the number of directors designated by it by an
additional two directors.
Since its inception in 1982, the Company has retained Jordan Kahn Co.,
Inc. ("JKC"), a corporation owned by Jordan A. Kahn, to serve as a sales
representative for the Company in the northeastern United States. Pursuant to a
representation agreement between the Company and JKC, the Company has agreed to
pay to JKC a commission on net sales to JKC's customers in its territory, which
fee is the same fee paid by the Company to other unaffiliated sales
representative organizations representing the Company in other territories
throughout the United States. Pursuant to this arrangement, the Company paid a
total of $407,000, $403,000, $480,000 and $229,000 to JKC for the years ended
December 31, 1994, 1995 and 1996, and the nine months ended September 30, 1997,
respectively.
In connection with the Transactions, the Company purchased a portion of
the shares of common stock of Holmes U.S. owned by Pentland, and issued to
Pentland a warrant to purchase shares of the Company's common stock under
certain circumstances. See "The Transactions; Use of Proceeds." In addition,
the Company entered into new employment agreements with Messrs. Kahn,
Rosenzweig, White and Liu, and made certain payments to Messrs. Kahn,
Rosenzweig and White, in connection with the Transactions. See "Management."
During 1993, the Company entered into a revolving credit facility with an
affiliate of Pentland, pursuant to which such affiliate provided short-term
loans to the Company. Interest on the loans made under the revolving credit
facility was payable at the expiration of each loan, and totaled approximately
$534,000, $1.5 million, $2.4 million and $1.9 million for the years ended
December 31, 1994, 1995 and 1996 and the nine months ended September 30, 1997,
respectively. Another affiliate of Pentland provided the Company with trade
acceptance and letter of credit financing for its purchases from foreign
manufacturers. The Company paid a commission for administrative services
related to the processing of these trade acceptances. The commissions paid by
the Company approximated $921,000, $1.6 million, $2.0 million and $1.7 million
for the years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1997, respectively. In conjunction with the Transactions, all of
the financing facilities provided by Pentland and its affiliates were
terminated and paid in full. In addition, a net payable of $4.2 million due to
affiliates of Pentland as of September 30, 1997 was repaid in connection with
the Transactions. See Note 3 of Notes to Consolidated Financial Statements.
57
<PAGE>
DESCRIPTION OF CREDIT FACILITY
As of the Closing Date, Holmes and certain of its Subsidiaries entered
into a $100.0 million revolving credit facility (the "Credit Facility") with
BankBoston, N.A. ("BankBoston"), Lehman Brothers Inc. and certain other
financial institutions party thereto. Subject to compliance with certain
covenants, including certain financial covenants, and the satisfaction of
customary borrowing conditions, Holmes and certain of its subsidiaries, as co-
borrowers, are permitted to borrow up to an aggregate of $100.0 million. The
Credit Facility also provides for the issuance of letters of credit. The Credit
Facility is secured by substantially all of the Company's domestic and certain
foreign assets and certain of the subsidiary co-borrower's assets, and is
guaranteed by all of the Company's direct and indirect domestic subsidiaries
and certain foreign subsidiaries, which guarantees are secured by substantially
all of such subsidiaries' assets. Borrowings under and subsidiary guarantees of
the Credit Facility represent Senior Debt under the Indenture. Moreover, a
default under the Indenture will result in a cross-default under the Credit
Facility.
The ability of the Company to borrow under the Credit Facility is subject
to, among other things, compliance with covenants and financial ratios
contained in the Credit Facility. Borrowings under the Credit Facility will
mature and be payable in November 2002.
The Credit Facility bears interest, at the Company's option, at the
Alternate Base Rate (as defined below) or a LIBOR rate, plus specified margins
based on the ratio of the Company's Total Debt to EBITDA (each as defined
therein). The Alternate Base Rate is the greater of BankBoston's base rate as
announced from time to time and the federal funds effective rate plus 0.50%.
The applicable margins were initially set at the Alternate Base Rate plus 0.50%
or the LIBOR rate plus 2.00%.
The Credit Facility contains covenants and provisions that restrict, among
other things, the Company's and its subsidiaries' ability to (i) incur
additional indebtedness, (ii) incur liens on their property, (iii) make certain
investments, (iv) prepay, repurchase or redeem subordinated debt, including the
Notes, (v) make capital expenditures, (vi) make distributions, (vii) engage in
certain sales of assets, (viii) engage in acquisitions that do not meet
specified criteria and (ix) engage in certain transactions with affiliates. The
Credit Facility also requires the Company to maintain certain financial ratios
which become more stringent over the life of the facility, including minimum
fixed charge coverage ratios, minimum interest coverage ratios and maximum
ratios of total debt to EBITDA.
58
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
General
The Exchange Notes will be issued pursuant to the Indenture among the
Company, the Guarantors and State Street Bank and Trust Company, as trustee
(the "Trustee"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Exchange
Notes are subject to all such terms, and Holders of the Exchange Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below.
Copies of the Indenture and Registration Rights Agreement will be made
available as set forth under the caption " -- Additional Information." The
definitions of certain terms used in the following summary are set forth below
under the caption " -- Certain Definitions." For purposes of this Description
of the Exchange Notes, the term "Company" refers only to Holmes Products Corp.
and not to any of its Subsidiaries.
The Exchange Notes will be general unsecured obligations of the Company
and will be subordinated in right of payment to all existing and future Senior
Debt of the Company. As of September 30, 1997, after giving pro forma effect to
the Transactions, the Company would have had approximately $34.6 million of
Senior Debt outstanding, including outstanding borrowings under the Credit
Facility. In addition, the Company would have had $67.3 million of additional
borrowings available under the Credit Facility. The Indenture permits the
Company to incur additional indebtedness, including additional Senior Debt,
subject to certain restrictions. See " -- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock."
All of the Company's Subsidiaries are Restricted Subsidiaries. However,
under certain circumstances, the Company is able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries are not
subject to many of the restrictive covenants set forth in the Indenture. The
Company's payment obligations under the Exchange Notes are jointly and
severally guaranteed, on a senior subordinated basis, by all of the Company's
Domestic Restricted Subsidiaries. See " -- Subsidiary Guarantees."
Principal, Maturity and Interest
The Exchange Notes will be limited in aggregate principal amount to $105.0
million and will mature on November 15, 2007. Interest on the Exchange Notes
will accrue at the rate of 9-7/8% per annum and will be payable semi-annually in
arrears on May 15 and November 15 of each year, commencing on May 15, 1998, to
Holders of record on the immediately preceding May 1 and November 1. Interest
on the Exchange Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of original
issuance. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal of and premium, interest and Liquidated
Damages, if any, on the Exchange Notes will be payable at the office or agency
of the Company maintained for such purpose or, at the option of the Company,
payment of interest and Liquidated Damages, if any, may be made by check mailed
to the Holders of the Exchange Notes at their respective addresses set forth in
the register of Holders of the Exchange Notes; provided that all payments of
principal, premium, interest and Liquidated Damages, if any, with respect to
the Exchange Notes the Holders of which have given wire transfer instructions
to the Trustee will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. Until
otherwise designated by the Company, the Company's office or agency will be the
office of the Trustee maintained for such purpose. The Exchange Notes will be
issued in denominations of $1,000 and integral multiples thereof.
Subordination
The payment of principal of and premium, interest and Liquidated Damages,
if any, on the Exchange Notes will be subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full in cash or Cash
Equivalents of all Senior Debt of the Company.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders
59
<PAGE>
of Senior Debt will be entitled to receive payment in full in cash or Cash
Equivalents of all Obligations due in respect of such Senior Debt (including
Post-Petition Interest) before the Holders of the Exchange Notes will be
entitled to receive any payment with respect to the Exchange Notes, and until
all Obligations with respect to Senior Debt are paid in full in cash or Cash
Equivalents, any distribution to which the Holders of the Exchange Notes would
be entitled shall be made to the holders of Senior Debt (except that Holders of
the Exchange Notes may receive Permitted Junior Securities and payments made
from the trust described under the caption " -- Legal Defeasance and Covenant
Defeasance").
The Company also may not make any payment upon or in respect of the
Exchange Notes, including pursuant to the redemption provisions of the
Indenture and pursuant to an offer to repurchase the Exchange Notes following a
Change of Control or with Excess Proceeds of Asset Sales (except, in each case,
in Permitted Junior Securities or from the trust described under the caption "
- -- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of or premium, or interest on any Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to any Designated Senior
Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and, in the case of clause (ii), the
Trustee receives a notice of such default (a "Payment Blockage Notice") from
the Company or the agent under (in the case of the Credit Facility), or the
holders of, such Designated Senior Debt. Payments on the Exchange Notes may and
shall be resumed (a) in the case of a payment default, upon the date on which
such default is cured or waived and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or 179
days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of payment blockage may be commenced pursuant to
clause (ii) above unless and until 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice unless such default shall have been cured or waived for
a period of at least 30 days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Exchange Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of the Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt. As of
September 30, 1997, after giving effect to the Transactions, the Company would
have had approximately $34.6 million of Senior Debt outstanding, including
outstanding borrowings under the Credit Facility. In addition, the Company
would have had approximately $67.3 million of additional borrowings available
under the Credit Facility. The Company will be able to incur additional Senior
Debt in the future, subject to certain limitations. See " -- Certain Covenants
- -- Incurrence of Indebtedness and Issuance of Preferred Stock."
Subsidiary Guarantees
The Company's payment obligations under the Exchange Notes will be jointly
and severally guaranteed by each of the Company's current and future Domestic
Restricted Subsidiaries. The Guarantee of each Guarantor will be subordinated
in right of payment to all existing and future Senior Debt of such Guarantor to
the same extent as the Exchange Notes are subordinated to Senior Debt of the
Company. See " -- Subordination." As of September 30, 1997, after giving effect
to the Transactions, the Guarantors would have had approximately $34.6 million
of Senior Debt outstanding, including guarantees of the Company's obligations
under the Credit Facility. The Guarantors currently do not have any material
assets or operations. The Indenture permits the Company's Subsidiaries to incur
additional indebtedness, including additional Senior Debt, subject, in the case
of the Company's Restricted Subsidiaries, to certain restrictions. See " --
Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor (other than to the Company or another Domestic Restricted
Subsidiary), or in the case the Company designates a Guarantor to be an
Unrestricted Subsidiary in accordance with the Indenture, then such Guarantor
will be released and relieved of any obligations under its Guarantee; provided
that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See " -- Repurchase
at Option of Holders -- Asset Sales."
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Optional Redemption
The Exchange Notes will not be redeemable at the Company's option prior to
November 15, 2002. Thereafter, the Exchange Notes will be subject to redemption
at any time at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on November 15 of
the years indicated below:
Year Percentage
2002 ..................... 104.938%
2003 ..................... 103.292
2004 ..................... 101.646
2005 and thereafter ...... 100.000%
Notwithstanding the foregoing, prior to November 15, 2000, the Company may
redeem up to an aggregate of $33.0 million in principal amount of the Exchange
Notes at a redemption price of 109.875% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of one or more offerings of Equity
Interests (other than Disqualified Stock) of the Company; provided that (i) at
least $72.0 million in principal amount of the Exchange Notes originally issued
under the Indenture remain outstanding immediately after the occurrence of each
such redemption and (ii) notice of such redemption shall be given within 90
days of the date of the consummation of each such public offering.
Selection and Notice
If less than all of the Exchange Notes are to be redeemed at any time,
selection of the Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Exchange Notes are listed, or, if the Exchange Notes are
not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided that no Exchange Notes of $1,000 or
less shall be redeemed in part. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each Holder of the Exchange Notes to be redeemed at its registered address.
Notices of redemption may not be conditional. If any Exchange Note is to be
redeemed in part only, the notice of redemption that relates to such Exchange
Note shall state the portion of the principal amount thereof to be redeemed. A
new Exchange Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Exchange Note. Exchange Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on the Exchange Notes or portions of them called for redemption.
Mandatory Redemption
Except as set forth below under the caption " -- Repurchase at the Option
of Holders," the Company is not required to make mandatory redemption or
sinking fund payments with respect to the Exchange Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, the Company will be obligated
to make an offer (a "Change of Control Offer") to each Holder of the Exchange
Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Exchange Notes at an offer price in cash equal to
101% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase (the "Change of
Control Payment"). Within 30 days following a Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase the Exchange
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to
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the extent such laws and regulations are applicable in connection with the
repurchase of the Exchange Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Exchange Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
Exchange Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Exchange Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of the Exchange
Notes or portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of the Exchange Notes so tendered the Change of
Control Payment for such Exchange Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Exchange Note equal in principal amount to any unpurchased portion of the
Exchange Notes surrendered, if any; provided that each such new Exchange Note
will be in a principal amount of $1,000 or an integral multiple thereof. The
Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 90 days following a Change of Control, the
Company will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of the Exchange Notes required by this covenant. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Exchange Notes to require
that the Company repurchase or redeem the Exchange Notes in the event of a
takeover, recapitalization or similar transaction.
The Credit Facility prohibits, and future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
prohibit, the Company from purchasing any Exchange Notes following a Change of
Control and/or provide that certain change of control events with respect to
the Company would constitute a default thereunder. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing
Exchange Notes, the Company could seek the consent of its lenders to the
purchase of the Exchange Notes or could attempt to refinance the borrowings
that contain such prohibition. If the Company does not obtain such a consent or
repay such borrowings, the Company will remain prohibited from purchasing the
Exchange Notes. The Company's failure to purchase tendered Exchange Notes
following a Change of Control would constitute an Event of Default under the
Indenture which would, in turn, constitute as default under the Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of the Exchange Notes. See " --
Subordination."
The Company will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control Offer
made by the Company and purchases all Exchange Notes validly tendered and not
withdrawn under such Change of Control Offer.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; provided that the amount of (a) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or such Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability and (b) any
securities, notes or other obligations received by the Company or such
Restricted Subsidiary from such transferee that are immediately converted by
the Company or such Restricted Subsidiary into cash (to the extent of the cash
received) shall be deemed to be cash for purposes of this provision.
Within 360 days of the receipt of any Net Proceeds from an Asset Sale, the
Company or any of its Restricted Subsidiaries may apply such Net Proceeds, at
its option, (i) to repay Senior Debt of the Company or any of its
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Restricted Subsidiaries or to provide cash collateral with respect to any
letters of credit outstanding under the Credit Facility (and, in each case, to
correspondingly reduce commitments with respect thereto in the case of
revolving borrowings) or (ii) to the acquisition of a controlling interest in
another business, the making of a capital expenditure or the acquisition of
other long-term assets. Pending the final application of any such Net Proceeds,
the Company may temporarily reduce Senior Debt or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company will be required to make an offer to all Holders of Exchange Notes
(an "Asset Sale Offer") to purchase the maximum principal amount of Exchange
Notes that may be purchased out of the Excess Proceeds at an offer price in
cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate amount of Exchange Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Exchange Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Exchange Notes to be
purchased on a pro rata basis. Upon completion of an Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
Certain Covenants
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to any
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions (a) payable in Equity Interests
(other than Disqualified Stock) of the Company or (b) to the Company or any
Wholly Owned Restricted Subsidiary of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value (including without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company (other
than any such Equity Interests owned by the Company or any Wholly Owned
Restricted Subsidiary of the Company); (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness of the Company or any Restricted Subsidiary that is
subordinated to the Exchange Notes or any Guarantee thereof, except a payment
of interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption " -- Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Closing Date (excluding Restricted Payments
permitted by clause (ii) through (iv) of the next succeeding paragraph), is
less than the sum of (i) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the Closing Date to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company from the issue or sale since the date of the Indenture of
Equity Interests of the Company (other than Disqualified Stock) or of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock
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or convertible debt securities that have been converted into Disqualified
Stock), plus (iii) 50% of any dividends received by the Company or a Wholly
Owned Restricted Subsidiary after the date of the Indenture from an
Unrestricted Subsidiary of the Company, to the extent that such dividends
were not otherwise included in Consolidated Net Income of the Company for
such period.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
or any Restricted Subsidiary in exchange for, or out of the net cash proceeds
of the substantially concurrent sale (other than to a Subsidiary of the
Company) of, other Equity Interests of the Company (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (c)(ii) of the preceding paragraph;
(iii) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) payments pursuant to the Transactions
as described under "The Transactions; Use of Proceeds" and "Management --
Employment Agreements;" (v) so long as no Default or Event of Default shall
have occurred and be continuing immediately after such transaction, the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any Restricted Subsidiary of the Company
held by any member of the Company's (or any of its Restricted Subsidiaries')
management or board of directors pursuant to any management equity subscription
agreement, stock option agreement or other similar agreement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed the sum of (a) $500,000 in any twelve-month
period plus (b) the aggregate net proceeds received by the Company from the
issuance after the Closing Date of Equity Interests (other than Disqualified
Stock) of the Company to members of management or the Board of Directors of the
Company or any of its Restricted Subsidiaries; provided that the amount of any
such net cash proceeds that are utilized for any such repurchase, redemption or
other acquisition or retirement shall be excluded from clause (c)(ii) of the
preceding paragraph; and (vi) payments to Berkshire Partners pursuant to the
Management Agreement in an amount not to exceed $400,000 in any calendar year.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined in
good faith by the Board of Directors whose resolution with respect thereto
shall be delivered to the Trustee. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greatest of (i) the net book value of such Investments at the time of such
designation, (ii) the fair market value of such Investments at the time of such
designation and (iii) the original fair market value of such Investments at the
time they were made. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the board resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the definition of an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date
under the covenant described under the caption " -- Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding
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Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption " -- Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred at
the beginning of the four-quarter reference period, and (ii) no Default or
Event of Default would be in existence immediately following such designation.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not permit any
of its Restricted Subsidiaries to issue any shares of preferred stock (other
than to the Company or another Restricted Subsidiary); provided, however, that
the Company and its Restricted Subsidiaries may incur Indebtedness (including
Acquired Debt) and the Company's Restricted Subsidiaries may issue shares of
preferred stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such preferred stock is issued would
have been at least 2.0 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or the preferred stock had been issued at the
beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following (collectively, "Permitted Debt"):
(i) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness under the Credit Facility in an aggregate amount not to exceed the
greater of (a) $100.0 million at any time outstanding, less the aggregate
amount of all Net Proceeds of Asset Sales applied to repay any such
Indebtedness pursuant to clause (i) of the second paragraph of the covenant
described above under the caption " -- Repurchase at the Option of Holders --
Asset Sales" or (b) the sum of 80% of the accounts receivable plus 50% of the
inventory, in each case of the Company and its Restricted Subsidiaries, net of
reserves, as shown on the most recent balance sheet of the Company and its
Restricted Subsidiaries;
(ii) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Exchange Notes and the Guarantees thereof;
(iii) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness that was permitted
to be incurred by the first paragraph of this covenant, or by clauses (ii)
through (viii) of the second paragraph of this covenant;
(v) the incurrence of Indebtedness between or among the Company and any of
its Wholly Owned Restricted Subsidiaries; provided, however, that (a) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full of all Obligations with respect to
the Exchange Notes and (b) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person other
than the Company or a Wholly Owned Restricted Subsidiary, and any sale or other
transfer of any such Indebtedness to a Person that is not either the Company or
a Wholly Owned Restricted Subsidiary, shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding;
(vii) the incurrence by the Company and its Restricted Subsidiaries of
additional Indebtedness in an aggregate amount not to exceed $15.0 million at
any time outstanding; and
(viii) the guarantee by the Company or any of the Guarantors of
Indebtedness that was permitted to be incurred by another provision of this
covenant.
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For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (viii) above or
is entitled to be incurred pursuant to the first paragraph of this covenant,
the Company shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant and such item of Indebtedness
will be treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph hereof. Accrual of interest, the accretion of
accreted value and the payment of interest in the form of additional
Indebtedness will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien securing Indebtedness or trade payables on
any asset now owned or hereafter acquired, or any income or profits therefrom
or assign or convey any right to receive income therefrom, except Permitted
Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation
in, or measured by, its profits, or (b) pay any indebtedness owed to the
Company or any of its Restricted Subsidiaries, (ii) make loans or advances to
the Company or any of its Restricted Subsidiaries or (iii) transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the Closing Date, (b) the Credit Facility
as in effect as of the Closing Date, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive with respect to such dividend and other
payment restrictions than those contained in the Credit Facility as in effect
on the Closing Date, (c) the Indenture, the Exchange Notes and the Guarantees
thereof, (d) applicable law, (e) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (f) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business, (g) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (h) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced, or (i) restrictions with respect
to a Subsidiary of the Company imposed pursuant to a binding agreement which
has been entered into for the sale or disposition of all of the Capital Stock
or all or substantially all of the assets of such Subsidiary.
Merger, Consolidation or Sale of Assets
The Indenture provides that neither the Company nor any Guarantor may
consolidate or merge with or into (whether or not the Company or such
Guarantor, as the case may be, is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company or such Guarantor, as the
case may be, is the surviving corporation or the entity or the Person formed by
or surviving any such consolidation or merger (if other than the Company or
such Guarantor) or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the District
of Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company or such Guarantor) or the
entity or Person to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made assumes all the obligations of the
Company or such Guarantor, as the case may be, under the Exchange Notes or such
Guarantor's Guarantee thereof and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
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after such transaction no Default or Event of Default exists; and (iv) except
in the case of a merger of the Company or a Guarantor with or into the Company
or a Wholly Owned Restricted Subsidiary of the Company, the Company, such
Guarantor or the entity or Person formed by or surviving any such consolidation
or merger (if other than the Company or such Guarantor), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (a) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (b) will, at the time of such transaction and
after giving pro forma effect thereto (including pro forma expense and cost
reductions) as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
" -- Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or such Restricted Subsidiary than
those that would have been obtained in a comparable transaction by the Company
or such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess
of $1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, an
opinion as to the fairness to the Company of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment
banking firm of national standing.
The foregoing provisions will not prohibit (i) any employment agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business, (ii) transactions between or among the Company
and/or its Restricted Subsidiaries; and (iii) any Restricted Payment that is
permitted by the provisions of the Indenture described above under the caption
" -- Restricted Payments."
Limitation on Other Senior Subordinated Debt
The Indenture provides that neither the Company nor any Guarantor will
directly or indirectly incur any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of the Company or such Guarantor, as the
case may be, and senior in any respect in right of payment to the Exchange
Notes or such Guarantor's Guarantee thereof.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any Guarantor shall acquire
or create another Domestic Restricted Subsidiary after the date of the
Indenture, or any Unrestricted Subsidiary shall cease to be an Unrestricted
Subsidiary and shall become a Domestic Restricted Subsidiary, then such
Subsidiary shall execute a guarantee of the Exchange Notes and deliver an
opinion of counsel, in accordance with the terms of the Indenture.
Payments for Consent
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Exchange Notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the Indenture or the Exchange Notes unless
such consideration is offered to be paid or is paid to all Holders of the
Exchange Notes that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Exchange Notes are outstanding,
the Company will furnish to the Holders of Exchange Notes (i) all quarterly and
annual financial information (excluding exhibits and financial statement
schedules) that would be required to
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be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that describes
the financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto, the financial condition
and results of operations of the Company and its Restricted Subsidiaries
separate from the financial information and results of operations of the
Unrestricted Subsidiaries of the Company) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, whether or not required by the rules and regulations of
the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company and
its Restricted Subsidiaries will agree that, for so long as any Exchange Notes
remain outstanding, they will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Act.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Exchange Notes (whether or not
prohibited by the subordination provisions of the Indenture), (ii) default in
payment when due of the principal of or premium, if any, on the Exchange Notes
(whether or not prohibited by the subordination provisions of the Indenture);
(iii) failure by the Company or any of its Restricted Subsidiaries to comply
with the provisions described under the captions " -- Repurchase at the Option
of Holders -- Change of Control," " -- Repurchase at the Option of Holders --
Asset Sales," " -- Certain Covenants -- Restricted Payments," " -- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" or "
- -- Certain Covenants -- Merger, Consolidation or Sale of Assets;" (iv) failure
by the Company or any of its Restricted Subsidiaries for 60 days after written
notice by the Trustee or the Holders of at least 25% in principal amount of the
then outstanding Exchange Notes to comply with any of its other agreements in
the Indenture or the Exchange Notes; (v) default under any mortgage, indenture
or instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company
or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee
now exists or is created after the Closing Date, which default (a) is caused by
a failure to pay principal of or premium, if any, or interest on such
Indebtedness at final maturity (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $5.0 million and
either (a) any creditor commences enforcement proceedings upon any such
judgment or (b) such judgments are not paid, discharged or stayed for a period
of 60 days; (vii) except as permitted by the Indenture, any guarantee of the
Exchange Notes shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its guarantee; and (viii) certain events of
bankruptcy or insolvency with respect to the Company, any of its Restricted
Subsidiaries that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Exchange
Notes may declare all the Exchange Notes to be due and payable immediately,
provided that so long as any Indebtedness permitted to be incurred pursuant to
the Credit Facility shall be outstanding, no such acceleration shall be
effective until the earlier of (i) acceleration of any Indebtedness under the
Credit Facility or (ii) five business days after the giving of written notice
of such acceleration to the Company. Notwithstanding the foregoing, in the case
of an Event of Default arising from certain events of bankruptcy or insolvency,
with respect to the Company, any of its Restricted Subsidiaries that would
constitute a Significant Subsidiary or any group of Restricted Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all
outstanding Exchange Notes will become due and payable without further action
or notice. Holders of the Exchange Notes may not enforce the Indenture or the
Exchange Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Exchange Notes may direct
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the Trustee in its exercise of any trust or power. The Trustee may withhold
from Holders of the Exchange Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Exchange Notes
pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Exchange Notes. If an Event of
Default occurs prior to November 15, 2002 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding the prohibition on redemption of the Exchange Notes prior
to such date, then the premium specified in the Indenture shall also become
immediately due and payable to the extent permitted by law upon the
acceleration of the Exchange Notes.
The Holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding by notice to the Trustee may on behalf of the Holders of
all of the Exchange Notes waive any existing Default or Event of Default and
its consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Exchange Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees, Incorporators and
Stockholders
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or such Guarantor under the Exchange Notes, any Guarantee thereof, the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Exchange Notes by accepting an
Exchange Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Exchange Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Exchange Notes and to
have each Guarantor's obligation discharged with respect to its Guarantee of
the Notes ("Legal Defeasance") except for (i) the rights of Holders of
outstanding Exchange Notes to receive payments in respect of the principal of
and premium, interest and Liquidated Damages, if any, on the Exchange Notes
when such payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Exchange Notes concerning issuing temporary
Exchange Notes, registration of Exchange Notes, mutilated, destroyed, lost or
stolen Exchange Notes and the maintenance of an office or agency for payment
and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's and the
Guarantors' obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company and each Guarantor
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Exchange Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under the caption "Events of Default" will no
longer constitute an Event of Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Exchange Notes, cash in U.S. dollars, non-
callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of and premium, interest
and Liquidated Damages, if any, on the outstanding Exchange Notes on the stated
maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the Exchange Notes are being defeased to maturity
or to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered
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to the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that (a) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (b) since the
Closing Date, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the Holders of the outstanding Exchange Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Exchange Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after
the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Exchange Notes over the other creditors of
the Company or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange the Exchange Notes in accordance with
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Exchange Note selected for redemption. Also, the Company is not required to
transfer or exchange any Exchange Note for a period of 15 days before a
selection of Exchange Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of
it for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture,
the Exchange Notes and the Guarantees thereof may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Exchange Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Exchange Notes), and any existing default or compliance with any provision
of the Indenture, the Exchange Notes or the Guarantees thereof may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Exchange Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Exchange Notes held by a non-consenting Holder): (i)
reduce the principal amount of Exchange Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Exchange Note or alter the provisions with respect to the
redemption of the Exchange Notes (other than provisions relating to the
covenants described above under the caption " -- Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of interest
on any Exchange Note, (iv) waive a Default or Event of Default in the payment
of principal of or premium, interest or Liquidated Damages, if any, on the
Exchange Notes (except a rescission of acceleration of the Exchange Notes by
the Holders of at least a majority in aggregate principal amount of the
Exchange Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any
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Exchange Note payable in money other than that stated in the Exchange Notes,
(vi) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of Holders of Exchange Notes to receive payments of
principal of or premium, interest or Liquidated Damages, if any, on the
Exchange Notes, (vii) waive a redemption payment with respect to any Exchange
Note (other than a payment required by one of the covenants described above
under the caption " -- Repurchase at the Option of Holders"), (viii) release
any Guarantor from its Guarantee of the Exchange Notes except as provided in
the Indenture, or (ix) make any change in the foregoing amendment and waiver
provisions. In addition, any amendment to the provisions of Article 10 of the
Indenture (which relate to subordination) will require the consent of the
Holders of at least 75% in aggregate principal amount of the Exchange Notes
then outstanding if such amendment would adversely affect the rights of Holders
of Exchange Notes.
Notwithstanding the foregoing, without the consent of any Holder of
Exchange Notes, the Company, a Guarantor (with respect to a Guarantee of the
Exchange Notes) and the Trustee may amend or supplement the Indenture, the
Exchange Notes or any Guarantee thereof to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Exchange Notes in addition to or
in place of certificated Exchange Notes, to provide for the assumption of the
Company's or any Guarantor's obligations to Holders of Exchange Notes in the
case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of Exchange Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Exchange Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Exchange Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Holmes Products
Corp., 233 Fortune Boulevard, Milford, Massachusetts 01757, Attention: Chief
Financial Officer.
Book-Entry, Delivery and Form
The certificates representing the Exchange Notes will be issued in fully
registered form. Except as described in the next paragraph, the Exchange Notes
initially will be represented by a single, permanent global Exchange Note, in
definitive, fully registered form without interest coupons (the "Global
Exchange Note") and will be deposited with the Trustee as custodian for DTC and
registered in the name of Cede & Co. or such other nominee as DTC may
designate. The Global Exchange Note (and any Exchange Notes issued in exchange
therefor) will be subject to certain restrictions on transfer set forth therein
and in the Indenture and will bear the respective legends regarding such
restrictions.
Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered form a certificated Exchange Note ("Certificate Exchange Note").
Upon the transfer of any Certificated Exchange Note initially issued to a
Non-Global Holder, such Certificated Exchange Note will, unless
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the transferee requests otherwise or the Global Exchange Note has previously
been exchanged in whole for Certificated Exchange Notes, be exchanged for an
interest in the Global Exchange Note.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or the "Depositary's
Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only thorough the Depositary's Participants or the Depositary's
Indirect Participants.
The Company expects that, pursuant to procedures established by the
Depositary, (i) upon deposit of the Global Exchange Notes, the Depositary will
credit the accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of the Global Exchange Notes and (ii)
ownership of the Exchange Notes evidenced by the Global Exchange Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the laws of some
states require that certain persons take physical delivery in definitive form
of securities that they own. Consequently, the ability to transfer Exchange
Notes evidenced by the Global Exchange Notes will be limited to such extent.
For certain other restrictions on the transferability of the Exchange Notes,
see "Notice to Investors."
So long as the Global Exchange Note Holder is the registered owner of any
Exchange Notes, the Global Exchange Note Holder will be considered the sole
Holder under the Indenture of any Exchange Notes evidenced by the Global
Exchange Notes. Beneficial owners of Exchange Notes evidenced by the Global
Exchange Notes will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Exchange Notes.
Payments in respect of the principal of and premium, interest and
Liquidated Damages, if any, on any Exchange Notes registered in the name of the
Global Exchange Note Holder on the applicable record date will be payable by
the Trustee to or at the direction of the Global Exchange Note Holder in its
capacity as the registered Holder under the Indenture. Under the terms of the
Indenture, the Company and the Trustee may treat the persons in whose names
Exchange Notes, including the Global Exchange Notes, are registered as the
owners thereof for the purpose of receiving such payments. Consequently,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Exchange
Notes. The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of Exchange Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Additional Information Concerning Euroclear and Cedel Bank
Euroclear and Cedel Bank hold securities for participating organizations
and facilitate the clearance and settlement of securities transactions between
their respective participants through electronic book-entry changes in accounts
of such participants. Euroclear and Cedel Bank provide to their participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Euroclear and Cedel Bank interface with domestic securities markets.
Euroclear and Cedel Bank participants are financial institutions such as
underwriters, securities brokers and dealers, banks, trust companies and
certain other organizations. Indirect access to Euroclear and Cedel Bank is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodian relationship with a Euroclear or
Cedel Bank participant, either directly or indirectly. The Company will have no
direct control over the clearance and settlement of such transactions.
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When beneficial interests are to be transferred from the account of a
Participant (other than Morgan Guaranty Trust Company of New York and Citibank,
N.A., as depositaries for Euroclear and Cedel Bank, respectively) to the
account of a Euroclear participant or a Cedel Bank participant, the purchaser
must send instructions to Euroclear or Cedel Bank through a participant at
least one business day prior to settlement. Euroclear or Cedel Bank, as the
case may be, will instruct Morgan Guaranty Trust Company of New York or
Citibank, N.A. to receive the beneficial interests against payment. Payment
will include interest attributable to the beneficial interest from and
including the last payment date to and excluding the settlement date, on the
basis of a calendar year consisting of twelve 30-day calendar months. For
transactions settling on the 31st day of the month, payment will include
interest accrued to and excluding the first day of the following month. Payment
will then be made by Morgan Guaranty Trust Company of New York or Citibank,
N.A., as the case may be, to the Participant's account against delivery of the
beneficial interests. After settlement has been completed, the beneficial
interests will be credited to the respective clearing systems and by the
clearing system, in accordance with its usual procedures, to the Euroclear
participants' or Cedel Bank participants' account. Credit for the beneficial
interests will appear on the next business day (European time) and the cash
debit will be back-valued to, and interest attributable to the beneficial
interests will accrue from, the value date (which would be the preceding
business day when settlement occurs in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Euroclear or
Cedel Bank cash debit will instead be valued as of the actual settlement date.
Euroclear participants and Cedel Bank participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Euroclear or Cedel Bank. Under
this approach, they may take on credit exposure to Euroclear or Cedel Bank
until the beneficial interests are credited to their accounts one day later.
Finally, day traders that use Euroclear or Cedel Bank and that purchase
beneficial interests from Participants for credit to Euroclear participants or
Cedel Bank participants should note that these trades would automatically fall
on the sale side unless affirmative action were taken to avoid these potential
problems.
Due to time zone differences in their favor, Euroclear participants and
Cedel Bank participants may employ their customary procedures for transactions
in which beneficial interests are to be transferred by the respective clearing
system, through Morgan Guaranty Trust Company of New York or Citibank, N.A., to
another Participant. The seller must send instructions to Euroclear or Cedel
Bank through a participant at least one business day prior to settlement. In
these cases, Euroclear or Cedel Bank will instruct Morgan Guaranty Trust
Company of New York or Citibank, N.A., as the case may be, to credit the
beneficial interests to the Participant's account against payment. Payment will
include interest attributable to the beneficial interest from and including the
last payment date to and excluding the settlement date on the basis of a
calendar year consisting of twelve 30-day calendar months. For transactions
settling on the 31st day of the month, payment will include interest accrued to
and excluding the first day of the following month. The payment will then be
reflected in the account of the Euroclear participant or Cedel Bank participant
the following business day, and receipt of the cash proceeds in the Euroclear
or Cedel Bank participant's account will be back-valued to the value date
(which would be the preceding business day, when settlement occurs in New
York). If the Euroclear participant or Cedel Bank participant has a line of
credit with its representative clearing system and elects to draw on such line
of credit in anticipation of receipt of the sale proceeds in its account, the
back-valuation may substantially reduce or offset any overdraft charges
incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., if trade fails), receipt of the cash proceeds in the
Euroclear or Cedel Bank participant's account would instead be valued as of the
actual settlement date.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in
a Global Exchange Note may, upon request, exchange such beneficial interest for
Exchange Notes in the form of Certificated Securities. Upon any such issuance,
the Trustee is required to register such Certificated Securities in the name
of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). All such certificated Exchange Notes would be subject
to the legend requirements described herein under the caption "Notice to
Investors." In addition, if (i) the Company notifies the Trustee in writing
that the Depositary is no longer willing or able to act as a depositary and the
Company is unable to locate a qualified successor within 90 days or (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of Exchange Notes in the form of Certificated Securities under the
Indenture, then, upon surrender by the Global Exchange Note Holder of the
Global Exchange Notes,
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Exchange Notes in such form will be issued to each person that the Global
Exchange Note Holder and the Depositary identify as being the beneficial owner
of the related Exchange Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Exchange Note Holder or the Depositary in identifying the beneficial
owners of Exchange Notes and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global Exchange
Note Holder or the Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture will require that payments in respect of the Exchange Notes
represented by the Global Exchange Notes (including principal, premium,
interest and Liquidated Damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the Global Exchange
Note Holder. With respect to Certificated Securities, the Company will make all
payments of principal, premium, interest and Liquidated Damages, if any, by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof or, if no such account is specified, by mailing a check to each
such Holder's registered address.
The Exchange Notes represented by the Global Exchange Notes are expected
to be eligible to trade in the PORTAL market and to trade in the Depositary's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Exchange Notes will, therefore, be required by the Depositary
to be settled in immediately available funds. The Company expects that
secondary trading in the Certificated Securities will also be settled in
immediately available funds, although such settlement will not be within the
Company's control.
Registration Rights; Liquidated Damages
The Company, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on the Closing Date. Pursuant to the Registration
Rights Agreement, the Company and the Guarantors agreed to file with the
Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to the Exchange Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer to the Holders of Transfer Restricted Securities pursuant to the Exchange
Offer who are able to make certain representations the opportunity to exchange
their Transfer Restricted Securities for Exchange Notes. If (i) the Company and
the Guarantors are not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any
Holder of Transfer Restricted Securities notifies the Company prior to the 20th
day following consummation of the Exchange Offer that (a) it is prohibited by
law or Commission policy from participating in the Exchange Offer or (b) that
it may not resell the Exchange Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (c) that it is a broker-dealer and owns Series A Notes acquired
directly from the Company or an affiliate of the Company, the Company and the
Guarantors will file with the Commission a Shelf Registration Statement to
cover resales of the Series A Notes by the Holders thereof who satisfy certain
conditions relating to the provision of information in connection with the
Shelf Registration Statement. The Company and the Guarantors will use their
best efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Securities" means each Series A Note until (i)
the date on which such Series A Note has been exchanged by a person other than
a broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Series A Note for an
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii)
the date on which such Series A Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Series A Note is distributed to the
public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company and the
Guarantors will file an Exchange Offer Registration Statement with the
Commission on or prior to 60 days after the Closing Date, (ii) the Company and
the Guarantors will use their best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to 120
days after the Closing Date, (iii) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Company will commence the
Exchange Offer and use its
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best efforts to issue, on or prior to 30 business days after the date on which
the Exchange Offer Registration Statement was declared effective by the
Commission, Exchange Notes in exchange for all Notes tendered prior thereto in
the Exchange Offer and (iv) if obligated to file the Shelf Registration
Statement, the Company and the Guarantors will use their best efforts to file
the Shelf Registration Statement with the Commission on or prior to 60 days
after such filing obligation arises and to cause the Shelf Registration to be
declared effective by the Commission on or prior to 120 days after such
obligation arises. If (a) the Company and the Guarantors fail to file any of
the Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness, (c) the Company fails to consummate the
Exchange Offer within 30 business days of the effective date of the Exchange
Offer Registration Statement or (d) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Company and the Guarantors will pay
Liquidated Damages to each Holder of Series A Notes affected thereby, with
respect to the first 90-day period immediately following the occurrence of the
first Registration Default, in an amount equal to $.05 per week per $1,000
principal amount of Series A Notes held by such Holder. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Series A Notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of Liquidated Damages of $.50 per week per $1,000 principal amount of Series A
Notes. All accrued Liquidated Damages will be paid by the Company on each
Damages Payment Date to the Global Note Holder by wire transfer of immediately
available funds or by federal funds check and to Holders of Certificated
Securities by wire transfer to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of Series A Notes will be required to make certain representations
to the Company (as described herein) in order to participate in the Exchange
Offer and will be required to deliver information to be used in connection with
the Shelf Registration Statement and to provide comments on the Shelf
Registration Statement within the time periods set forth in the Registration
Rights Agreement in order to have their Series A Notes included in the Shelf
Registration Statement and benefit from the provisions regarding Liquidated
Damages set forth above.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback), excluding sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the provisions
of the Indenture described above under the caption " -- Repurchase at the
Option of Holders -- Change of Control" and/or the provisions described above
under the caption " -- Certain Covenants -- Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any
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of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries,
in the case of either clause (i) or (ii), whether in a single transaction or a
series of related transactions (a) that have a fair market value in excess of
$1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding
the foregoing: (i) a transfer of assets by the Company to a Wholly Owned
Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company
or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity
Interests by a Wholly Owned Restricted Subsidiary to the Company or to another
Wholly Owned Restricted Subsidiary and (iii) a Restricted Payment that is
permitted by the covenant described above under the caption " -- Certain
Covenants -- Restricted Payments" will not be deemed to be Asset Sales.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Thompson or Keefe Bank
Watch Rating of "B" or better, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any financial institution
meeting the qualifications specified in clause (iii) above, (v) commercial
paper having the highest rating obtainable from Moody's Investors Service, Inc.
or Standard & Poor's Corporation and in each case maturing within six months
after the date of acquisition and (vi) money market deposit accounts all of the
investments of which consist of cash or Cash Equivalents of the type described
in clauses (i) through (v) above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries,
taken as a whole, other than to the Principals; (ii) the adoption of a plan for
the liquidation or dissolution of the Company; (iii) prior to the consummation
of an Initial Public Offering, the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that
the Principals fail to be the "beneficial owners" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of
at least 51% of the aggregate voting power of the outstanding Voting Stock of
the Company; (iv) following the consummation of an Initial Public Offering, the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" or "group" (as such
terms are used in Section 13(d)(3) of the Exchange Act), other than the
Principals, becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of (a)
more than 35% of the aggregate voting power of the outstanding Voting Stock of
the Company or (b) more of the voting power of the outstanding Voting Stock of
the Company than that beneficially owned by the Principals; or (v) the first
day on which more than a majority of the members of the Board of Directors are
not Continuing Directors.
"Closing Date" means the date of the closing of the sale of the Series A
Notes.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing such Consolidated Net Income, (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with an Asset Sale,
(ii) provision for taxes based on income or profits, (iii) consolidated
interest expense whether paid or accrued and whether or not capitalized
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred
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in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations), excluding, however,
amortization of debt issuance costs relating to Indebtedness incurred in
connection with the Transactions, (iv) depreciation and amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period), (v) any compensation
expense resulting from the payment of cash bonuses as a result of the
Transactions as described under "Management -- Employment Agreements," and (vi)
any non-cash compensation expense resulting from compensation paid in Equity
Interests (other than Disqualified Stock) of the Company, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization of, a Restricted Subsidiary of a Person shall be
added to Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in the same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained) pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that
is not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, (iv) the cumulative effect of a change in accounting
principles shall be excluded and (v) the Net Income (but not loss) of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (a) the consolidated equity of the common stockholders of such
Person and its consolidated Restricted Subsidiaries as of such date, plus (b)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (i) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a consolidated
Restricted Subsidiary of such Person, (ii) all investments (other than
Permitted Investments) as of such date in unconsolidated Subsidiaries and in
Persons that are not Restricted Subsidiaries and (iii) all unamortized debt
discount and expense and unamortized deferred charges as of such date, in each
case, determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facility" means that certain credit agreement, dated as of the
Closing Date, by and among the Company, each Subsidiary of the Company party
thereto, the lenders party thereto and BankBoston, N.A., as Agent, as amended,
restated, extended, modified, renewed, refunded, replaced, substituted,
restructured or refinanced in whole or in part from time to time, whether with
the present lenders or any other lenders, including any Guarantees thereof.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
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"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Facility and (ii) any other Senior Debt permitted under the Indenture
the principal amount of which is $10.0 million or more and that has been
designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the Holder thereof, in whole or in part, on or
prior to the date that is 91 days after the date on which the Exchange Notes
mature.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary that is
organized pursuant to the laws of any state or other jurisdiction in the United
States.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness in existence on the date of the
Indenture (other than Indebtedness under the Credit Facility), until such
Indebtedness is repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations),
excluding, however, amortization of debt issuance costs relating to
Indebtedness incurred in connection with the Transactions, (ii) the
consolidated interest expense of such Person and its Restricted Subsidiaries
that was capitalized during such period, (iii) any interest expense on
Indebtedness of another Person that is Guaranteed by such Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or one of
its Restricted Subsidiaries (whether or not such Guarantee or Lien is called
upon) and (iv) the product of (a) all dividend payments, whether or not in
cash, on any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely
in Equity Interests of the Company, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with
GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person and its Restricted Subsidiaries for such
period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, guarantees, repays or redeems any Indebtedness (other than
revolving credit borrowings) or issues or redeems preferred stock subsequent to
the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, Guarantee, repayment or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period (including any pro forma expense or cost reductions) and Consolidated
Cash Flow for such reference period shall be calculated without giving effect
to clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Restricted Subsidiaries following the Calculation
Date.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect as of the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means each of the Company's Domestic Restricted Subsidiaries
existing on the date of the Indenture, and each other Person that executes a
Guarantee of the Notes pursuant to the terms of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"Indebtedness" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, (ii) all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) up to the fair market value of such
asset and (iii) to the extent not otherwise included, the Guarantee by such
Person of any indebtedness of any other Person. Notwithstanding the foregoing,
Indebtedness shall not include payment, performance or surety bonds or standby
letters of credit issued in the ordinary course of business.
"Initial Public Offering" means one or more underwritten public offerings
of the common stock of the Company registered under the Securities Act.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the third full paragraph of the covenant
described above under the caption " -- Certain Covenants -- Restricted
Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Management Agreement" means that certain agreement dated the Closing Date
between the Company and Berkshire Partners (of any of its Affiliates), as
amended, modified, renewed or extended from time to time.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary
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or nonrecurring gain (but not loss), together with any related provision for
taxes on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any severance,
termination, closing, relocation or similar expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements),
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets that were the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness: (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise) or (c) constitutes the lender; (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Exchange Notes being offered hereby) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and (iii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.
"Obligations" means any principal, interest (including Post-Petition
Interest), penalties, fees, expenses, indemnifications, reimbursements, damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (ii) any Investment in Cash
Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary
of the Company in a Person, if as a result of such Investment (a) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Restricted Subsidiary of the Company; (iv) any
Restricted Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption " -- Repurchase at the Option of
Holders -- Asset Sales;" (v) any acquisition of an Investment solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock)
of the Company; (vi) advances to employees in the ordinary course of business;
and (vii) other Investments in any Person (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause
(vii) that are at the time outstanding, not to exceed $5.0 million.
"Permitted Junior Securities" means Equity Interests in the Company or
debt securities that (i) are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same extent
as, or to a greater extent than, the Notes are subordinated to Senior Debt
pursuant to Article 10 of the Indenture and (ii) have a maturity no earlier
than the maturity of the Exchange Notes and a Weighted Average Life to Maturity
no shorter than the Weighted Average Life to Maturity of the Exchange Notes.
"Permitted Liens" means (i) Liens securing Senior Debt of the Company and
its Restricted Subsidiaries that was permitted by the terms of the Indenture to
be incurred; (ii) Liens in favor of the Company or any of its Restricted
Subsidiaries; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens existing, or created pursuant to
obligations existing, on the Closing Date; (vii) Liens for taxes, assessments
80
<PAGE>
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefore;
(viii) statutory or common law Liens of landlords, and Liens of carriers,
warehousemen, mechanics and materialmen, and other Liens imposed by law created
in the ordinary course of business for amounts not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves are being maintained; (ix) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (x) easements,
rights of way and other similar Liens not materially interfering with the
ordinary conduct of the business of the Company and its Restricted Subsidiaries
or any of their respective properties; (xi) Liens with respect to obligations
that do not exceed $2.0 million at any one time outstanding and that (a) are
not incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of business)
and (b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of business by
the Company or such Restricted Subsidiary; and (xii) extensions, renewals or
replacements of any Lien referred to in clauses (i) through (xi) of this
paragraph, provided that the principal amount of the Indebtedness or Obligation
secured thereby is not increased and that any such extension, renewal or
replacement is limited to the property originally encumbered by the Lien being
extended, renewed or replaced.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness is subordinated in right of payment to the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either
by the Company or by the Restricted Subsidiary that is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Permitted Transferee" means each person or entity to whom Jordan A. Kahn
may transfer shares of common stock of the Company pursuant to Section 4.1 of
the Stock Purchase Agreement, dated as of October 27, 1997, between Jordan A.
Kahn and Holmes Acquisition LLC, as in effect on the Closing Date.
"Post-Petition Interest" means, with respect to any Senior Debt after the
commencement of any liquidation or dissolution of the Company, any bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, any assignment for the benefit of creditors or any
marshaling of the Company's assets and liabilities, interest at the rate
specified in the documents governing such Senior Debt, whether or not a claim
therefor would be allowed in any such proceeding.
"Principals" means Berkshire Partners, Berkshire Fund IV, Berkshire Fund
IV Investment Corp., Berkshire Investors LLC and any of their respective
Affiliates, Jordan A. Kahn and his Affiliates, Stanley Rosenzweig and Gregory
F. White; provided, however, that for purposes of the provisions of the
Indenture set forth under " -- Repurchase at the Option of Holders -- Change of
Control" and the definition of "Change in Control," any shares of Capital Stock
of the Company owned by a Permitted Transferee on the Closing Date, and any
shares of Capital Stock of the Company owned by Jordan A. Kahn on the Closing
Date but that subsequently are transferred to a Permitted Transferee, will in
each case be deemed to be owned by Jordan A. Kahn.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
81
<PAGE>
"Senior Debt" of a Person means (i) all Obligations of such Person
outstanding under the Credit Facility, (ii) any other Indebtedness of such
Person permitted to be incurred under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is subordinated in right of payment to any Senior Debt of such Person and (iii)
all Obligations of such Person with respect to the foregoing. Notwithstanding
anything to the contrary in the foregoing, Senior Debt of a Person will not
include (a) any liability for federal, state, local or other taxes owed or
owing by such Person, (b) any Indebtedness of such Person to any of its
Subsidiaries or other Affiliates, (c) any trade payables or (d) any
Indebtedness that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital 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 or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (1) to subscribe for additional Equity Interests or (2)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has
at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
82
<PAGE>
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Series A Notes where such Series A Notes were acquired
as a result of market-making activities or other trading activities. The
Company has agreed that it will make this Prospectus, as amended or
supplemented, available to any Participating Broker-Dealer for use in
connection with any such resale, and Participating Broker-Dealers shall be
authorized to deliver this Prospectus in connection with the sale or transfer
of the Exchange Notes. In addition, until , 1998 (90 days after the date
of this Prospectus), all dealers effecting transactions in the Exchange Notes
may be required to deliver a prospectus.
The Issuer will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers, Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time, in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the Exchange
Notes or a combination of such methods of resale, at market prices prevailing
at the time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer that
resells the Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer. Any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that is an "underwriter" within the meaning of the Securities Act.
The Issuer will promptly send additional copies of this Prospectus and any
amendment or supplement of this Prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. See "The Exchange
Offer."
83
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and
disposition of Notes by an initial beneficial owner of Notes that, for United
States federal income tax purposes, is not a "United States person" (a
"Non-United States Holder"). This discussion is based upon the United States
federal tax law now in effect, which is subject to change, possibly
retroactively. For purposes of this discussion, a "United States person" means
a citizen or resident of the United States, a corporation, partnership or other
entity created or organized in the United States or under the laws of the
United States or of any political subdivision thereof, an estate whose income
is includible in gross income for United States federal income tax purposes
regardless of its source or a trust, if a U.S. court is able to exercise
primary supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust.
The tax treatment of the holders of the Notes may vary depending upon their
particular situations. U.S. persons acquiring the Notes are subject to
different rules than those discussed below. In addition, certain other holders
(including insurance companies, tax exempt organizations, financial
institutions and broker-dealers) may be subject to special rules not discussed
below. Prospective investors are urged to consult their tax advisors regarding
the United States federal tax consequences of acquiring, holding and disposing
of Notes, as well as any tax consequences that may arise under the laws of any
foreign, state, local or other taxing jurisdiction.
Interest
Interest paid by the Company to a Non-United States Holder will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder and such Non-United States
Holder (i) does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company; (ii) is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the United States Internal Revenue Code of 1986,
as amended (the "Code"), and (iii) certifies, under penalties of perjury, that
such holder is not a United States person and provides such holder's name and
address.
Gain on Disposition
A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption or other
disposition of a Note unless (i) the gain is effectively connected with the
conduct of a trade or business within the United States by the Non-United
States Holder or (ii) in the case of a Non-United States Holder who is a
nonresident alien individual and holds the Note as a capital asset, such holder
is present in the United States for 183 or more days in the taxable year and
certain other requirements are met.
Federal Estate Taxes
If interest on the Notes is exempt from withholding of United States
federal income tax under the rules described above, the Notes will not be
included in the estate of a deceased Non-United States Holder for United States
federal estate tax purposes.
Information Reporting and Backup Withholding
The Company will, where required, report to the holders of Notes and the
Internal Revenue Service the amount of any interest paid on the Notes in each
calendar year and the amounts of tax withheld, if any, with respect to such
payments.
In the case of payments of interest to Non-United States Holders,
temporary Treasury regulations provide that the 31% backup withholding tax and
certain information reporting will not apply to such payments with respect to
which either the requisite certification, as described above, has been received
or an exemption has otherwise been established; provided that neither the
Company nor its payment agent has actual knowledge that the holder is a United
States person or that the conditions of any other exemption are not in fact
satisfied. Under temporary Treasury regulations, these information reporting
and backup withholding requirements will apply, however, to the gross proceeds
paid to a Non-United States Holder on the disposition of the Notes by or
through a United States office of a United States or foreign broker, unless the
holder certifies to the broker under penalties of perjury as to its name,
address and status as a foreign person or the holder otherwise establishes an
exemption. Information
84
<PAGE>
reporting requirements, but not backup withholding, will also apply to a
payment of the proceeds of a disposition of the Notes by or through a foreign
office of a United States broker or foreign brokers with certain types of
relationships to the United States unless such broker has documentary evidence
in its file that the holder of the Notes is not a United States person, and
such broker has no actual knowledge to the contrary, or the holder establishes
an exception. Neither information reporting nor backup withholding generally
will apply to a payment of the proceeds of a disposition of the Notes by or
through a foreign office of a foreign broker not subject to the preceding
sentence.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
The Treasury Department recently promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general,
the final regulations do not significantly alter the substantive withholding
and information reporting requirements, but rather unify current certification
procedures and forms and clarify reliance standards. The final regulations are
generally effective for payments made after December 31, 1998, subject to
certain transition rules. Non-United States Holders should consult their tax
advisors with respect to the impact, if any, of the new final regulations.
85
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes will be passed
upon on behalf of the Company by Posternak, Blankstein & Lund, L.L.P., Boston,
Massachusetts.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996, and for each of the three years in the period ended December 31,
1996, included in this Prospectus, have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
86
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Accountants ................................................ F-2
Consolidated Balance Sheet as of December 31, 1995, December 31, 1996
and September 30, 1997........................................................... F-3
Consolidated Statement of Income and Retained Earnings for the years
ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1996 and 1997 .................................................... F-4
Consolidated Statement of Cash Flows for the years ended December 31, 1994,
1995 and 1996 and the nine months ended September 30, 1996 and 1997 ............ F-5
Notes to Consolidated Financial Statements ....................................... F-6
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Holmes Products Corp.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Holmes
Products Corp. and its subsidiaries (the "Companies") at December 31, 1995 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Companies' management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 18, 1997, except as to
the first paragraph of Note 15
which is as of June 4, 1997 and
the second paragraph of Note 15
which is as of November 26, 1997
F-2
<PAGE>
HOLMES PRODUCTS CORP.
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except par value)
<TABLE>
<CAPTION>
December 31,
------------------- September 30,
1995 1996 1997
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ....................... $ 3,368 $ 4,462 $ 8,149
Accounts receivable, net of allowance for
doubtful accounts of $1,494, $1,113 and
$1,156 at December 31, 1995 and 1996 and
September 30, 1997, respectively ................. 34,734 31,595 37,004
Other receivables ................................ 141 77 347
Inventories ...................................... 54,834 61,252 56,212
Prepaid expenses and other current assets ........ 1,324 1,210 1,289
Deferred income taxes ............................. 1,273 3,706 4,106
Income taxes receivable .......................... 1,214 -- 889
Due from affiliates ............................. 2,106 3,329 5,588
-------- -------- --------
Total current assets ............................. 98,994 105,631 113,584
-------- -------- --------
Property and equipment, net ....................... 18,433 21,083 19,978
Deferred income taxes ............................. 280 384 425
Deposits and other assets .......................... 817 1,188 1,323
-------- -------- --------
$118,524 $128,286 $135,310
======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft ................................... $ 175 $ 42 $ --
Trade acceptances payable ....................... 51,878 50,357 45,981
Current portion of capital lease obligations
and other debt .................................. 67 356 1,062
Accounts payable ................................ 18,710 14,149 14,256
Accrued expenses ................................ 8,306 10,641 9,674
Accrued income taxes ............................. 425 2,249 --
Loan payable to affiliate ....................... 16,000 23,000 32,000
Due to affiliates ................................ 10,203 7,720 9,761
-------- -------- --------
Total current liabilities ....................... 105,764 108,514 112,734
-------- -------- --------
Capital lease obligations .......................... 217 737 890
-------- -------- --------
Deferred income taxes ............................. 137 -- --
-------- -------- --------
Minority interest in net assets of
majority-owned subsidiaries ....................... 919 1,327 --
-------- -------- --------
Commitments and contingencies (Notes 8 and 11)
Stockholders' equity:
Common stock, no par value. Authorized 15,000
shares; issued and outstanding 1,000 shares ..... 702 702 702
Common stock, $1 par value. Authorized, issued
and outstanding 100,000 shares ................. 100 100 100
Retained earnings ................................ 10,685 16,906 20,884
-------- -------- --------
Total stockholders' equity ....................... 11,487 17,708 21,686
-------- -------- --------
$118,524 $128,286 $135,310
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HOLMES PRODUCTS CORP.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
Year ended December 31, September 30,
------------------------------------ -------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales ................................. $114,509 $178,132 $194,331 $145,814 $136,767
Cost of goods sold ........................ 84,672 141,226 145,915 114,928 102,442
-------- -------- -------- -------- --------
Gross profit .............................. 29,837 36,906 48,416 30,886 34,325
-------- -------- -------- -------- --------
Operating expenses:
Selling ................................. 9,637 12,675 13,225 9,901 11,243
General and administrative ............... 7,885 9,825 14,083 9,483 10,189
Product development ..................... 2,742 3,154 5,520 3,045 3,637
-------- -------- -------- -------- --------
Total operating expenses ............... 20,264 25,654 32,828 22,429 25,069
-------- -------- -------- -------- --------
Operating profit ........................ 9,573 11,252 15,588 8,457 9,256
-------- -------- -------- -------- --------
Other income (expense):
Other income (expense), net ............... 244 337 319 53 (42)
Interest income ........................... 17 12 79 55 126
Interest expense ........................ 2,104 5,231 6,570 5,072 4,850
-------- -------- -------- -------- --------
Total other expense ..................... 1,843 4,882 6,172 4,964 4,766
-------- -------- -------- -------- --------
Income before income taxes and minority
interest ................................. 7,730 6,370 9,416 3,493 4,490
Income tax expense ........................ 3,214 2,614 2,787 680 292
-------- -------- -------- -------- --------
Income before minority interest ............ 4,516 3,756 6,629 2,813 4,198
Minority interest in net income of majority-
owned subsidiaries ........................ 282 518 408 140 220
-------- -------- -------- -------- --------
Net income .............................. 4,234 3,238 6,221 2,673 3,978
Retained earnings, beginning of year ...... 3,213 7,447 10,685 10,685 16,906
-------- -------- -------- -------- --------
Retained earnings, end of year ............ $ 7,447 $ 10,685 $ 16,906 $ 13,358 $ 20,884
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HOLMES PRODUCTS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
Year ended December 31, September 30,
------------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------ ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 4,234 $ 3,238 $6,221 $ 2,673 $3,978
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation and amortization ..................... 2,981 4,509 6,867 4,803 4,973
Change in allowance for doubtful accounts .......... 83 1,262 (381) 213 43
Deferred income tax benefit ........................ (227) (597) (2,674) (744) (441)
Minority interest in net income of majority-
owned subsidiaries .............................. 282 518 408 140 220
Loss on disposal of fixed assets .................. 34 -- -- -- 66
Changes in operating assets and liabilities:
Accounts receivable .............................. (8,430) (19,242) 3,584 (1,350) (5,722)
Inventories ....................................... (13,281) (19,287) (6,418) (6,388) 5,040
Prepaid expenses and other current assets.......... 341 341 114 (184) (79)
Income taxes receivable ........................... -- (1,214) 1,214 (110) (889)
Due from affiliates .............................. (2,297) 191 (1,223) (100) (2,259)
Deposits and other assets ........................ (47) (162) (371) -- (135)
Bank overdraft .................................... (21) (860) (133) (175) (42)
Trade acceptances payable ........................ 13,488 20,540 (1,521) 8,496 (4,376)
Accounts payable ................................. 7,280 8,992 (4,561) (5,513) 107
Due to affiliates ................................. 1,263 4,422 (2,483) (2,291) 2,041
Accrued expenses ................................. 1,620 3,187 2,335 544 (967)
Accrued income taxes .............................. 425 (314) 1,824 609 (2,249)
------- ------- ------ ------- ------
Net cash provided by (used for) operating
activities ....................................... 7,728 5,524 2,802 623 (691)
------- ------- ------ ------- ------
Cash flows from investing activities:
Purchases of property and equipment ............... (8,821) (9,706) (8,594) (6,484) (3,601)
------ ------- ------
Purchase of minority interest ..................... -- -- -- -- (450)
------- ------- ------ ------- ------
Net cash used for investing activities ............ (8,821) (9,706) (8,594) (6,484) (4,051)
------- ------- ------ ------- ------
Cash flows from financing activities:
Net borrowings from affiliate ..................... 2,000 6,000 7,000 10,000 9,000
Principal payments on capital lease obligations -- (28) (114) (49) (571)
------- ------- ------ ------- ------
Net cash provided by financing activities ......... 2,000 5,972 6,886 9,951 8,429
------- ------- ------ ------- ------
Net increase in cash and cash equivalents ............ 907 1,790 1,094 4,090 3,687
Cash and cash equivalents, beginning of period ...... 671 1,578 3,368 3,368 4,462
------- ------- ------ ------- ------
Cash and cash equivalents, end of period ............ $ 1,578 $ 3,368 $4,462 $ 7,458 $8,149
======= ======= ====== ======= ======
Supplemental disclosure of cash flow
information:
Cash paid for interest .............................. $ 1,917 $ 4,587 $6,780 $ 5,006 $4,834
Cash paid for income taxes ........................ $ 3,016 $ 4,739 $2,423 $ 925 $3,871
</TABLE>
During the years ended December 31, 1995 and 1996 and the nine months ended
September 30, 1996 and 1997, the Companies acquired property and equipment
totalling $312, $923, $638 and $983, respectively, under capital leases.
See Note 15 for additional disclosure of non-cash investing and financing
activities.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
1. Nature of Business
Holmes Products Corp. ("HPC") designs, develops, imports and sells
consumer durable goods, including fans, heaters, humidifiers, air purifiers,
dehumidifiers and lighting products, to retailers throughout the United States
and Canada, and to a lesser extent, Europe.
Holmes Products (Far East) Limited ("HPFEL") and its subsidiaries
manufacture and sell consumer durable goods, including fans, heaters and
humidifiers, mainly to HPC through Asco General Supplies (Far East) Ltd.
("Asco"), an affiliated entity. HPFEL operates facilities in Hong Kong and The
People's Republic of China.
Prior to the recapitalization transaction described in Note 15, HPC and
HPFEL (together as "the Companies") were both directly or indirectly an 80%
owned subsidiary of Asco Investments Ltd., a subsidiary of Pentland Group plc
("Pentland"). Subsequent to the recapitalization transaction described in Note
15, HPFEL is a wholly-owned subsidiary of HPC.
2. Summary of Significant Accounting Principles
Basis of Consolidation
The accompanying financial statements include the accounts of HPC and its
wholly owned subsidiaries, HPFEL, Holmes Manufacturing Corp., Holmes Air
(Taiwan) Corp. and Holmes Air (Canada) Corp. The accompanying financial
statements also include the accounts of HPFEL's wholly owned subsidiaries,
Esteem Industries Ltd. and Dongguan Huixin Electrical Products Company, Ltd.,
and HPFEL's 70% owned subsidiaries, Raider Motor Corp. and Dongguan Raider
Motor Corp. Ltd. Prior to the recapitalization transaction described in Note
15, the financial statements combined the accounts of HPC and HPFEL on the
basis of common ownership. All significant intercompany balances and
transactions have been eliminated. The minority stockholders' interests in the
net income and net assets of Raider Motor Corp. and Dongguan Raider Motor Corp.
Ltd. are presented separately in the accompanying financial statements.
Translation of Foreign Currencies
The functional currency for HPC's foreign operations is the U.S. dollar.
Assets and liabilities are remeasured into U.S. dollars at exchange rates in
effect at the balance sheet date, except for inventories and property and
equipment, which are remeasured at historical exchange rates. Income, expense
and cash flow items are remeasured at average exchange rates for the period,
except for cost of sales and depreciation, which are remeasured at historical
exchange rates. Gains and losses resulting from remeasurement are not material
and are included in other income (expense), net.
The functional currency of HPFEL is the Hong Kong dollar. Assets and
liabilities are translated into U.S. dollars at exchange rates in effect at the
balance sheet date. Income, expense and cash flow items are translated at
average exchange rates in effect during the period. Assets and liabilities of
HPFEL subsidiaries not denominated in Hong Kong dollars are remeasured into
Hong Kong dollars at exchange rates in effect at the balance sheet date, except
for inventories and property and equipment, which are remeasured at historical
exchange rates.
Income, expense and cash flow items of HPFEL subsidiaries not denominated
in Hong Kong dollars are remeasured at average exchange rates for the period,
except for cost of sales and depreciation, which are remeasured at historical
exchange rates. Gains and losses resulting from remeasurement are not material
and are included in other income (expense), net. The cumulative effect of
translation adjustments resulting from fluctuations in the exchange rate
between the Hong Kong dollar and the U.S. dollar has not been material, and has
been reflected in the accompanying statement of income.
The assets and liabilities of HPFEL and its subsidiaries at December 31,
1996, prior to intercompany elimination with HPC, were $33,980,000 and
$26,746,000, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
F-6
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed over
the estimated useful lives of the assets using an accelerated method, except
for mold costs, tooling and plant and machinery, which are depreciated using
the straight-line method. Repairs and maintenance costs are expensed as
incurred.
Revenue Recognition
Revenue is recognized upon shipment of goods from the Companies'
warehouses. Revenue for goods sent directly from HPFEL to a retail customer is
recognized when the customer takes ownership of the goods. Estimates for
returned goods and warranty costs are accrued at the time of shipment.
Product Development
Research, engineering and product development costs are expensed as
incurred.
Statement of Cash Flows
All highly liquid debt instruments with original maturities of three
months or less are considered to be cash equivalents for purposes of the
combined statement of cash flows. Such investments consist of a money market
account.
Advertising
Advertising costs are expensed as incurred. In conjunction with a transfer
of inventory in 1993, the Companies received advertising credits totaling
$980,000 to be used for the purchase of advertising media, merchandise or
services, subject to certain limitations and cash co-payments. The credits
expire in October 1999. The remaining balance of these credits approximated
$734,000 and $488,000 at December 31, 1995 and 1996, respectively, which are
reported as prepaid expenses. Total advertising expenses in 1994, 1995 and 1996
were approximately $2,890,000, $3,683,000 and $4,446,000, respectively, which
are included in selling expenses in the accompanying statement of income.
Income Taxes
The Companies utilize the asset and liability method of accounting for
income taxes, as set forth in Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." SFAS 109 requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled.
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
disclosures of contingencies at December 31, 1995 and 1996 and September 30,
1997, and the reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current period presentation.
F-7
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
Unaudited Interim Financial Statements
In the opinion of management, the Companies have made all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial position of the Companies at September 30, 1997 and the
results of operations and cash flows of the Companies for the nine months ended
September 30, 1996 and 1997 as presented in the accompanying financial
statements. Results of operations for the interim period are not necessarily
indicative of the results of operations for the full fiscal year.
3. Related Party Transactions
Asco, an affiliated company, provides the Companies with letter of credit
financing for its purchases from foreign manufacturers. Trade acceptances
payable under this letter of credit financing arrangement amounted to
$51,878,000 and $50,357,000 at December 31, 1995 and 1996, respectively. The
Companies pay a commission to Asco for administrative services related to the
processing of these trade acceptances. Total commissions approximated $921,000,
$1,620,000 and $1,984,000 in 1994, 1995 and 1996, respectively, which are
included in cost of goods sold in the accompanying statement of income. This
arrangement has been terminated in connection with the completion of the
recapitalization transaction described in Note 15.
During 1993, HPC entered into a $10,000,000 revolving credit facility
agreement with Pentland Management Services Limited ("PMSL"), an affiliated
company, whereby PMSL would provide short-term loans to HPC. The facility was
increased to $16,000,000 during 1995 and $23,000,000 during 1996. Total
borrowings under the agreement are limited to a defined borrowing base of
eligible accounts receivable and inventory, and are secured by all assets of
the Companies. Individual loans under the agreement have maturities which range
from one to six months, at HPC's option. Interest rates on individual loans are
at the prime rate as of the inception date of the loan, and are fixed through
the maturity of the loan. The interest rate on all loans outstanding at
December 31, 1996 was 8.25%. The interest rate on loans outstanding at December
31, 1995 ranged from 8.5% to 8.75%. Interest is payable at the expiration of
each loan, and totaled approximately $534,000, $1,484,000 and $2,385,000 in
1994, 1995 and 1996, respectively. Interest payable at December 31, 1995 and
1996 approximated $230,000 and $93,000, respectively. The facility currently
extends through January 31, 1998 and is to be renewed annually, subject to the
lender's approval, through December 31, 2003. The balances due under this
agreement at December 31, 1995 and 1996 were $16,000,000 and $23,000,000,
respectively. This agreement includes certain financial covenants, as well as
restrictions on the incurrence of additional debt. Subsequent to December 31,
1996, PMSL committed to increase the limit on the revolving credit facility to
$36,000,000 through May 31, 1997 and then to $38,000,000 through August 31,
1997. Beginning September 1, 1997, the limit was reduced to $34,000,000 through
October 31, 1997, at which time the limit was further reduced to $26,000,000.
This facility has been terminated in conjunction with the completion of the
recapitalization transaction described in Note 15.
Esteem Industries Ltd. has purchased certain raw materials from an entity
owned by the brother of a minority stockholder of Raider Motor Corp. and
Dongguan Raider Motor Corp. Ltd. Such purchases totalled $1,920,000, $1,849,000
and $181,000 in 1994, 1995 and 1996, respectively, which are included in cost
of goods sold in the accompanying statement of income.
HPC pays a sales commission to Jordan Kahn Co., Inc., owned principally by
an officer and stockholder of the Companies. Such commissions approximated
$407,000, $403,000 and $480,000 in 1994, 1995 and 1996, respectively, which are
included in selling expenses in the accompanying statement of income.
Asco has advanced HPFEL approximately $5,076,000 and $1,224,000 at
December 31, 1995 and 1996, respectively, for working capital purposes, which
is included in due to affiliates in the accompanying balance sheet. The
interest rate on these advances was 9% at December 31, 1995 and 8.5% at
December 31, 1996. Interest expense incurred on amounts due from HPFEL to Asco
was $149,000, $394,000 and $531,000 in 1994, 1995 and 1996, respectively.
F-8
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
The salaries and related benefits of certain employees of Dongguan Raider
Motor Corp. Ltd. are paid through Asco, which is reimbursed by Raider Motor
Corp. for such costs. These costs amounted to $354,000, $686,000 and $47,000 in
1994, 1995 and 1996, respectively.
During 1994 and 1995, HPFEL paid rent to Asco for the lease of
manufacturing facilities occupied by the Companies. Total rent expense on these
properties amounted to $440,00 and $454,000 during the year ended December 31,
1994 and 1995. HPFEL also paid $78,000 to Asco for the use of certain shared
computer facilities during both 1995 and 1996. There were no such costs in
1994.
In addition, beginning in March 1995, HPFEL occupied facilities owned by
the spouse of a director of HPFEL. Total rent expense paid on this property
amounted to $257,000 and $452,000 in 1995 and 1996, respectively.
Certain employees of Pentland and Asco have performed various management
and administrative services for HPFEL, for which no amounts have been charged
to HPFEL. Management has estimated such costs, which consist of allocations of
salary and related benefits costs and travel expenses, to be insignificant in
1994, 1995 and 1996. Accordingly, no amounts have been recorded in the
accompanying financial statements for such costs.
Included within due from affiliates and due to affiliates at December 31,
1995 and 1996 is a net payable of $3,611,000 to a dormant entity (Holmes
Products Hong Kong (1985) Limited), which arose from a legal restructuring of
HPFEL in 1993. This payable bears no interest and is payable on demand.
4. Inventories
Inventories are as follows:
December 31,
------------------------
September 30,
1995 1996 1997
----------- ----------- --------------
(unaudited)
Finished goods ...... $33,363,000 $42,121,000 $34,575,000
Raw materials ......... 12,496,000 10,853,000 10,284,000
Work-in-process ...... 8,975,000 8,278,000 11,353,000
----------- ----------- -----------
$54,834,000 $61,252,000 $56,212,000
=========== =========== ===========
5. Property and Equipment
Property and equipment are as follows:
December 31,
Depreciable ------------------------
lives 1995 1996
-------------- ----------- -----------
Mold costs and tooling ........ 1-1/2 - 5 years $13,863,000 $16,737,000
Plant and machinery ........... 7 years 7,840,000 10,447,000
Leasehold improvements ........ life of
lease-7 years 2,737,000 3,703,000
Equipment and computer
equipment ...................... 5 years 2,232,000 2,476,000
Furniture and fixtures ........ 5-7 years 1,459,000 2,141,000
Motor vehicles ................. 4 years 206,000 206,000
----------- -----------
28,337,000 35,710,000
Less--accumulated depreciation
and amortization ............. 9,904,000 14,627,000
----------- -----------
$18,433,000 $21,083,000
=========== ===========
Property and equipment recorded under capital leases amounted to
approximately $312,000 and $1,235,000 at December 31, 1995 and 1996,
respectively. Total accumulated amortization related to these leases is
approximately $1,000 and $104,000 at December 31, 1995 and 1996, respectively.
Amortization expense for the period is included in depreciation and
amortization in the accompanying statement of cash flows.
F-9
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes for
periods subsequent to December 31, 1996 is unaudited.
6. Accrued Expenses
Accrued expenses are as follows:
December 31,
---------------------------
1995 1996
------------ ------------
Sales returns and allowances ............ $1,858,000 $ 2,973,000
Payroll and bonuses ..................... 1,338,000 2,700,000
Interest payable ........................ 1,110,000 900,000
Advertising .............................. 750,000 500,000
Commissions .............................. 614,000 317,000
Duties ................................. 556,000 489,000
Warranties and product liabilities ...... 381,000 286,000
Professional fees ........................ 248,000 260,000
Other .................................... 1,451,000 2,216,000
---------- -----------
$8,306,000 $10,641,000
========== ===========
7. Income Taxes
Deferred income taxes reflect the tax impact of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. Under SFAS 109, the
benefit associated with future deductible temporary differences and operating
loss or credit carryforwards is recognized if it is more likely than not that a
benefit will be realized. Deferred tax expense (benefit) represents the change
in the net deferred tax asset or liability balance.
Income tax expense (benefit) consists of the following:
Year ended December 31,
--------------------------------------
1994 1995 1996
---------- ---------- ----------
Current:
Federal ............ $2,586,000 $2,350,000 $3,888,000
State ............... 622,000 697,000 1,176,000
Foreign ............ 233,000 164,000 397,000
---------- ---------- ----------
Total current ...... 3,441,000 3,211,000 5,461,000
---------- ---------- ----------
Deferred:
Federal ............ (276,000) (479,000) (1,943,000)
State ............... (29,000) (145,000) (594,000)
Foreign ............ 78,000 27,000 (137,000)
---------- ---------- ----------
Total deferred ...... (227,000) (597,000) (2,674,000)
---------- ---------- ----------
$3,214,000 $2,614,000 $2,787,000
========== ========== ==========
Pre-tax income is summarized as follows:
Year ended December 31,
--------------------------------------
1994 1995 1996
----------- ----------- ----------
Domestic ............... $6,563,000 $5,099,000 $5,842,000
Foreign ............... 1,167,000 1,271,000 3,574,000
---------- ---------- ----------
$7,730,000 $6,370,000 $9,416,000
========== ========== ==========
F-10
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
The two subsidiaries which are incorporated and based in the People's
Republic of China have a two-year tax holiday on the basis that they expect to
operate in China for ten years or more. The tax holiday provides for an
exemption from income tax in the first two profit-making years and for a 50%
reduction in the subsequent three years. The first profit-making year is
defined as the year in which the foreign enterprise recognizes profit on a
cumulative basis for the first time, after offsetting prior years' losses.
Losses can be carried forward for a maximum of five years.
Dongguan Raider Motor Corp. Ltd. was profitable in both 1994 and 1995 and
as such is now subject to income tax in China. Dongguan Huixin Electrical
Products Company, Ltd. experienced losses in both 1994 and 1995 and has a
cumulative loss as of December 31, 1996, and is therefore still exempt from
income tax, although these losses can only be carried forward for a maximum of
five years. Net operating losses at December 31, 1996 were approximately
$1,952,000, which expire in various years through 2000.
If not exempt, the statutory tax rate which applies to these companies in
China is 24% (prior to the 50% reduction described above for the first three
years after the exemption expires), as their operations are located in a region
of China where tax incentives are applicable.
The Bahamas registered companies (HPFEL and Raider Motor Corp.) are
subject to tax in Hong Kong at 16.5% only to the extent that their income is
deemed to be onshore Hong Kong.
The Companies' effective tax rate varies from the statutory U.S. federal
tax rate as a result of the following:
Year ended December 31,
----------------------
1994 1995 1996
----- ----- -----
Statutory U.S. federal tax rate ................ 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit ....... 5.0 5.6 4.0
Foreign earnings taxed at different rates .... 2.2 (2.9) (5.2)
Foreign earnings not subject to taxation ....... .7 ( .7) (2.3)
PRC earnings subject to tax exemption .......... (4.6) (7.4) (1.9)
Valuation allowance on deferred tax assets .... .3 7.9 ( .6)
Non-deductible expenses ...................... 1.1 .5 .3
Other ........................................ 1.9 3.0 .3
---- ---- ----
Effective tax rate ............................ 41.6% 41.0% 29.6%
==== ==== ====
Deferred tax assets and deferred tax liabilities are comprised of the
following at December 31, 1995 and 1996:
December 31,
-------------------------------
1995 1996
-------------- --------------
Deferred tax assets:
Accrued expenses ........................... $1,187,000 $1,910,000
Inventory .................................... -- 1,372,000
Net operating loss carryforwards ............ 524,000 469,000
Accounts receivable ........................ 586,000 424,000
Property and equipment ..................... 280,000 384,000
---------- ----------
Gross deferred tax assets .................. 2,577,000 4,559,000
Deferred tax asset valuation allowance ...... (524,000) (469,000)
---------- ----------
2,053,000 4,090,000
---------- ----------
Deferred tax liabilities:
Inventory .................................... (500,000) --
Property and equipment ..................... (137,000) --
---------- ----------
(637,000) --
---------- ----------
Net deferred tax assets .................. $1,416,000 $4,090,000
========== ==========
F-11
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
The Companies have provided a full valuation for net operating losses
incurred by Dongguan Huixin Electrical Products Company, Ltd. since the
realization of these future benefits is not sufficiently assured.
No provision has been recorded for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries, as it is management's intention
that these earnings will continue to be reinvested. It is not practicable to
estimate the amount of additional tax that might be payable on such earnings.
Total undistributed earnings of foreign subsidiaries as of December 31, 1996
are approximately $8,382,000.
8. Leases
In addition to leasing property and equipment under various capital leases
(Note 5), the Companies have various noncancellable operating leases for
facilities, vehicles and office equipment which expire at various dates through
2004. Certain of these leases contain options for renewal or purchase of the
underlying asset. Rent expense was approximately $1,700,000 in 1994, $2,440,000
in 1995 and $3,064,000 in 1996.
At December 31, 1996, future minimum rental payments under noncancelable
lease arrangements are as follows:
Operating Capital
leases leases
----------- -----------
1997 ................................................ $2,386,000 $ 427,000
1998 ................................................ 2,171,000 427,000
1999 ................................................ 1,177,000 360,000
2000 ................................................ 897,000 --
2001 and thereafter ................................. 1,810,000 --
--------- ----------
$8,441,000 1,214,000
==========
Less: amount representing interest .................. 121,000
---------
Present value of obligations under capital leases .... $1,093,000
==========
Comprised of:
Current portion .................................... $ 356,000
Non-current portion ................................. 737,000
----------
$1,093,000
==========
Included in the future minimum rental payments under noncancelable lease
arrangements above are approximately $3,736,000 due to the spouse of a director
of HPFEL (see Note 3).
9. Employee Benefit Plan
HPC provides its employees with a defined contribution retirement plan
under Section 401(k) of the Internal Revenue Code. All employees are eligible
to participate in the plan and contribute up to 15% of their compensation,
which is then invested in one or more investment funds. HPC matches up to 3% of
an employee's contribution.
HPFEL provides its Hong Kong based employees with a defined contribution
retirement plan. All Hong Kong based employees of HPFEL and Esteem Industries
Ltd. may contribute 5% of their compensation, with the Company contributing an
additional 5% to 7-1/2% of an employee's compensation.
In addition, Hong Kong based employees of Raider Motor Corp. are entitled
to join the defined contribution retirement plan maintained by Asco (an
affiliated entity), which contains terms similar to those of the HPFEL plan.
The Companies' contributions to these plans approximated $101,000,
$237,000 and $223,000 in 1994, 1995 and 1996, respectively.
F-12
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
10. Business and Credit Concentrations and Geographic Data
HPC sells its products to retailers throughout the United States and
Canada, and to a lesser extent, Europe. Two customers accounted for an
aggregate of approximately 25% and 26% of total sales in 1994 and 1995,
respectively. Three customers accounted for an aggregate of approximately 40%
of total sales in 1996. Accounts receivable due from these customers amounted
to an aggregate of 19% and 27% of total accounts receivable at December 31,
1995 and 1996, respectively. HPC has also entered into an agreement with an
insurance company to purchase HPC's receivables from certain pre-determined
customers, up to specified limits, if the customer defaults on payment. In
exchange, HPC pays a monthly fee.
Certain of HPC's retail customers have filed for bankruptcy protection
during 1995 and 1996. Management continually monitors and evaluates the credit
status of its customers, and adjusts sales terms as appropriate. The Companies
maintain reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations. Management does not
believe that the Companies are subject to any other unusual risks beyond the
normal credit risk attendant to operating their business.
Geographic Data
As described further in Note 1, the Companies operate in a single product
segment, consumer durable goods. The following information is summarized by
geographic area:
<TABLE>
<CAPTION>
Inter-area Consolidated
United States Far East Canada Eliminations Total
-------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers:
Year ended December 31, 1994 ...... $109,876,000 $ 832,000 $3,801,000 $ -- $114,509,000
Year ended December 31, 1995 ...... 173,501,000 1,290,000 3,341,000 -- 178,132,000
Year ended December 31, 1996 ...... 189,943,000 1,202,000 3,186,000 -- 194,331,000
Net sales between geographic areas:
Year ended December 31, 1994 ...... -- 52,436,000 -- (52,436,000) --
Year ended December 31, 1995 ...... -- 87,547,000 -- (87,547,000) --
Year ended December 31, 1996 ...... -- 85,918,000 -- (85,918,000) --
Income (loss) before income taxes
and minority interest:
Year ended December 31, 1994 ...... 6,563,000 1,331,000 124,000 (288,000) 7,730,000
Year ended December 31, 1995 ...... 5,099,000 1,995,000 (67,000) (657,000) 6,370,000
Year ended December 31, 1996 ...... 5,842,000 4,260,000 (109,000) (577,000) 9,416,000
Identifiable assets:
December 31, 1995 .................. 87,987,000 35,308,000 2,737,000 (7,508,000) 118,524,000
December 31, 1996 .................. 98,490,000 33,980,000 2,913,000 (7,097,000) 128,286,000
</TABLE>
Net sales in the United States include direct export sales to Europe.
The Companies' manufacturing entities in China sell completed products to
HPC in the United States at intercompany transfer prices which reflect
management's estimate of amounts which would be charged by an unrelated third
party. These sales are eliminated in consolidation.
Inter-area eliminations of income before income taxes and minority
interest and identifiable assets primarily represent the intercompany profit in
ending inventory held by HPC. Inter-area eliminations of identifiable assets
also include amounts owed by HPC to HPFEL and its subsidiaries for operating
activities.
All of the Companies' assets are used in the operations of individual
entities in the different geographic areas. There are no unallocated corporate
assets.
F-13
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
11. Commitments and Contingencies
HPC is a party to several agreements to license certain technologies and
products. These license agreements generally provide for royalties based on
sales of the related products by HPC. Such royalties have not been material to
date. In October 1997, HPC entered into an exclusive license agreement for
certain motor technologies, under which HPC has agreed to pay an initial fee
and reimbursement of expenses totalling $84,000 and has committed to pay
minimum royalties of $100,000 per year, commencing in the second year of the
agreement, increasing to $200,000 per year, commencing in the fifth year of the
agreement. If such minimum royalties are not paid, the licenses will convert to
a non-exclusive basis. In January 1998, HPC entered into an exclusive product
development, licensing and distribution agreement with respect to certain metal
technology. Under this agreement HPC has committed to pay minimum royalties of
$200,000 per year, and to fund product development expenses at the rate of
$30,000 per month through July 2002. If such minimum royalties are not paid
after July 2002, the licenses will convert to a non-exclusive basis. Also in
January 1998, HPC entered into an exclusive license and supply agreement for
certain chemical additives. The agreement provides for a minimum annual royalty
of $240,000, commencing in the first quarter that HPC products incorporating
the licensed products are shipped. HPC has an annual minimum purchase
obligation under this agreement of $100,000 in 1998 and $110,000 in 1999.
The Companies are involved in litigation and are the subject of claims
arising in the normal course of their business. Additionally, HPFEL has a
contingent liability related to potential withholding taxes (and the surcharges
thereon) on rent paid to the spouse of one of the directors (see Note 3).
Although the individual has accepted responsibility for the payment of these
taxes, the Company would be accountable for these tax payments in the event
that the individual did not fulfill this obligation. These withholdings and
surcharges amounted to $572,000 at December 31, 1996. In the opinion of
management, based upon discussions with legal counsel, no existing litigation
or claims will have a materially adverse effect on the Companies' financial
position or results of operations and cash flows.
HPFEL has entered into commitments for capital expenditures amounting to
$199,000 at December 31, 1996.
Beginning July 1, 1997, Hong Kong is governed by the People's Republic of
China. Management does not believe that this event will materially affect the
Companies' financial position or results of operations and cash flows.
12. Distribution of Profit
Amounts that can be distributed by HPFEL's subsidiaries in China are based
on the financial regulations of China, which differ from accounting principles
generally accepted in the United States. In particular, HPFEL's two Chinese
incorporated subsidiaries, Dongguan Huixin Electrical Products Company, Ltd.
and Dongguan Raider Motor Corp. Ltd., are deemed to be wholly owned foreign
enterprises and, as such, Chinese laws and regulations require these companies
to transfer to separate reserves a certain portion of after-tax profit each
year for specific purposes. These purposes include enterprise expansion, repair
and maintenance of fixed assets and staff welfare. These reserves are deemed to
be non-distributable to the parent company.
The amount to be transferred to the reserve fund must be at least 10% of
the after-tax profit each year, determined in accordance with the financial
regulations of China, up to a cumulative maximum of 50% of the entity's
registered capital stock. Transfers to the staff welfare fund can be determined
by management.
Audited financial statements in accordance with the financial regulations
of China are not yet available for either of these companies and, as such, the
amounts to be set aside for enterprise expansion, repair and maintenance of
fixed assets and other purposes and other adjustments which would affect the
amounts distributable to the Companies' shareholders have not yet been finally
determined; however, based upon draft financial statements through December 31,
1996, management plans to transfer $498,000 to the reserve fund.
Consistent with standard practice in China, Dongguan Huixin Electrical
Products Company, Ltd. and Dongguan Raider Motor Corp. Ltd. account for their
staff welfare commitments on a monthly basis and the amounts involved are
charged directly to the profit and loss account. Such expenses were not
material in 1994, 1995 and 1996.
F-14
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
The retained earnings (accumulated losses) of these companies, including
earnings attributable to minority stockholders, on the basis of accounting
principles generally accepted in the United States, are as follows:
<TABLE>
<CAPTION>
1995 1996
--------------- ---------------
<S> <C> <C>
Dongguan Raider Motor Corp. Ltd. ........................ $3,464,000 $ 4,812,000
Dongguan Huixin Electrical Products Company, Ltd. ...... (2,184,000) (1,952,000)
</TABLE>
The currency of China, the reminbi, is not freely convertible and the
ability of these subsidiaries to remit retained earnings to the parent company
is dependent on their ability to generate foreign currency denominated earnings
or to obtain government approval for the purchase of foreign currency.
13. Financial Instruments
The Companies enter into various types of financial instruments in the
normal course of business. Fair values are estimated based on assumptions
concerning the amount and timing of estimated future cash flows and assumed
discount rates reflecting varying degrees of perceived risk. Accordingly, the
fair values may not represent actual values of the financial instruments that
could have been realized as of year end or that will be realized in the future.
Fair values for cash and cash equivalents, accounts receivable, other
receivables, income taxes receivable, bank overdrafts, due from affiliates
trade acceptances payable, accounts payable, accrued expenses, accrued income
taxes, loan payable to affiliate, due to affiliates and capital lease
obligations approximate their carrying value at December 31, 1995 and 1996, due
to their relatively short maturity.
14. Condensed Consolidating Information
The senior subordinated notes described in Note 15 were issued by HPC and
are guaranteed by Holmes Manufacturing Corp. ("Manufacturing") and Holmes Air
(Taiwan) Corp. ("Taiwan"), but are not guaranteed by HPC's other subsidiaries,
HPFEL and Holmes Air (Canada) Corp. ("Canada"). The guarantor subsidiaries are
wholly-owned by HPC, and the guarantees are full, unconditional and joint and
several. The following condensed consolidating financial information presents
the financial position, results of operations and cash flows of (i) HPC, as
parent, as if it accounted for its subsidiaries on the equity method, (ii)
Manufacturing and Taiwan, the guarantor subsidiaries, and (iii) HPFEL and
Canada, the non-guarantor subsidiaries. There were no transactions between
Manufacturing and Taiwan, or between HPFEL and Canada, during any of the
periods presented. Separate financial statements of Manufacturing and Taiwan
are not presented herein as management does not believe that such statements
would be material to investors. Taiwan had no revenues or operations during the
periods presented, and Manufacturing ceased operations in March 1997. As
described in Note 12, certain of HPFEL's subsidiaries in China have
restrictions on distributions to the parent company.
F-15
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes for
periods subsequent to December 31, 1996 is unaudited.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents .................. $ 98 $ -- $ 3,270 $ 3,368
Accounts receivable, net ..................... 33,958 -- 776 34,734
Other receivables ........................... 141 -- -- 141
Inventories ................................. 37,888 2,737 15,776 $ (1,567) 54,834
Prepaid expenses and other current assets ... 1,039 -- 285 1,324
Deferred income taxes ........................ 1,273 -- -- 1,273
Income taxes receivable ..................... 1,242 -- -- (28) 1,214
Due from affiliates ........................ 5,094 -- 7,750 (10,738) 2,106
------- ------ ------- -------- --------
Total current assets ..................... 80,733 2,737 27,857 (12,333) 98,994
------- ------ ------- -------- --------
Property and equipment, net .................. 9,134 34 9,562 (297) 18,433
Deferred income taxes ........................ 280 -- -- 280
Deposits and other assets ..................... 190 1 626 817
Investment in consolidated subsidiaries ...... 950 -- -- (950) --
------- ------ ------- -------- --------
$91,287 $2,772 $38,045 $(13,580) $118,524
======= ====== ======= ======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Bank overdraft .............................. $ 175 $ -- $ -- $ 175
Trade acceptances payable .................. 43,725 -- 8,153 51,878
Current portion of capital lease
obligations and other debt ................. -- -- 67 67
Accounts payable ........................... 8,143 -- 10,567 18,710
Accrued expenses ........................... 6,049 -- 2,257 8,306
Accrued income taxes ........................ -- -- 453 $ (28) 425
Loan payable to affiliate .................. 16,000 -- -- 16,000
Due to affiliates ........................... 5,808 2,845 12,288 (10,738) 10,203
------- ------ ------- -------- --------
Total current liabilities .................. 79,900 2,845 33,785 (10,766) 105,764
------- ------ ------- -------- --------
Capital lease obligations ..................... -- -- 217 217
------- ------ ------- --------- --------
Deferred income taxes ........................ -- -- 137 137
------- ------ ------- --------- --------
Minority interest in net assets of
majority-owned subsidiaries ................. -- -- 919 919
------- ------ ------- --------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value .................. 702 1 -- (1) 702
Common stock, $1 par value .................. -- -- 100 100
Retained earnings (accumulated deficit) ...... 10,685 (74) 2,887 (2,813) 10,685
------- ------ ------- --------- --------
Total stockholders' equity (deficit) ...... 11,387 (73) 2,987 (2,814) 11,487
------- ------ ------- --------- --------
$91,287 $2,772 $38,045 $(13,580) $118,524
======= ====== ======= ========= ========
</TABLE>
F-16
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
----------- -------------- -------------- ---------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ..................... $ 1,284 $ -- $ 3,178 $ 4,462
Accounts receivable, net ........................ 30,795 -- 800 31,595
Other receivables .............................. 77 -- -- 77
Inventories .................................... 48,562 2,385 12,537 $ (2,232) 61,252
Prepaid expenses and other current assets ...... 907 -- 303 1,210
Deferred income taxes ........................... 3,706 -- -- 3,706
Income taxes receivable ........................ -- -- -- --
Due from affiliates ........................... 5,202 -- 7,253 (9,126) 3,329
--------- ------- -------- --------- ---------
Total current assets ........................ 90,533 2,385 24,071 (11,358) 105,631
--------- ------- -------- --------- ---------
Property and equipment, net ..................... 9,129 15 12,148 (209) 21,083
Deferred income taxes ........................... 384 -- -- 384
Deposits and other assets ........................ 513 1 674 1,188
Investment in consolidated subsidiaries ......... 4,326 -- -- (4,326) --
--------- ------- -------- --------- ---------
$ 104,885 $ 2,401 $ 36,893 $ (15,893) $ 128,286
========= ======= ======== ========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Bank overdraft ................................. $ 42 $ -- $ -- $ 42
Trade acceptances payable ..................... 45,848 -- 4,509 50,357
Current portion of capital lease obligations and
other debt .................................... -- -- 356 356
Accounts payable .............................. 4,214 -- 9,935 14,149
Accrued expenses .............................. 7,616 -- 3,025 10,641
Accrued income taxes ........................... 1,419 -- 830 2,249
Loan payable to affiliate ..................... 23,000 -- -- 23,000
Due to affiliates .............................. 5,138 2,016 9,692 $ (9,126) 7,720
--------- ------- -------- --------- ---------
Total current liabilities ..................... 87,277 2,016 28,347 (9,126) 108,514
--------- ------- -------- --------- ---------
Capital lease obligations ........................ -- -- 737 737
--------- ------- -------- --------- ---------
Deferred income taxes ........................... -- -- -- --
--------- ------- -------- --------- ---------
Minority interest in net assets of majority-owned
subsidiaries .................................... -- -- 1,327 1,327
--------- ------- -------- --------- ---------
Stockholders' equity:
Common stock, no par value ..................... 702 1 -- (1) 702
Common stock, $1 par value ..................... -- -- 100 100
Retained earnings .............................. 16,906 384 6,382 (6,766) 16,906
--------- ------- -------- ----------- ---------
Total stockholders' equity .................. 17,608 385 6,482 (6,767) 17,708
--------- ------- -------- ----------- ---------
$ 104,885 $ 2,401 $ 36,893 $ (15,893) $ 128,286
========= ======= ======== =========== =========
</TABLE>
F-17
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
----------- -------------- -------------- ---------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents .................. $ 3,767 $ -- $ 4,382 $ 8,149
Accounts receivable, net .................. 36,246 -- 758 37,004
Other receivables ........................ 347 -- -- 347
Inventories .............................. 47,453 -- 11,644 $ (2,885) 56,212
Prepaid expenses and other current assets 837 -- 452 1,289
Deferred income taxes ..................... 4,106 -- -- 4,106
Income taxes receivable .................. 1,716 -- -- (827) 889
Due from affiliates ........................ 3,414 89 11,169 (8,478) 5,588
--------- ---- -------- --------- ---------
Total current assets ..................... 97,886 89 28,405 (12,190) 113,584
--------- ---- -------- --------- ---------
Property and equipment, net ............... 9,109 -- 11,063 (194) 19,978
Deferred income taxes ..................... 425 -- -- 425
Deposits and other assets .................. 947 1 375 1,323
Investment in consolidated subsidiaries ... 7,628 -- -- (7,628) --
--------- ---- -------- --------- ---------
$ 115,995 $ 90 $ 39,843 $ (20,012) $ 135,310
========= ==== ======== ========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Bank overdraft ........................... $ -- $ -- $ -- $ --
Trade acceptances payable .................. 42,762 -- 3,219 45,981
Current portion of capital lease obligations
and other debt ........................... -- -- 1,062 1,062
Accounts payable ........................... 3,016 -- 11,240 14,256
Accrued expenses ........................... 7,131 -- 2,543 9,674
Accrued income taxes ..................... -- -- 827 $ (827) --
Loan payable to affiliate .................. 32,000 -- -- 32,000
Due to affiliates ........................ 9,500 -- 9,345 (9,084) 9,761
--------- ---- -------- --------- ---------
Total current liabilities ............... 94,409 -- 28,236 (9,911) 112,734
--------- ---- -------- --------- ---------
Capital lease obligations .................. -- -- 890 890
--------- ---- -------- --------- ---------
Deferred income taxes ..................... -- -- -- --
--------- ---- -------- --------- ---------
Minority interest in net assets of majority-
owned subsidiaries ........................ -- -- -- --
--------- ---- -------- --------- ---------
Stockholders' equity:
Common stock, no par value ............... 702 1 -- (1) 702
Common stock, $1 par value.................. -- -- 100 100
Retained earnings ........................ 20,884 89 10,617 (10,706) 20,884
--------- ---- -------- ----------- ---------
Total stockholders' equity ............... 21,586 90 10,717 (10,707) 21,686
--------- ---- -------- ----------- ---------
$ 115,995 $ 90 $ 39,843 $ (20,618) $ 135,310
========= ==== ======== =========== =========
</TABLE>
F-18
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
CONDENSED CONSOLIDATING INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- -------------- -------------- -------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales ....................................... $ 102,430 $ 7,446 $ 57,069 $(52,436) $114,509
Cost of goods sold .............................. 79,245 7,144 50,629 (52,346) 84,672
--------- ------- -------- -------- --------
Gross profit ................................. 23,185 302 6,440 (90) 29,837
--------- ------- -------- -------- --------
Operating expenses:
Selling ....................................... 9,226 -- 411 9,637
General and administrative ..................... 2,876 332 4,677 7,885
Product development ........................... 2,665 -- 77 2,742
--------- ------- -------- -------- --------
Total operating expenses ..................... 14,767 332 5,165 20,264
--------- ------- -------- -------- --------
Operating profit (loss) ..................... 8,418 (30) 1,275 (90) 9,573
--------- ------- -------- -------- --------
Other income (expense):
Other income, net .............................. -- -- 442 (198) 244
Interest income .............................. 5 -- 108 (96) 17
Interest expense .............................. 1,830 -- 370 (96) 2,104
--------- ------- -------- -------- --------
Total other income (expense) .................. (1,825) -- 180 (198) (1,843)
--------- ------- -------- -------- --------
Income (loss) before income taxes, equity in
income of consolidated subsidiaries and
minority interest .............................. 6,593 (30) 1,455 (288) 7,730
Income tax expense .............................. 2,901 -- 313 3,214
--------- ------- -------- -------- --------
Income (loss) before equity in income of
consolidated subsidiaries and minority
interest ....................................... 3,692 (30) 1,142 (288) 4,516
Equity in income of consolidated subsidiaries . 542 -- -- (542) --
--------- ------- -------- -------- --------
Income (loss) before minority interest ......... 4,234 (30) 1,142 (830) 4,516
Minority interest in net income of majority-
owned subsidiaries ........................... -- -- 282 282
--------- ------- -------- -------- --------
Net income (loss) ........................... $ 4,234 $ (30) $ 860 $ (830) $ 4,234
========= ======= ======== ======== ========
</TABLE>
F-19
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes for periods subsequent to December
31, 1996 is unaudited.
CONDENSED CONSOLIDATING INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
----------- -------------- -------------- -------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales .................................... $163,318 $10,183 $92,178 $(87,547) $178,132
Cost of goods sold ........................... 133,377 9,990 84,970 (87,111) 141,226
-------- ------- ------- -------- --------
Gross profit ................................. 29,941 193 7,208 (436) 36,906
-------- ------- ------- -------- --------
Operating expenses:
Selling ....................................... 12,207 -- 468 12,675
General and administrative .................. 5,589 196 4,040 9,825
Product development ........................... 3,064 -- 90 3,154
-------- --------- ------- -------- --------
Total operating expenses .................. 20,860 196 4,598 25,654
-------- --------- ------- -------- --------
Operating profit (loss) ..................... 9,081 (3) 2,610 (436) 11,252
-------- --------- ------- -------- --------
Other income (expense):
Other income, net ........................... -- -- 558 (221) 337
Interest income .............................. 10 -- 201 (199) 12
Interest expense .............................. 3,989 -- 1,441 (199) 5,231
-------- -------- ------- -------- --------
Total other expense ........................ 3,979 -- 682 221 4,882
-------- -------- ------- -------- --------
Income (loss) before income taxes, equity in
income of consolidated subsidiaries and
minority interest ........................... 5,102 (3) 1,928 (657) 6,370
Income tax expense ........................... 2,400 -- 214 2,614
-------- --------- ------- -------- --------
Income (loss) before equity in income of
consolidated subsidiaries and minority
interest .................................... 2,702 (3) 1,714 (657) 3,756
Equity in income of consolidated subsidiaries .. 536 -- -- (536) --
-------- -------- ------- -------- --------
Income (loss) before minority interest ......... 3,238 (3) 1,714 (1,193) 3,756
Minority interest in net income of majority-
owned subsidiaries ........................... -- -- 518 518
-------- --------- ------- -------- --------
Net income (loss) ........................... $ 3,238 $ (3) $ 1,196 $ (1,193) $ 3,238
======== ======== ======= ======== ========
</TABLE>
F-20
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes for periods subsequent to December
31, 1996 is unaudited.
CONDENSED CONSOLIDATING INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
----------- -------------- -------------- -------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales ....................................... $182,992 $ 6,951 $ 90,306 $(85,918) $194,331
Cost of goods sold .............................. 146,648 6,864 77,778 (85,375) 145,915
-------- ------- -------- ------- --------
Gross profit ................................. 36,344 87 12,528 (543) 48,416
-------- ------- -------- ------- --------
Operating expenses:
Selling ....................................... 12,735 -- 490 13,225
General and administrative ..................... 6,733 72 7,278 14,083
Product development ........................... 5,454 -- 66 5,520
-------- ------- -------- ------- --------
Total operating expenses ..................... 24,922 72 7,834 32,828
-------- ------- -------- ------- --------
Operating profit .............................. 11,422 15 4,694 (543) 15,588
-------- ------- -------- ------- --------
Other income (expense):
Other income, net .............................. -- -- 353 (34) 319
Interest income .............................. 10 -- 286 (217) 79
Interest expense .............................. 5,605 -- 1,182 (217) 6,570
-------- ------- -------- ------- --------
Total other expense ........................... 5,595 -- 543 34 6,172
-------- ------- -------- ------- --------
Income before income taxes, equity in income
of consolidated subsidiaries and minority
interest ....................................... 5,827 15 4,151 (577) 9,416
Income tax expense .............................. 2,497 -- 290 2,787
-------- ------- -------- ------- --------
Income before equity in income of
consolidated subsidiaries and minority
interest ....................................... 3,330 15 3,861 (577) 6,629
Equity in income of consolidated subsidiaries ... 2,891 -- -- (2,891) --
-------- ------- -------- ------- --------
Income before minority interest ............... 6,221 15 3,861 (3,468) 6,629
Minority interest in net income of majority-
owned subsidiaries ........................... -- -- 408 408
-------- ------- -------- ------- --------
Net income .................................... $ 6,221 $ 15 $ 3,453 $(3,468) $ 6,221
======== ======= ======== ======= ========
</TABLE>
F-21
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
CONDENSED CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- -------------- -------------- ---------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales ....................................... $138,167 $5,339 $67,537 $(65,229) $145,814
Cost of goods sold .............................. 115,196 5,272 59,539 (65,079) 114,928
-------- ------ ------- -------- --------
Gross profit ................................. 22,971 67 7,998 (150) 30,886
-------- ------ ------- -------- --------
Operating expenses:
Selling ....................................... 9,625 -- 276 9,901
General and administrative ..................... 4,369 55 5,059 9,483
Product development ........................... 3,009 -- 36 3,045
-------- ------ ------- -------- --------
Total operating expenses ..................... 17,003 55 5,371 22,429
-------- ------ ------- -------- --------
Operating profit .............................. 5,968 12 2,627 (150) 8,457
-------- ------ ------- -------- --------
Other income (expense):
Other income, net .............................. -- -- 187 (134) 53
Interest income .............................. 4 -- 52 (1) 55
Interest expense .............................. 4,285 -- 788 (1) 5,072
-------- ------ ------- ----------- --------
Total other expense ........................ 4,281 -- 549 134 4,964
-------- ------ ------- ---------- --------
Income before income taxes, equity in income
of consolidated subsidiaries and minority
interest ....................................... 1,687 12 2,078 (284) 3,493
Income tax expense .............................. 476 -- 204 680
-------- ------ ------- -------- --------
Income before equity in income of
consolidated subsidiaries and minority
interest ....................................... 1,211 12 1,874 (284) 2,813
Equity in income of consolidated subsidiaries.... 1,462 -- -- (1,462) --
-------- ------ ------- ---------- --------
Income before minority interest ............... 2,673 12 1,874 (1,746) 2,813
Minority interest in net income of majority-
owned subsidiaries ........................... -- -- 140 140
-------- ------ ------- -------- --------
Net income .................................... $ 2,673 $ 12 $ 1,734 $ (1,746) $ 2,673
======== ====== ======= ========== ========
</TABLE>
F-22
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
CONDENSED CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
----------- -------------- -------------- -------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales .................................... $ 132,603 $1,240 $ 61,560 $ (58,636) $ 136,767
Cost of goods sold ........................... 108,833 1,244 50,452 (58,087) 102,442
--------- ------- -------- ---------- ---------
Gross profit (loss) ........................... 23,770 (4) 11,108 (549) 34,325
--------- ------- -------- ---------- ---------
Operating expenses:
Selling ....................................... 10,891 -- 352 11,243
General and administrative .................. 4,524 15 5,650 10,189
Product development ........................... 3,582 -- 55 3,637
--------- ------- -------- ---------- ---------
Total operating expenses .................. 18,997 15 6,057 25,069
--------- ------- -------- ---------- ---------
Operating profit (loss) ..................... 4,773 (19) 5,051 (549) 9,256
--------- -------- -------- ---------- ---------
Other income (expense):
Other income (expense), net .................. -- -- 53 (95) (42)
Interest income .............................. 4 -- 187 (65) 126
Interest expense .............................. 4,230 -- 685 (65) 4,850
--------- -------- -------- ---------- ---------
Total other expense ........................ 4,226 -- 445 95 4,766
--------- -------- -------- ---------- ---------
Income (loss) before income taxes, equity in
income of consolidated subsidiaries and
minority interest ........................... 547 (19) 4,606 (644) 4,490
Income tax expense ........................... 148 -- 144 292
--------- ------- -------- ---------- ---------
Income (loss) before equity in income of
consolidated subsidiaries and minority
interest .................................... 399 (19) 4,462 (644) 4,198
Equity in income of consolidated subsidiaries... 3,579 -- -- (3,579) --
--------- -------- -------- ---------- ---------
Income (loss) before minority interest ......... 3,978 (19) 4,462 (4,223) 4,198
Minority interest in net income of majority-
owned subsidiaries ........................... -- -- 220 220
--------- ------- -------- ---------- ---------
Net income (loss) ........................... $ 3,978 $ (19) $ 4,242 $ (4,223) $ 3,978
========= ======== ======== ========== =========
</TABLE>
F-23
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes for periods subsequent to December
31, 1996 is unaudited.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
-------- ------------ -------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Year Ended December 31, 1994
Net cash provided by (used for) operating activities ...... $ 4,725 $(996) $ 3,999 $ 7,728
------- ----- ------- -------
Cash flows from investing activities:
Purchases of property and equipment ..................... (4,428) -- (4,393) (8,821)
------- ----- ------- -------
Cash flows from financing activities:
Net borrowings from affiliate ........................... 2,000 -- -- 2,000
Principal payments on capital lease obligations ......... -- -- -- --
Other net activity with Parent ........................... (1,683) 996 687 --
------- ----- ------- -------
Net cash provided by financing activities ............ 317 996 687 2,000
------- ----- ------- -------
Net increase in cash and cash equivalents ............... 614 -- 293 907
Cash and cash equivalents, beginning of period ............ 272 -- 399 671
------- ----- ------- -------
Cash and cash equivalents, end of period .................. $ 886 $ -- $ 692 $ 1,578
======= ===== ======= =======
Year Ended December 31, 1995
Net cash provided by (used for) operating activities ...... $(1,836) $(683) $ 8,043 $ 5,524
------- ----- ------- -------
Cash flows from investing activities:
Purchases of property and equipment ..................... (6,347) -- (3,359) (9,706)
------- ----- ------- -------
Cash flows from financing activities:
Net borrowings from affiliate ........................... 6,000 -- -- 6,000
Principal payments on capital lease obligations ......... -- -- (28) (28)
Other net activity with Parent ........................... 1,395 683 (2,078) --
------- ----- ------- -------
Net cash provided by (used for) financing
activities .......................................... 7,395 683 (2,106) 5,972
------- ----- ------- -------
Net increase (decrease) in cash and cash
equivalents ............................................. (788) -- 2,578 1,790
Cash and cash equivalents, beginning of period ............ 886 -- 692 1,578
------- ----- ------- -------
Cash and cash equivalents, end of period .................. $ 98 $ -- $ 3,270 $ 3,368
======= ===== ======= =======
Year Ended December 31, 1996
Net cash provided by (used for) operating activities ...... $(1,578) $ 386 $ 3,994 $ 2,802
------- ----- ------- -------
Cash flows from investing activities:
Purchases of property and equipment ..................... (4,417) -- (4,177) (8,594)
------- ----- ------- -------
Cash flows from financing activities:
Net borrowings from affiliate ........................... 7,000 -- -- 7,000
Principal payments on capital lease obligations ......... -- -- (114) (114)
Other net activity with Parent ........................... 181 (386) 205 --
------- ----- ------- -------
Net cash provided by (used for) financing
activities .......................................... 7,181 (386) 91 6,886
------- ----- ------- -------
Net increase (decrease) in cash and cash
equivalents ............................................. 1,186 -- (92) 1,094
Cash and cash equivalents, beginning of period ............ 98 -- 3,270 3,368
------- ----- ------- -------
Cash and cash equivalents, end of period .................. $ 1,284 $ -- $ 3,178 $ 4,462
======= ===== ======= =======
</TABLE>
F-24
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes for periods subsequent to December
31, 1996 is unaudited.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
-------- -------------- -------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 1996
Net cash provided by (used for) operating activities ...... $(1,713) $(880) $3,216 $ 623
------- ----- ------ -------
Cash flows from investing activities:
Purchases of property and equipment ..................... (3,433) -- (3,051) (6,484)
------- ----- ------ -------
Cash flows from financing activities:
Net borrowings from affiliate ........................... 10,000 -- -- 10,000
Principal payments on capital lease obligations ......... -- -- (49) (49)
Other net activity with Parent ........................... (1,519) 880 639 --
------- ----- ------ -------
Net cash provided by financing activities ............ 8,481 880 590 9,951
------- ----- ------ -------
Net increase in cash and cash equivalents ............... 3,335 -- 755 4,090
Cash and cash equivalents, beginning of period ............ 98 -- 3,270 3,368
------- ----- ------ -------
Cash and cash equivalents, end of period .................. $ 3,433 $ -- $4,025 $ 7,458
======= ===== ====== =======
Nine Months Ended September 30, 1997
Net cash provided by (used for) operating activities ...... $(2,698) $ 459 $1,548 $ (691)
------- ----- ------ -------
Cash flows from investing activities:
Purchases of property and equipment ..................... (3,318) -- (283) (3,601)
Purchase of minority interest ........................... -- -- (450) (450)
------- ----- ------ -------
Net cash used for investing activities ............... (3,318) -- (733) (4,051)
------- ----- ------ -------
Cash flows from financing activities:
Net borrowings from affiliate ........................... 9,000 -- -- 9,000
Principal payments on capital lease obligations ......... -- -- (571) (571)
Other net activity with Parent ........................... (501) (459) 960 --
------- ----- ------ -------
Net cash provided by (used for) financing
activities .......................................... 8,499 (459) 389 8,429
------- ----- ------ -------
Net increase in cash and cash equivalents ............... 2,483 -- 1,204 3,687
Cash and cash equivalents, beginning of period ............ 1,284 -- 3,178 4,462
------- ----- ------ -------
Cash and cash equivalents, end of period .................. $ 3,767 $ -- $4,382 $ 8,149
======= ===== ====== =======
</TABLE>
F-25
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
All information included in these footnotes
for periods subsequent to December 31, 1996 is unaudited.
15. Subsequent Events
On May 22, 1997 and June 4, 1997, the Companies reached agreements to
acquire the capital stock held by the 20% and 10% minority stockholders of
Raider Motor Corp. for $600,000 and $300,000, respectively, half of which was
payable at the closing of the transactions and half of which is payable, with
interest, after one year. Amounts payable at September 30, 1997 are included in
the current portion of capital lease obligations and other debt in the
accompanying balance sheet. The book value of the minority interests exceeded
the repurchase price by approximately $647,000. The excess of the estimated
fair market value of the assets and liabilities of Raider Motor Corp. on the
date of acquisition over the repurchase price has been recorded as a reduction
of property and equipment during the nine months ended September 30, 1997.
On November 26, 1997, the Companies and their stockholders consummated an
agreement to perform the following: (i) the stockholders of HPFEL contributed
their shares of common stock to HPC in exchange for 130 shares of HPC's common
stock, no par value, (ii) HPC issued 223 shares of its common stock to outside
investors and certain executive officers of the Companies for approximately
$16.5 million, (iii) the Companies repaid all amounts outstanding to PMSL, Asco
and Holmes Products Hong Kong (1985) Limited and repaid all amounts outstanding
on the Companies' trade acceptances, including accrued interest, and (iv) HPC
redeemed a significant portion of the shares of HPC common stock held by
Pentland for approximately $62.1 million. In connection with these
transactions, the Companies issued $105,000,000 of senior subordinated notes,
bearing interest at 9-7/8%, and entered into an additional $100,000,000 line of
credit, a portion of which was utilized to pay for the above transactions. The
interest rate on the line of credit is variable based upon LIBOR and/or the
prime rate.
16. Stock Option Plan
In connection with the recapitalization transaction described in Note 15,
HPC's Board of Directors adopted and the stockholders approved the 1997 Stock
Option Plan (the "Plan"). The Plan provides for the grant of incentive stock
options and non-qualified stock options to employees, officers, directors, and
consultants of the Companies, except that incentive stock options may not be
issued to consultants or non-employee directors. A total of 73.9 shares of
HPC's common stock have been reserved for issuance under the Plan. The exercise
price and period over which options become exercisable will be determined by
the Board of Directors. However, the exercise price of incentive stock options
will be equal to at least 100% of the fair market value of HPC's common stock
on the date of grant (110% for individuals holding more than 10% of HPC's
common stock). Options will expire no later than 10 years after the date of
grant (5 years for individuals holding more than 10% of HPC's common stock).
The Plan will expire in November 2006.
F-26
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus, and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Company or the Initial Purchasers. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities, other than the
securities to which it relates, or any offer to buy the Exchange Notes in any
jurisdiction where or to any person to whom it is unlawful to make such offer
or solicitation in such jurisdiction.
--------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Prospectus Summary .............................. 1
Risk Factors .................................... 13
The Exchange Offer .............................. 19
The Transactions; Use of Proceeds ............... 27
Capitalization ................................. 29
Selected Financial Data ........................ 30
Unaudited Pro Forma Condensed
Financial Statements ........................ 32
Management's Discussion and Analysis of
Financial Condition and Results of Operations 40
Business ....................................... 45
Management ....................................... 53
Share Ownership ................................. 56
Certain Transactions ........................... 57
Description of Credit Facility .................. 58
Description of the Exchange Notes ............... 59
Plan of Distribution ........................... 83
Certain United States Federal Tax Considerations
for Non-United States Holders ............... 84
Legal Matters .................................... 86
Experts .......................................... 86
Index to Consolidated Financial Statements ...... F-1
</TABLE>
================================================================================
HOLMES (R)
Holmes Products Corp.
Offer to Exchange
$105,000,000
9-7/8% Senior Subordinated Notes
due 2007, Series B
for
9-7/8% Senior Subordinated
Notes due 2007
------------------------
PROSPECTUS
------------------------
_________ , 1998
================================================================================
<PAGE>
PART II
Item 20. Indemnification of Directors and Officers.
Article twelfth of the Company's by-laws provides that the Company, to the
extent legally permissible, will indemnify any person serving or who has served
as a director or officer of the Company against all liabilities and expenses
reasonably incurred by such director or officer in connection with the defense
or disposition of any action, suit or other proceeding in which the director or
officer may be involved, while serving as, or by reason of being or having
been, such a director or officer, except with respect to any matter as to which
he or she is adjudicated to have not acted in good faith or not with the
reasonable belief that an action was in the best interest of the Company.
The Company maintains directors' and officers' liability insurance which
may cover liabilities under the Act.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- ----------------------------------------------------------------------------------------
<S> <C>
1.1 Purchase Agreement dated November 19, 1997 among Holmes Products Corp., BancBoston
Securities Inc. and Lehman Brothers Inc.
3.1 Articles of Organization (as amended) of Holmes Products Corp.
3.2 Articles of Organization of Holmes Manufacturing Corp.
3.3 Articles of Organization of Holmes Air (Taiwan) Corp.
3.4 By-laws (as amended) of Holmes Products Corp.
3.5 By-laws of Holmes Manufacturing Corp.
3.6 By-laws of Holmes Air (Taiwan) Corp.
4.1 Registration Rights Agreement dated November 26, 1997 among Holmes Products Corp.,
Holmes Manufacturing Corp., Holmes Air (Taiwan) Corp., BancBoston Securities Inc. and
Lehman Brothers Inc.
4.2 Indenture dated November 26, 1997 among Holmes Products Corp., Holmes Manufacturing
Corp., Holmes Air (Taiwan) Corp. and State Street Bank and Trust Company.
4.3 Form of Notes -- (Included in Exhibit 4.2).
4.4 Form of Guaranty -- (Included in Exhibit 4.2).
5.1 Opinion of Posternak, Blankstein & Lund, L.L.P.
10.1 Revolving Credit Agreement dated as of November 26, 1997 by and among Holmes Products
Corp., Holmes Products (Far East) Limited, Esteem Industries Limited, Raider Motor
Corporation, BankBoston, N.A., Lehman Brothers Inc. and other banks which may become a
party thereto.
10.2 Stock Purchase and Redemption Agreement dated as of October 27, 1997, as amended as of
November 25, 1997, among Asco Investments Ltd., Jordan A. Kahn, Holmes Products Corp.,
Holmes Products (Far East) Limited and Holmes Acquisition LLC.
10.3 Stock Purchase Agreement dated as of October 27, 1997 among Jordan A. Kahn and Holmes
Acquisition LLC.
10.4 Executive Employment and Non-Competition Agreement dated November 26, 1997 among
Holmes Products Corp. and Jordan A. Kahn.
10.5 Executive Employment and Non-Competition Agreement dated November 26, 1997 among
Holmes Products Corp. and Stanley Rosenzweig.
10.6 Executive Employment and Non-Competition Agreement dated November 26, 1997 among
Holmes Products Corp. and Gregory F. White.
10.7 Employment Agreement dated November 26, 1997 among Holmes Products (Far East) Limited
and (Tommy) Woon Fai Liu.
10.8 Stockholders' Agreement dated November 26, 1997 among Holmes Products Corp. and certain
stockholders thereof.
10.9 Registration Rights Agreement dated November 26, 1997 among Holmes Products Corp. and
certain stockholders thereof.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- ---------------------------------------------------------------------------------------------
<S> <C>
10.10 Holmes Products Corp. 1997 Stock Option Plan.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Posternak, Blankstein & Lund, L.L.P. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature pages hereto).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of State Street Bank
and Trust Company.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
(b) Financial Statement Schedules.
For the years ended December 31, 1994, 1995 and 1996, and the nine months
ended September 30, 1997 (unaudited):
Schedule II
Holmes Products Corp.
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Additions Deductions
----------------------- ---------------
Balance at Charged to Charged Write-off of Balance
Beginning Costs and to Other Uncollectible at End of
of Period Expenses Accounts Accounts Period
------------ ------------ ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1994 ...... $ 158 $ 119 -- $ 45 $ 232
Year ended December 31, 1995 ...... 232 1,404 -- 142 1,494
Year ended December 31, 1996 ...... 1,494 505 -- 886 1,113
Nine months ended September 30, 1997
(unaudited) ..................... 1,113 211 -- 168 1,156
</TABLE>
<TABLE>
<CAPTION>
Additions Deductions
--------------------------- -----------
Net
Operating Net
Balance at Charged to Losses Operating Balance
Beginning Income without Tax Losses at End of
of Period Tax Expense Benefit (1) Utilized Period
------------ ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Deferred tax valuation allowance:
Year ended December 31, 1994 ...... -- -- $ 19 -- $ 19
Year ended December 31, 1995 ...... $ 19 -- 505 -- 524
Year ended December 31, 1996 ...... 524 -- -- $ 55 469
Nine months ended September 30, 1997
(unaudited) ..................... 469 -- -- 331 138
</TABLE>
(1) Based on the weight of available evidence existing at the time, management
concluded that it was more likely than not that the Company would not be
able to realize the benefit associated with the net operating losses being
generated in certain tax jurisdictions during these periods. As the net
operating losses are utilized, the Company has reduced the related
valuation allowance.
II-2
<PAGE>
Item 22 Undertakings.
Each undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10 (b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request.
(e) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it
became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the undersigned registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, hereunto duly authorized, in the
Commonwealth of Massachusetts, on January 15, 1998.
HOLMES PRODUCTS CORP.
By: /s/ Jordan A. Kahn
------------------------------
Jordan A. Kahn, President and
Chief Executive Officer
KNOW ALL BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Jordan A. Kahn and Stanley Rosenzweig, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------- ----------------------------------- -----------------
<S> <C> <C>
/s/ Jordan A. Kahn President, Chief Executive Officer
- ---------------------- and Director January 15, 1998
Jordan A. Kahn
/s/ David Dusseault Chief Financial Officer January 15, 1998
- ----------------------
David Dusseault
/s/ Stanley Rosenzweig Chief Operating Officer and Director January 15, 1998
- ----------------------
Stanley Rosenzweig
/s/ Gregory F. White Executive Vice President,
- ---------------------- Sales and Marketing, and Director January 15, 1998
Gregory F. White
/s/ Richard K. Lubin Director January 15, 1998
- ----------------------
Richard K. Lubin
/s/ Randy Peeler Director January 15, 1998
- ----------------------
Randy Peeler
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the undersigned registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, hereunto duly authorized, in the
Commonwealth of Massachusetts, on January 15, 1998.
HOLMES MANUFACTURING CORP.
By: /s/ Jordan A. Kahn
------------------------------
Jordan A. Kahn, President
KNOW ALL BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Jordan A. Kahn and Stanley Rosenzweig his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement, and
to file the same, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the stated
capacity and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ---------------------------------- -----------------
<S> <C> <C>
/s/ Jordan A. Kahn President, Treasurer and Director January 15, 1998
- -------------------------
Jordan A. Kahn
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the undersigned registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, hereunto duly authorized, in the
Commonwealth of Massachusetts, on January 15, 1998.
HOLMES AIR (TAIWAN) CORP.
By: /s/ Jordan A. Kahn
------------------------------
Jordan A. Kahn, President
KNOW ALL BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Jordan A. Kahn and Stanley Rosenzweig his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement, and
to file the same, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the stated
capacity and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ---------------------------------- -----------------
<S> <C> <C>
/s/ Jordan A. Kahn President, Treasurer and Director January 15, 1998
- -------------------------
Jordan A. Kahn
</TABLE>
II-6
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOLMES PRODUCTS CORP.
AND
THE GUARANTORS NAMED ON THE SIGNATURE PAGES HERETO
$105,000,000
9-7/8% Senior Subordinated Notes due 2007
Purchase Agreement
November 19, 1997
BANCBOSTON SECURITIES INC.
LEHMAN BROTHERS INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
HOLMES PRODUCTS CORP.
$105,000,000
9-7/8% Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
November 19, 1997
New York, New York
BANCBOSTON SECURITIES INC.
LEHMAN BROTHERS INC.
c/o BancBoston Securities Inc.
100 Federal Street
Boston, Massachusetts 02110
Ladies & Gentlemen:
Holmes Products Corp., a Massachusetts corporation (the
"Company"), proposes to issue and sell to BancBoston Securities Inc. and Lehman
Brothers Inc. (together, the "Initial Purchasers") $105,000,000 in aggregate
principal amount of 9-7/8% Series A Senior Subordinated Notes due 2007 (the
"Series A Notes"), subject to the terms and conditions set forth herein. The
Series A Notes will be issued pursuant to an indenture (the "Indenture"), to be
dated the Closing Date (as defined), among the Company, the Guarantors (as
defined) and State Street Bank and Trust Company, as trustee (the "Trustee").
The Notes (as defined) will be fully and unconditionally guaranteed (the
"Guarantees") as to payment of principal, interest, liquidated damages and
premium, if any, on an unsecured senior subordinated basis, jointly and
severally, by each entity listed on Exhibit B hereto (collectively, the
Guarantors"). Capitalized terms used herein and not otherwise defined shall have
the meanings assigned to such terms in the Indenture.
The offering of the Series A Notes is being made in connection with the
recapitalization (the "Recapitalization") of the Company pursuant to (i) that
certain Stock Purchase Agreement, to be dated as of the Closing Date (the "Stock
Purchase Agreement"), between Jordan A. Kahn ("Kahn") and Holmes Acquisition LLC
("Acquisition"), (ii) that certain Stock Purchase and Redemption Agreement,
dated as of October 27, 1997 (the "Redemption Agreement"), by and among Asco
Investments Ltd. ("Asco"), Kahn, the Company, Holmes Products (Far East) Limited
("Holmes Far East") and Acquisition and (iii) that certain
Shareholders/Executives Agreement, dated as of October 24, 1997 (the "Executive
Agreement" and, together with the Stock Purchase Agreement and the Redemption
Agreement, the "Transaction Agreements"), by and among the Company, Pentland
Group, plc, Asco, Kahn, Stanley Rosenzweig and Gregory F. White. As a result of
the Recapitalization, Holmes Far East will become a wholly owned subsidiary of
the Company. For the purposes of this Agreement, the term "Subsidiaries" of the
Company shall include Holmes Far East and all of its subsidiaries.
1. Issuance of Securities. The Company proposes, upon the terms and
subject to the conditions set forth herein, to issue and sell to the Initial
Purchasers an aggregate of $105,000,000 in principal amount of Series A Notes.
The Series A Notes and the Series B Notes (as defined) issuable in exchange
therefor are collectively referred to herein as the "Notes."
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Securities Act of 1933,
as amended (the "Act"), the Series A Notes (and all securities issued in
exchange therefor or in substitution thereof) shall bear the following legend:
<PAGE>
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. BY ITS ACQUISITION HEREOF, THE HOLDER
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) OR (C) IT IS NOT A U.S. PERSON AND
IS NOT ACQUIRING THIS SECURITY FOR THE ACCOUNT OR BENEFIT OF A U.S.
PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY
THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY, (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
2. Offering. The Series A Notes will be offered and sold to the Initial
Purchasers pursuant to an exemption from the registration requirements under the
Act. The Company has prepared a preliminary offering memorandum, dated November
3, 1997 (the "Preliminary Offering Memorandum"), and a final offering
memorandum, dated November 19, 1997 (the "Offering Memorandum"), relating to the
Company, its Subsidiaries and the Series A Notes (collectively with any
amendments and supplements thereto, the "Offering Documents").
The Initial Purchasers have advised the Company that the Initial
Purchasers will make offers (the "Exempt Resales") of the Series A Notes on the
terms set forth in the Offering Memorandum, as amended or supplemented, solely
to (i) persons whom the Initial Purchasers reasonably believe to be "qualified
institutional buyers," as defined in Rule 144A under the Act ("QIBs") and (ii)
non-U.S. persons outside the United States in reliance upon Regulation S
("Regulation S") under the Act (each, a "Reg S Investor"). The QIBs and Reg S
Investors are collectively referred to herein as the "Eligible Purchasers." The
Initial Purchasers will offer the Series A Notes to such Eligible Purchasers
initially at a price equal to 100% of the principal amount thereof. Such price
may be changed at any time without notice.
Holders (including subsequent transferees) of the Series A Notes will
have the registration rights set forth in the registration rights agreement
relating thereto (the "Registration Rights Agreement"), to be dated the Closing
Date, in substantially the form of Exhibit A hereto, for so long as such Series
A Notes constitute "Transfer Restricted Securities" (as defined in the
Registration Rights Agreement). Pursuant to the Registration Rights Agreement,
the Company and the Guarantors will agree to file with the Securities and
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<PAGE>
Exchange Commission (the "Commission"), under the circumstances set forth
therein, (i) a registration statement under the Act (the "Exchange Offer
Registration Statement") relating to the 9-7/8% Series B Notes due 2007 (the
"Series B Notes") to be offered in exchange for the Series A Notes (the
"Exchange Offer") and (ii) a shelf registration statement pursuant to Rule 415
under the Act (the "Shelf Registration Statement" and, together with the
Exchange Offer Registration Statement, the "Registration Statements") relating
to the resale by certain holders of the Series A Notes, and to use their best
efforts to cause such Registration Statements to be declared effective and to
consummate the Exchange Offer. This Agreement, the Notes, the Guarantees, the
Indenture, the Registration Rights Agreement, the Transaction Agreements and the
Credit Facility (as defined in the Offering Memorandum) are hereinafter referred
to collectively as the "Operative Documents."
3. Purchase, Sale and Delivery. (a) On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to its terms and conditions, the Company agrees to issue and sell to
each Initial Purchaser, and each Initial Purchaser agrees, severally and not
jointly, to purchase from the Company, the principal amount of Series A Notes
set forth opposite its name on Schedule I hereto. The purchase price for the
Series A Notes will be $970 per $1,000 principal amount Series A Note.
(b) Delivery of the Series A Notes shall be made, against payment of
the purchase price therefor, at the offices of Hutchins, Wheeler & Dittmar,
Boston, Massachusetts or such other location as may be mutually acceptable. Such
delivery and payment shall be made at 9:00 a.m., New York City time, on November
26, 1997 or at such other time as shall be agreed upon by the Initial Purchasers
and the Company. The time and date of such delivery and payment are herein
called the "Closing Date."
(c) On the Closing Date, one or more Series A Notes in definitive form,
registered in the name of Cede & Co., as nominee of The Depository Trust Company
("DTC"), having an aggregate amount corresponding to the aggregate amount of the
Series A Notes sold pursuant to Exempt Resales to Eligible Purchasers (the
"Global Notes") shall be delivered by the Company to the Initial Purchasers (or
as the Initial Purchasers direct), against payment by the Initial Purchasers of
the purchase price therefor, by wire transfer of same day funds, to an account
designated by the Company, provided that the Company shall give at least one
business day's prior written notice to the Initial Purchasers of the information
required to effect such wire transfer. The Global Notes shall be made available
to the Initial Purchasers for inspection not later than 9:30 a.m. on the
business day immediately preceding the Closing Date.
4. Agreements of the Company and the Guarantors. The Company and the
Guarantors, jointly and severally, covenant and agree with the Initial
Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing,
(i) of the issuance by any state securities commission of any stop
order suspending the qualification or exemption from qualification of
any Notes for offering or sale in any jurisdiction, or the initiation
of any proceeding for such purpose by any state securities commission
or other regulatory authority and (ii) of the happening of any event
that makes any statement of a material fact made in the Preliminary
Offering Memorandum or the Offering Memorandum untrue or that requires
the making of any additions to or changes in the Preliminary Offering
Memorandum or the Offering Memorandum in order to make the statements
therein, in the light of the circumstances under which they are made,
not misleading. The Company and the Guarantors shall use their
reasonable best efforts to prevent the issuance of any stop order or
order suspending the qualification or exemption of any Notes under any
state securities or Blue Sky laws and, if at any time any state
securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption of any Notes or
Guarantees of Notes under any state securities or Blue Sky laws, the
Company and the Guarantors shall use their reasonable best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time.
(b) To furnish the Initial Purchasers, without charge, as many
copies of the Preliminary Offering Memorandum and the Offering
Memorandum, including all documents incorporated therein by reference,
and any amendments or supplements thereto, as the Initial Purchasers
may reasonably request. The Company and the Guarantors consent to the
use of the Preliminary Offering Memorandum and the Offering Memorandum,
and any amendments and supplements thereto required pursuant hereto, by
the Initial Purchasers in connection with Exempt Resales.
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<PAGE>
(c) Not to amend or supplement the Preliminary Offering
Memorandum or the Offering Memorandum prior to the Closing Date unless
the Initial Purchasers shall previously have been advised thereof and
shall not have objected thereto within a reasonable time after being
furnished a copy thereof. The Company and the Guarantors shall promptly
prepare, upon the Initial Purchasers' request, any amendment or
supplement to the Preliminary Offering Memorandum or the Offering
Memorandum that may be necessary or advisable in connection with Exempt
Resales.
(d) If, after the date hereof and prior to consummation of any
Exempt Resale, any event shall occur as a result of which, in the
judgment of the Company and the Guarantors or in the reasonable opinion
of counsel for the Company and the Guarantors or counsel for the
Initial Purchasers, it becomes necessary or advisable to amend or
supplement the Preliminary Offering Memorandum or Offering Memorandum
in order to make the statements therein, in the light of the
circumstances when such Offering Memorandum is delivered to an Eligible
Purchaser which is a prospective purchaser, not misleading, or if it is
necessary or advisable to amend or supplement the Preliminary Offering
Memorandum or the Offering Memorandum to comply with applicable law,
(i) to notify the Initial Purchasers and (ii) forthwith to prepare an
appropriate amendment or supplement to such Preliminary Offering
Memorandum or Offering Memorandum so that the statements therein as so
amended or supplemented will not, in the light of the circumstances
when it is so delivered, be misleading, or so that such Preliminary
Offering Memorandum or Offering Memorandum will comply with applicable
law. Each Initial Purchaser agrees, severally and not jointly, that,
upon its receipt of any written notice from the Company of the
existence of any fact or the happening of any event that requires the
making of any additions to or changes in the Preliminary Offering
Memorandum or Offering Memorandum (or amendment or supplement thereto,
as applicable) referred to in this Section 4(d) in order that such
document will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing
as of the date such document was delivered, not misleading, such
Initial Purchaser shall forthwith discontinue disposition of the
applicable Notes pursuant to such document until (A) such Initial
Purchaser receives from the Company copies of an amended or
supplemented document that the Company states in writing may be used by
such Initial Purchaser or (B) such Initial Purchaser is advised in
writing by the Company that the use of such document may be resumed.
(e) To cooperate with the Initial Purchasers and counsel for
the Initial Purchasers in connection with the qualification or
registration of the Series A Notes under the securities or Blue Sky
laws of such jurisdictions as the Initial Purchasers may reasonably
request and to continue such qualification in effect so long as
required for the Exempt Resales; provided, however, that none of the
Company or the Guarantors shall be required in connection therewith to
register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to service of
process in suits or taxation, in each case, other than as to matters
and transactions relating to the Preliminary Offering Memorandum, the
Offering Memorandum or Exempt Resales, in any jurisdiction where it is
not now so subject.
(f) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is
terminated, to pay all costs, expenses, fees and taxes incident to the
performance of the obligations of the Company and the Guarantors
hereunder, including in connection with: (i) the preparation, printing,
filing and distribution of the Preliminary Offering Memorandum and the
Offering Memorandum (including, without limitation, financial
statements) and all amendments and supplements thereto required
pursuant hereto, (ii) the issuance, transfer and delivery of the Notes
and the Guarantees to the Initial Purchasers, (iii) the qualification
or registration of the Notes and the Guarantees for offer and sale
under the securities or Blue Sky laws of the several states (including,
without limitation, the cost of printing and mailing a preliminary and
final Blue Sky Memorandum and the reasonable fees and disbursements of
counsel for the Initial Purchasers relating thereto), (iv) furnishing
such copies of the Preliminary Offering Memorandum and the Offering
Memorandum, and all amendments and supplements thereto, as may be
requested for use in connection with Exempt Resales, (v) the
preparation of certificates for the Notes and the Guarantees
(including, without limitation, printing and engraving thereof), (vi)
the fees, disbursements and expenses of the Company's and the
Guarantors' counsel and accountants, (vii) all fees and expenses
(including fees and expenses of counsel) of the Company in connection
with the approval of the Notes by DTC for "book-entry" transfer, (viii)
rating the Notes
5
<PAGE>
by rating agencies, (ix) the reasonable fees and expenses of the
Trustee and its counsel, (x) the performance by the Company and the
Guarantors of their other obligations under this Agreement and the
other Operative Documents and (xi) "roadshow" travel and other expenses
incurred by the Company in connection with the marketing and sale of
the Notes.
(g) To use the proceeds from the sale of the Series A Notes in
the manner described in the Offering Memorandum under the caption
Transactions "Transactions; Use of Proceeds."
(h) Not to voluntarily claim, and to resist actively any
attempts to claim, the benefit of any usury laws against the holders of
any Notes.
(i) To do and perform all things required to be done and
performed under this Agreement by them prior to or after the Closing
Date and to satisfy all conditions precedent on their part to the
delivery of the Series A Notes and the Guarantees.
(j) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act)
that would be integrated with the sale of the Series A Notes in a
manner that would require the registration under the Act of the sale to
the Initial Purchasers or the Eligible Purchasers of the Series A Notes
or to take any other action that would result in the Exempt Resales not
being exempt from registration under the Act.
(k) For so long as any of the Notes remain outstanding and
during any period in which the Company and the Guarantors are not
subject to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), to make available to any holder or
beneficial owner of Series A Notes in connection with any sale thereof
and any prospective purchaser of such Notes from such holder or
beneficial owner, the information required by Rule 144A(d)(4) under the
Act.
(l) To comply with all of their agreements set forth in the
Registration Rights Agreement and all agreements set forth in the
representation letters of the Company to DTC relating to the approval
of the Notes by DTC for "book-entry" transfer.
(m) To use their reasonable best efforts to effect the
inclusion of the Notes in PORTAL and to obtain approval of the Series A
Notes by DTC for "book-entry" transfer.
(n) During a period of five years following the Closing Date,
to deliver without charge to the Initial Purchasers, as they may
reasonably request, promptly upon their becoming available, copies of
(i) all reports or other publicly available information that the
Company shall mail or otherwise make available to its public
securityholders and (ii) all reports, financial statements and proxy or
information statements filed by the Company with the Commission or any
national securities exchange and such other publicly available
information concerning the Company or any of its Subsidiaries,
including without limitation, press releases.
(o) Prior to the Closing Date, to furnish to the Initial
Purchasers, as soon as they have been prepared in the ordinary course
by the Company and each Guarantor, copies of any unaudited interim
financial statements for any period subsequent to the periods covered
by the financial statements appearing in the Offering Memorandum.
(p) Not to take, directly or indirectly, any action designed
to, or that might reasonably be expected to, cause or result in
stabilization or manipulation of the price of any security of the
Company or any of the Guarantors to facilitate the sale or resale of
the Notes. Except as permitted by the Act, none of the Company or the
Guarantors will distribute any (i) preliminary offering memorandum,
including, without limitation, the Preliminary Offering Memorandum,
(ii) offering memorandum, including, without limitation, the Offering
Memorandum, or (iii) other offering material in connection with the
offering and sale of the Notes.
(q) To use their best efforts to do and perform all things
required or necessary to be done and performed under this Agreement
prior to the Closing Date and to satisfy all conditions precedent to
the delivery of the Series A Notes and the Guarantees.
5. Representations and Warranties. (a) The Company and the Guarantors,
jointly
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and severally, represent and warrant to the Initial Purchasers that:
(i) All of the representations and warranties of the parties
to the Redemption Agreement made in the Redemption Agreement are true
and correct in all material respects as if made on and as of the date
hereof and the Closing Date.
(ii) The Preliminary Offering Memorandum as of its date does
not, and the Offering Memorandum as of its date and (as amended or
supplemented, if applicable) as of the Closing Date does not and will
not, and any supplement or amendment to them will not, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and
warranties contained in this paragraph shall not apply to statements in
or omissions from the Preliminary Offering Memorandum and the Offering
Memorandum (or any supplement or amendment thereto) made in reliance
upon and in conformity with information relating to either Initial
Purchaser furnished to the Company in writing by such Initial Purchaser
expressly for use therein. No stop order preventing the use of the
Preliminary Offering Memorandum or the Offering Memorandum, or any
amendment or supplement thereto, or any order asserting that any of the
transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(iii) Each of the Company and its Subsidiaries (A) has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, (B) has
all requisite corporate power and authority to carry on its business as
it is currently being conducted and as described in the Offering
Memorandum and to own, lease and operate its properties, and (C) is
duly qualified and in good standing as a foreign corporation,
authorized to do business in each jurisdiction in which the nature of
its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified could not
reasonably be expected to (x) result, individually or in the aggregate,
in a material adverse effect on the properties, business, results of
operations, condition (financial or otherwise), affairs or prospects of
the Company and its Subsidiaries, taken as a whole, (y) interfere with
or adversely affect the issuance or marketability of the Notes or the
issuance of the Guarantees pursuant hereto or (z) in any manner draw
into question the validity of this Agreement or any other Operative
Document or the transactions described in the Offering Memorandum under
the caption "Transactions; Use of Proceeds" (any of the events set
forth in clauses (x), (y) or (z), a "Material Adverse Effect").
(iv) The Company has no Subsidiaries other than the Guarantors
and each of the entities listed on Exhibit C hereto;
(v) All of the outstanding capital stock of each Subsidiary of
the Company is owned directly or indirectly by the Company or another
Subsidiary of the Company, free and clear of any security interest,
claim, lien, limitation on voting rights or encumbrance, except for any
such security interest, claim, lien, limitation on voting rights or
encumbrance pursuant to the Credit Facility; and all such securities
have been duly authorized, validly issued, and are fully paid and
nonassessable and were not issued in violation of any preemptive or
similar rights.
(vi) Other than pursuant to the Transaction Agreements, there
are not currently any outstanding subscriptions, rights, warrants,
calls, commitments of sale or options to acquire, or instruments
convertible into or exchangeable for, any capital stock or other equity
interest of the Company's Subsidiaries.
(vii) When the Series A Notes and the Guarantees are issued
and delivered pursuant to this Agreement, no Series A Note or Guarantee
will be of the same class (within the meaning of Rule 144A under the
Act) as securities of the Company or of any of the Guarantors that are
listed on a national securities exchange registered under Section 6 of
the Exchange Act or that are quoted in a United States automated
inter-dealer quotation system.
(viii) Each of the Company and the Guarantors has all
requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement and each of the other Operative
Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby, including, without limitation, the
corporate power and authority to issue, sell
7
<PAGE>
and deliver the Notes (in the case of the Company) and to issue and
deliver the Guarantees (in the case of the Guarantors) as provided
herein and therein.
(ix) This Agreement has been duly and validly authorized,
executed and delivered by each of the Company and the Guarantors and is
the legal, valid and binding agreement of each of the Company and the
Guarantors, enforceable against each of them in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization or similar laws affecting the
rights of creditors generally and subject to general principles of
equity.
(x) The Indenture has been duly and validly authorized by each
of the Company and the Guarantors and, when duly executed and delivered
by each of the Company and the Guarantors, assuming the due
authorization, execution and delivery thereof by the Trustee, will be
the legal, valid and binding obligation of each of the Company and the
Guarantors, enforceable against each of them in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization or similar laws affecting the
rights of creditors generally and subject to general principles of
equity. On the Closing Date, the Indenture will conform in all material
respects to the requirements of the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), and the rules and regulations of
the Commission applicable to an indenture which is qualified
thereunder. The Offering Memorandum contains a summary of the material
terms of the Indenture, which is accurate in all material respects.
(xi) The Registration Rights Agreement has been duly and
validly authorized by each of the Company and the Guarantors and, when
duly executed and delivered by each of the Company and the Guarantors,
will be the legal, valid and binding obligation of each of the Company
and the Guarantors, enforceable against each of them in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization or similar laws affecting the
rights of creditors generally and subject to general principles of
equity. The Offering Memorandum contains a summary of the material
terms of the Registration Rights Agreement, which is accurate in all
material respects.
(xii) The Credit Facility has been duly and validly authorized
by each of the Company and its Subsidiaries party thereto and, when
duly executed and delivered by each of the Company and such
Subsidiaries, will be the legal, valid and binding obligation of each
of the Company and such Subsidiaries, enforceable against each of them
in accordance with its terms, subject to (A) applicable bankruptcy,
insolvency, moratorium, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity and (B) securities laws prohibiting or
limiting the availability of, and public policy against,
indemnification or contribution. The Offering Memorandum contains a
summary of the material terms of the Credit Facility, which is accurate
in all material respects.
(xiii) The Redemption Agreement has been duly and validly authorized,
executed and delivered by the Company and Holmes Far East and is the
legal, valid and binding obligation of each of the Company and Holmes
Far East, enforceable against each of them in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization or similar laws affecting the
rights of creditors generally and subject to general principles of
equity. The Offering Memorandum contains a summary of the material
terms of the Transaction Agreements, which is accurate in all material
respects.
(xiv) The Series A Notes have been duly and validly authorized
by the Company for issuance and sale to the Initial Purchasers pursuant
to this Agreement and, when issued and authenticated in accordance with
the terms of the Indenture and delivered against payment therefor in
accordance with the terms hereof and thereof, will be the legal, valid
and binding obligations of the Company, enforceable against it in
accordance with their terms and entitled to the benefits of the
Indenture, subject to applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization or similar laws affecting the
rights of creditors generally and subject to general principles of
equity. The Offering Memorandum contains a summary of the material
terms of the Notes, which is accurate in all material respects.
(xv) The Series B Notes have been duly and validly authorized
for issuance by the Company and, when issued and authenticated in
accordance with the terms of the Exchange Offer
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and the Indenture, will be the legal, valid and binding obligations of
the Company, enforceable against it in accordance with their terms and
entitled to the benefits of the Indenture, subject to applicable
bankruptcy, insolvency, moratorium, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity.
(xvi) The Guarantees of the Series A Notes have been duly and
validly authorized by each of the Guarantors and, when executed and
delivered in accordance with the terms of the Indenture and when the
Series A Notes have been issued and authenticated in accordance with
the terms of the Indenture and delivered against payment therefor in
accordance with the terms hereof and thereof, will be the legal, valid
and binding obligations of each of the Guarantors enforceable against
each of them in accordance with their terms and entitled to the
benefits of the Indenture, subject to applicable bankruptcy,
insolvency, moratorium, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity. The Offering Memorandum contains a
summary of the material terms of the Guarantees, which is accurate in
all material respects.
(xvii) The Guarantees of the Series B Notes have been duly and
validly authorized by each of the Guarantors and, when executed and
delivered in accordance with the terms of the Indenture and when the
Series B Notes have been issued and authenticated in accordance with
the terms of the Exchange Offer and the Indenture, will be the legal,
valid and binding obligations of each of the Guarantors, enforceable
against each of them in accordance with their terms and entitled to the
benefits of the Indenture, subject to applicable bankruptcy,
insolvency, moratorium, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity.
(xviii) The statistical and market-related data included in
the Offering Memorandum are based on or derived from sources which the
Company believes to be reliable in all material respects.
(xix) Each of the Company and its Subsidiaries is not and,
after giving effect to the Offering and the Recapitalization will not
be, (A) in violation of its charter or bylaws, (B) in default in the
performance of any bond, debenture, note, indenture, mortgage, deed of
trust or other agreement or instrument to which it is a party or by
which it is bound or to which any of its properties is subject, which
singly or in the aggregate, could reasonably be expected to have a
Material Adverse Effect, or (C) in violation of any local, state,
federal or foreign law, statute, ordinance, rule, regulation,
requirement, judgment or court decree (including, without limitation,
environmental laws, statutes, ordinances, rules, regulations, judgments
or court decrees) applicable to it or any of its Subsidiaries or any of
its or their assets or properties (whether owned or leased), which
singly or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. To the best knowledge of the Company and the
Guarantors, there exists no condition that, with notice, the passage of
time or otherwise, would constitute a default under any such document
or instrument.
(xx) None of (A) the execution, delivery or performance by the
Company or any of the Guarantors of this Agreement or any of the other
Operative Documents to which it is a party, (B) the consummation of the
Recapitalization, (C) the issuance and sale of the Notes and the
issuance of the Guarantees and (D) consummation by the Company of the
transactions described in the Offering Memorandum under the caption
"Transactions; Use of Proceeds," violates, conflicts with or
constitutes a breach of any of the terms or provisions of, or, after
giving effect to the Recapitalization will violate, conflict with or
constitute a breach of any of the terms or provisions of, or a default
under (or an event that with notice or the lapse of time, or both,
would constitute a default), or require consent under, or result in the
imposition of a lien or encumbrance on any properties of the Company or
any of its Subsidiaries, or an acceleration of any indebtedness of the
Company or any of its Subsidiaries pursuant to, (1) the charter or
bylaws of the Company or any of its Subsidiaries, (2) any bond,
debenture, note, indenture, mortgage, deed of trust or other agreement
or instrument to which the Company or any of its Subsidiaries is a
party or by which any of them or their property is or may be bound, (3)
any statute, rule or regulation applicable to the Company or any of its
Subsidiaries or any of their assets or properties or (4) any judgment,
order or decree of any court or governmental agency or authority having
jurisdiction over the Company or any of its Subsidiaries or any of
their assets or properties. No consent, approval, authorization or
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order of, or filing, registration, qualification, license or permit of
or with, (A) any court or governmental agency, body or administrative
agency or (B) any other person is required for (1) the execution,
delivery and performance by the Company or any of the Guarantors of
this Agreement or any of the other Operative Documents to which it is a
party, (2) the Recapitalization or (3) the issuance and sale of the
Notes and the issuance of the Guarantees and the transactions
contemplated hereby and thereby, except such as have been or will be
obtained and made on or prior to the Closing Date (or, in the case of
the Registration Rights Agreement, will be obtained and made under the
Act, the Trust Indenture Act, and state securities or Blue Sky laws and
regulations).
(xxi) There is and, after giving effect to the
Recapitalization, except as could not reasonably be expected to result
in a Material Adverse Effect, will be (A) no action, suit,
investigation or proceeding before or by any court, arbitrator or
governmental agency, body or official, domestic or foreign, now pending
or, to the best knowledge of the Company and the Guarantors, threatened
or contemplated to which the Company or any of its Subsidiaries is or
may be a party or to which the business or property of the Company or
any of its Subsidiaries, is or, after giving effect to the
Recapitalization may be subject, (B) no statute, rule, regulation or
order that has been enacted, adopted or issued by any governmental
agency or that has been proposed by any governmental body and (C) no
injunction, restraining order or order of any nature by a federal or
state court or foreign court of competent jurisdiction to which the
Company or any of its Subsidiaries is or may be subject or to which the
business, assets or property of the Company or any of its Subsidiaries
is or may be subject, that, in the case of clauses (A), (B) and (C)
above, (1) is required to be disclosed in the Preliminary Offering
Memorandum and the Offering Memorandum and is not so disclosed or (2)
could reasonably be expected to result in a Material Adverse Effect.
(xxii) No action has been taken and no statute, rule,
regulation or order has been enacted, adopted or issued by any
governmental agency that prevents the issuance of the Notes or the
Guarantees or prevents or suspends the use of the Offering Memorandum;
no injunction, restraining order or order of any nature by a federal or
state court of competent jurisdiction has been issued that prevents the
issuance of the Notes or the Guarantees or prevents or suspends the
sale of the Notes in any jurisdiction referred to in Section 4(e)
hereof; and every request of any securities authority or agency of any
jurisdiction for additional information has been complied with in all
material respects.
(xxiii) The Company has delivered to the Initial Purchasers
true and correct copies of all documents and agreements related to the
Recapitalization and the Credit Facility, including all amendments,
alterations, modifications or waivers thereto and all exhibits or
schedules thereto.
(xxiv) There is and, after giving effect to the
Recapitalization, except as could not be reasonably expected to have a
Material Adverse Effect, will be (A) no significant unfair labor
practice complaint pending against the Company or any of its
Subsidiaries nor, to the best knowledge of the Company and the
Guarantors, threatened against any of them, before the National Labor
Relations Board, any state or local labor relations board or any
foreign labor relations board, and no significant grievance or
significant arbitration proceeding arising out of or under any
collective bargaining agreement is so pending against the Company or
any of its Subsidiaries or, to the best knowledge of the Company and
the Guarantors, threatened against any of them, (B) no significant
strike, labor dispute, slowdown or stoppage pending against the Company
or any of its Subsidiaries nor, to the best knowledge of the Company
and the Guarantors, threatened against the Company or any of its
Subsidiaries and (C) to the best knowledge of the Company and the
Guarantors, no union representation question existing with respect to
the employees of the Company or any of its Subsidiaries. To the best
knowledge of the Company and the Guarantors, no collective bargaining
organizing activities are taking place with respect to the Company or
any of its Subsidiaries. None of the Company or any of its Subsidiaries
has violated (A) any federal, state or local law or foreign law
relating to discrimination in hiring, promotion or pay of employees,
(B) any applicable wage or hour laws or (C) any provision of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or the rules and regulations thereunder, except those violations that
could not reasonably be expected to have a Material Adverse Effect.
(xxv) None of the Company or any of its Subsidiaries has
violated any foreign, federal, state or local law or regulation
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
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("Environmental Laws"), which violation could reasonably be expected to
have a Material Adverse Effect.
(xxvi) There is no alleged liability, nor to the best
knowledge of the Company and the Guarantors, any reasonable basis for
liability (including, without limitation, alleged or potential
liability for investigatory costs, cleanup costs, governmental response
costs, natural resource damages, property damages, personal injuries or
penalties) of the Company or any of its Subsidiaries arising out of,
based on or resulting from (A) the presence or release into the
environment of any Hazardous Material (as defined) at any location,
whether or not owned by the Company or such Subsidiary, as the case may
be, or (B) any violation or alleged violation of any Environmental Law,
which alleged or potential liability is required to be disclosed in the
Offering Memorandum, other than as disclosed therein, or could
reasonably be expected to have a Material Adverse Effect. The term
"Hazardous Material" means (A) any "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (B) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act, as amended, (C) any petroleum
or petroleum product, (D) any polychlorinated biphenyl and (E) any
pollutant or contaminant or hazardous, dangerous or toxic chemical,
material, waste or substance regulated under or within the meaning of
any other law relating to protection of human health or the environment
or imposing liability or standards of conduct concerning any such
chemical material, waste or substance.
(xxvii) Each of the Company and its Subsidiaries has and,
after giving effect to the Recapitalization, will have such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and
operate their respective properties and to conduct their businesses
except where the failure to have such permits could not reasonably be
expected to result in a Material Adverse Effect; each of the Company
and its Subsidiaries has fulfilled and performed all of its obligations
with respect to such permits and no event has occurred which allows, or
after notice or lapse of time would allow, revocation or termination
thereof or results in any other material impairment of the rights of
the holder of any such permit; and, except as described in the Offering
Memorandum, such permits contain no restrictions that are materially
burdensome to the Company or such Subsidiary, as the case may be.
(xxviii) Each of the Company and its Subsidiaries has and,
after giving effect to the Recapitalization will have (A) good and
marketable title to all of the properties and assets described in the
Offering Memorandum as owned by it, free and clear of all liens,
charges, encumbrances and restrictions (except for Permitted Liens (as
defined in the Indenture) and taxes not yet payable), (B) peaceful and
undisturbed possession under all material leases to which any of them
is a party as lessee and each of which lease is valid and binding and
no default exists thereunder, except for defaults that could not
reasonably be expected to have a Material Adverse Effect, (C) all
licenses, certificates, permits, authorizations, approvals, franchises
and other rights from, and has made all declarations and filings with,
all federal, state and local authorities, all self-regulatory
authorities and all courts and other tribunals (each, an
"Authorization") necessary to engage in the business conducted by any
of them in the manner described in the Offering Memorandum and (D) no
reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any such Authorization. All such
Authorizations are and, after giving effect to the Recapitalization,
will be valid and in full force and effect and each of the Company and
its Subsidiaries is in compliance in all material respects with the
terms and conditions of all such Authorizations and with the rules and
regulations of the regulatory authorities having jurisdiction with
respect thereto. All material leases to which the Company or any of its
Subsidiaries is a party are valid and binding and no default by the
Company or such Subsidiary, as the case may be, has occurred and is
continuing thereunder and, to the best knowledge of the Company and the
Guarantors, no material defaults by the landlord are existing under any
such lease, except those defaults that could not reasonably be expected
to have a Material Adverse Effect.
(xxix) Each of the Company and its Subsidiaries owns,
possesses or has the right to employ all patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, software, systems or procedures), trademarks, service
marks and trade names, inventions, computer programs, technical data
and information (collectively, the "Intellectual Property") presently
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employed by it in connection with the businesses now operated by it or
that are proposed to be operated by it free and clear of and without
violating any right, claimed right, charge, encumbrance, pledge,
security interest, restriction or lien of any kind of any other person,
and none of the Company or any of its Subsidiaries has received any
notice of infringement of or conflict with asserted rights of others
with respect to any of the foregoing, except, in each case, for
violations or notices that could not reasonably be expected to have a
Material Adverse Effect. The use of the Intellectual Property in
connection with the business and operations of the Company or any of
its Subsidiaries does not infringe on the rights of any person, except
as could not reasonably be expected to have a Material Adverse Effect.
(xxx) All material tax returns required to be filed by the
Company or any of its Subsidiaries in all jurisdictions have been so
filed. All material taxes, including withholding taxes, penalties and
interest, assessments, fees and other charges due or claimed to be due
from such entities or that are due and payable have been paid, other
than those being contested in good faith and for which adequate
reserves have been provided or those currently payable without penalty
or interest. To the knowledge of the Company and the Guarantors, there
are no material proposed additional tax assessments against the Company
or any of its Subsidiaries, or the assets or property of the Company or
any of its Subsidiaries, except those tax assessments for which
adequate reserves have been established.
(xxxi) None of the Company or any of its Subsidiaries is and,
after giving effect to the Recapitalization will be an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act").
(xxxii) There are no holders of securities of the Company or
any of its Subsidiaries who, by reason of the execution by the Company
and the Guarantors of this Agreement or any other Operative Document or
the consummation by the Company and the Guarantors of the transactions
contemplated hereby and thereby, have the right to request or demand
that the Company or any of its Subsidiaries register under the Act or
analogous foreign laws and regulations securities held by them, other
than pursuant to the Registration Rights Agreement.
(xxxiii) Each of the Company and its Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that: (A) transactions are executed in accordance with
management's general or specific authorizations; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted
only in accordance with management's general or specific authorization;
and (D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect thereto.
(xxxiv) Each of the Company and its Subsidiaries maintains
insurance covering its properties, operations, personnel and
businesses, insuring against such losses and risks as are consistent
with industry practice to protect the Company and its Subsidiaries and
their respective businesses. None of the Company or any of its
Subsidiaries has received notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures
will have to be made in order to continue such insurance.
(xxxv) None of the Company or any of its Subsidiaries has (A)
taken, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company or any of its
Subsidiaries to facilitate the sale or resale of the Notes or (B) since
the date of the Preliminary Offering Memorandum, (1) sold, bid for,
purchased or paid any person any compensation for soliciting purchases
of the Notes or (2) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of
the Company or any of its Subsidiaries.
(xxxvi) No registration under the Act of the Series A Notes is
required for the sale of the Series A Notes to the Initial Purchasers
as contemplated hereby or for the Exempt Resales assuming (A) that the
purchasers who buy the Series A Notes in the Exempt Resales are
Eligible Purchasers and (B) the accuracy of the Initial Purchasers'
representations regarding the absence of
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<PAGE>
general solicitation in connection with the sale of Series A Notes to
the Initial Purchasers and the Exempt Resales contained herein. No form
of general solicitation or general advertising (as defined in
Regulation D under the Act) was used by the Company, any of the
Guarantors or any of their respective representatives (other than the
Initial Purchasers, as to which the Company and the Guarantors make no
representation or warranty) in connection with the offer and sale of
any of the Series A Notes or in connection with Exempt Resales,
including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium
or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising. No securities of the same class as the Notes or the
Guarantees have been issued and sold by the Company or any of its
Subsidiaries within the six-month period immediately prior to the date
hereof.
(xxxvii) The execution and delivery of this Agreement, the
other Operative Documents and the sale of the Series A Notes to be
purchased by Eligible Purchasers will not involve any prohibited
transaction within the meaning of Section 406 of ERISA or Section 4975
of the Internal Revenue Code of 1986. The representation made by the
Company and the Guarantors in the preceding sentence is made in
reliance upon and subject to the accuracy of, and compliance with, the
representations and covenants made or deemed made by Eligible
Purchasers as set forth in the Offering Memorandum under the caption
"Notice to Investors."
(xxxviii) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, and each amendment or supplement
thereto, as of its date, contains the information specified in, and
meets the requirements of, Rule 144A(d)(4) under the Act.
(xxxix) Prior to the effectiveness of any Registration
Statement, the Indenture is not required to be qualified under the
Trust Indenture Act.
(xl) None of the Company, the Guarantors or any of their
respective affiliates or any person acting on its or their behalf
(other than the Initial Purchasers, as to whom the Company and the
Guarantors make no representation) has engaged or will engage in any
directed selling efforts within the meaning of Regulation S with
respect to the Series A Notes or the Guarantees.
(xli) The Series A Notes offered and sold in reliance on
Regulation S have been and will be offered and sold by the Company only
in offshore transactions.
(xlii) The sale of the Series A Notes pursuant to Regulation S
is not part of a plan or scheme by the Company to evade the
registration provisions of the Act.
(xliii) The Company, the Guarantors and their respective
affiliates and all persons acting on their behalf (other than the
Initial Purchasers, as to whom the Company and the Guarantors make no
representation) have complied with and will comply with the offering
restrictions requirements of Regulation S in connection with the
offering of the Series A Notes outside the United States and, in
connection therewith, the Preliminary Offering Memorandum and the
Offering Memorandum contains or will contain the disclosure required by
Rule 902(h).
(xliv) The Series A Notes sold in reliance on Regulation S
will be represented upon issuance by a temporary global securities that
may not be exchanged for definitive securities until the expiration of
the 40-day restricted period referred to in Rule 903(c)(3) of the Act
and only upon certification of beneficial ownership of such Series A
Notes by non-U.S. persons or U.S. persons who purchased such Series A
Notes in transactions that were exempt from the registration
requirements of the Act.
(xlv) Subsequent to the respective dates as of which
information is given in the Offering Memorandum and up to the Closing
Date, except as set forth in the Offering Memorandum, (A) none of the
Company or any of its Subsidiaries has incurred any liabilities or
obligations, direct or contingent, which are or, after giving effect to
the Recapitalization, will be material, individually or in the
aggregate, to the Company and its Subsidiaries, taken as a whole, nor
entered into any transaction not in the ordinary course of business,
(B) there has not been any change or development which, singly or in
the aggregate, could reasonably be expected to result in a Material
Adverse Effect and (C) there has been no dividend or distribution of
any kind declared, paid or
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made by the Company on any class of its capital stock.
(xlvi) None of the execution, delivery and performance of this
Agreement, the issuance and sale of the Notes, the issuance of the
Guarantees, the application of the proceeds from the issuance and sale
of the Notes and the consummation of the transactions contemplated
thereby as set forth in the Offering Memorandum, will violate
Regulations G, T, U or X promulgated by the Board of Governors of the
Federal Reserve System or analogous foreign laws and regulations.
(xlvii) The accountants who have certified or will certify the
financial statements included or to be included as part of the Offering
Memorandum are independent accountants as required by the Act. The
historical financial statements, together with related schedules and
notes thereto, comply as to form in all material respects with the
requirements applicable to registration statements on Form S-1 under
the Act and present fairly in all material respects the financial
position and results of operations of Holmes and its subsidiaries, and
of Holmes Far East and its subsidiaries at the dates and for the
periods indicated. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods presented. The pro forma
financial statements included in the Offering Memorandum have been
prepared on a basis consistent with such historical statements of
Holmes and Holmes Far East except for the pro forma adjustments
specified therein, and give effect to assumptions made on a reasonable
basis and present fairly in all material respects the historical and
proposed transactions contemplated by this Agreement and the other
Operative Documents; and such pro forma financial statements comply as
to form in all material respects with the requirements applicable to
pro forma financial statements included in registration statements on
Form S-1 under the Act, except as expressly stated therein. The other
financial and statistical information and data included in the Offering
Memorandum derived from the historical and pro forma financial
statements, are accurately presented in all material respects and
prepared on a basis consistent with the financial statements,
historical and pro forma, included in the Offering Memorandum and the
books and records of the Company and its Subsidiaries.
(xlviii) None of the Company or any of the Guarantors intends
to, nor does it believe that it will, incur debts beyond its ability to
pay such debts as they mature. The present fair saleable value of the
assets of each of the Company and the Guarantors exceeds the amount
that will be required to be paid on or in respect of its existing debts
and other liabilities (including contingent liabilities) as they become
absolute and matured. The assets of each of the Company and the
Guarantors do not constitute unreasonably small capital to carry out
its business as conducted or as proposed to be conducted. Upon the
issuance of the Notes and consummation of the Recapitalization, the
present fair saleable value of the assets of each of the Company and
the Guarantors will exceed the amount that will be required to be paid
on or in respect of its existing debts and other liabilities (including
contingent liabilities) as they become absolute and matured. Upon the
issuance of the Notes and the consummation of the Recapitalization, the
assets of each of the Company and the Guarantors will not constitute
unreasonably small capital to carry out its business as now conducted,
including the capital needs of each of the Company and the Guarantors,
taking into account the projected capital requirements and capital
availability. In computing the amount of any such contingent
liabilities at any time, it is intended that such liabilities will be
computed at the amount that, in light of all the facts and
circumstances existing at such time, represents that amount that can
reasonably be expected to become an actual or matured liability.
(xlix) Except pursuant to this Agreement, there are no
contracts, agreements or understandings between the Company and its
Subsidiaries and any other person that would give rise to a valid claim
against the Company or any of its Subsidiaries or the Initial
Purchasers for a brokerage commission, finder's fee or like payment in
connection with the issuance, purchase and sale of the Notes or the
issuance of the Guarantees.
(l) There exist no conditions that would constitute a default
(or an event which with notice or the lapse of time, or both, would
constitute a default) under any of the Operative Documents.
(li) Each certificate signed by any officer of the Company or
any of the Guarantors and delivered to the Initial Purchasers or
counsel for the Initial Purchasers shall be deemed to be a
representation and warranty by the Company or such Guarantor, as the
case may be, to the Initial
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Purchasers as to the matters covered thereby.
The Company and the Guarantors acknowledge that the Initial
Purchasers and, for purposes of the opinions to be delivered to the Initial
Purchasers pursuant to Section 8 hereof, counsel for the Company and the
Guarantors and counsel for the Initial Purchasers, will rely upon the accuracy
and truth of the foregoing representations and hereby consent to such reliance.
(b) Each of the Initial Purchasers, severally and not jointly,
represents, warrants and covenants to the Company and agrees that:
(i) Such Initial Purchaser is a QIB, with such knowledge and
experience in financial and business matters as are necessary in order
to evaluate the merits and risks of an investment in the Series A
Notes.
(ii) Such Initial Purchaser (A) is not acquiring the Series A
Notes with a view to any distribution thereof or with any present
intention of offering or selling any of the Series A Notes in a fashion
that would violate the Act or the securities laws of any state of the
United States or any other applicable jurisdiction and (B) will be
reoffering and reselling the Series A Notes only to QIBs in reliance on
the exemption from the registration requirements of the Act provided by
Rule 144A and in offshore transactions in reliance upon Regulation S
under the Act.
(iii) No form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) has been or will be
used by such Initial Purchaser or any of its representatives in
connection with the offer and sale of any of the Series A Notes,
including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium
or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising.
(iv) Each of the Initial Purchasers agrees that, in connection
with the Exempt Resales, it will solicit offers to buy the Series A
Notes only from, and will offer to sell the Series A Notes only to,
Eligible Purchasers. Each of the Initial Purchasers further (A) agrees
that it will offer to sell the Series A Notes only to, and will solicit
offers to buy the Series A Notes only from (1) Eligible Purchasers that
the Initial Purchasers reasonably believes are QIBs and (2) Reg S
Investors, (B) acknowledges and agrees that, in the case of such QIBs
and such Reg S Investors, such Series A Notes will not have been
registered under the Act and may be resold, pledged or otherwise
transferred only (x)(I) to a person whom the seller reasonably believes
is a QIB purchasing for its own account or for the account of a QIB in
a transaction meeting the requirements of Rule 144A, (II) in an
offshore transaction (as defined in Rule 902 under the Act) meeting the
requirements of Rule 904 under the Act, (III) in a transaction meeting
the requirements of Rule 144 under the Act, (IV) to an Accredited
Investor that, prior to such transfer, furnishes the Trustee a signed
letter containing certain representations and agreements relating to
the registration of transfer of such Series A Notes and, if such
transfer is in respect of an aggregate principal amount of Series A
Notes less than $250,000, an opinion of counsel acceptable to the
Company that such transfer is in compliance with the Act or (V) in
accordance with another exemption from the registration requirements of
the Act (and based upon an opinion of counsel if the Company so
requests), (y) to the Company or any of its Subsidiaries, (z) pursuant
to an effective registration statement under the Act and, in each case,
in accordance with any applicable securities laws of any state of the
United States or any other applicable jurisdiction and (C) acknowledges
that it will, and will notify each subsequent holder that it is
required to, notify any purchaser of the security evidenced thereby of
the resale restrictions set forth in (B) above.
(v) Such Initial Purchaser agrees that it has offered the
Series A Notes and will offer and sell the Series A Notes (A) as part
of its distribution at any time and (B) otherwise until 40 days after
the later of the commencement of the offering of the Series A Notes
pursuant hereto and the Closing Date, only in accordance with Rule 903
of Regulation S or another exemption from the registration requirements
of the Act. Such Initial Purchaser agrees that, during such 40-day
restricted period, it will not cause any advertisement with respect to
the Series A Notes (including any "tombstone" advertisement") to be
published in any newspaper or periodical or posted in any public place
and will not issue any circular relating to the Series A Notes, except
such advertisements as are permitted by and include the statements
required by Regulation S.
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<PAGE>
(vi) Such Initial Purchaser agrees that it has not offered or
sold and will not offer or sell the Series A Notes sold pursuant hereto
in reliance on Regulation S (A) as part of its distribution at any time
and (B) otherwise until 40 days after the later of the commencement of
the offering of the Series A Notes pursuant hereto and the Closing
Date, to a U.S. person (as defined in Rule 902 of the Act) or for the
account or benefit of a U.S. person (other than a distributor (as
defined in Rule 902 of the Act)).
(vii) Such Initial Purchaser agrees that, at or prior to
confirmation of a sale of Series A Notes by it to any distributor,
dealer or person receiving a selling concession, fee or other
remuneration during the 40-day restricted period referred to in Rule
903(c)(3) under the Act, it will send to such distributor, dealer or
person receiving a selling concession, fee or other remuneration a
confirmation or notice to substantially the following effect:
"The Series A Notes covered hereby have not been
registered under the U.S. Securities Act of 1933, as
amended (the "Securities Act"), and may not be
offered and sold within the United States or to, or
for the account or benefit of, U.S. persons (i) as
part of your distribution at any time or (ii)
otherwise until 40 days after the later of the
commencement of the offering and the Closing Date,
except in either case in accordance with Regulation S
under the Securities Act (or Rule 144A or to
Accredited Investors in transactions that are exempt
from the registration requirements of the Securities
Act), and in connection with any subsequent sale by
you of the Series A Notes covered hereby in reliance
on Regulation S during the period referred to above
to any distributor, dealer or person receiving a
selling concession, fee or other remuneration, you
must deliver a notice to substantially the foregoing
effect. Terms used above have the meanings assigned
to them in Regulation S."
(viii) Such Initial Purchaser agrees that the Series A Notes
offered and sold in reliance on Regulation S will be represented upon
issuance by a global security that may not be exchanged for definitive
securities until the expiration of the 40-day restricted period
referred to in Rule 903(c)(3) of the Act and only upon certification of
beneficial ownership of such Series A Notes by non-U.S. persons or U.S.
persons who purchased such Series A Notes in transactions that were
exempt from the registration requirements of the Act.
The Initial Purchasers understand that the Company and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 8 hereof, counsel for the Company and the Guarantors and counsel for the
Initial Purchasers will rely upon the accuracy and truth of the foregoing
representations and hereby consents to such reliance.
6. Indemnification.
(a) The Company and the Guarantors, jointly and severally,
agree to indemnify and hold harmless (i) each of the Initial
Purchasers, (ii) each person, if any, who controls either of the
Initial Purchasers within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and (iii) the respective officers,
directors, partners, employees, representatives and agents of each of
the Initial Purchasers or any controlling person to the fullest extent
lawful, from and against any and all losses, liabilities, claims,
damages and expenses whatsoever (including, but not limited to,
reasonable attorneys' fees and any and all expenses whatsoever incurred
in investigating, preparing or defending against any investigation or
litigation, commenced or threatened, or any claim whatsoever, and any
and all amounts paid in settlement of any claim or litigation), joint
or several, to which they or any of them may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary
Offering Memorandum or the Offering Memorandum, or in any supplement
thereto or amendment thereof, 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 therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that the Company and the Guarantors will
not be liable in any such case to the extent, but only to the extent,
that any such loss, liability, claim, damage or expense arises out of
16
<PAGE>
or is based upon any such untrue statement or alleged untrue statement
or omission or alleged omission made therein in reliance upon and in
conformity with information relating to either of the Initial
Purchasers furnished to the Company in writing by or on behalf of such
Initial Purchaser expressly for use therein. The indemnification
contained in this paragraph (a) with respect to the Preliminary
Offering Memorandum shall not inure to the benefit of any Initial
Purchaser (or to the benefit of any person controlling such Initial
Purchaser) on account of any such loss, liability, claim, damage or
expense (i) arising from the sale of the Notes by such Initial
Purchaser to any person if a copy of an Offering Document shall not
have been delivered or sent to such person, at or prior to the written
confirmation of such sale, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained
in the Offering Document was corrected in a subsequent Offering
Document, provided that the Company has delivered such subsequent
Offering Document to the Initial Purchasers in requisite quantity on a
timely basis to permit such delivery or sending or (ii) resulting from
the use by such Initial Purchaser of any Offering Document referred to
in Section 4(d) hereof when, pursuant to Section 4(d) hereof, such
Initial Purchaser was not permitted to do so; provided that the
exceptions in clauses (i) and (ii) shall not affect the indemnity with
respect to any other Initial Purchaser not otherwise subject to such
exceptions. This indemnity agreement will be in addition to any
liability which the Company and the Guarantors may otherwise have,
including under this Agreement.
(b) Each of the Initial Purchasers, severally and not jointly,
agrees to indemnify and hold harmless (i) the Company and the
Guarantors, (ii) each person, if any, who controls the Company and the
Guarantors within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act, and (iii) the respective officers, directors,
partners, employees, representatives and agents of the Company and the
Guarantors, or any controlling person, against any losses, liabilities,
claims, damages and expenses whatsoever (including, but not limited to,
reasonable attorneys' fees and any and all expenses whatsoever incurred
in investigating, preparing or defending against any investigation or
litigation, commenced or threatened, or any claim whatsoever and any
and all amounts paid in settlement of any claim or litigation), joint
or several, to which they or any of them may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary
Offering Memorandum or the Offering Memorandum, or in any amendment
thereof or supplement 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 therein, in
the light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that
any such loss, liability, claim, damage or expense arises out of or is
based upon any untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity
with information relating to such Initial Purchaser furnished to the
Company in writing by or on behalf of such Initial Purchaser expressly
for use therein; provided, however, that in no case shall either of the
Initial Purchasers be liable or responsible for any amount in excess of
the discounts and commissions received by such Initial Purchaser, as
set forth on the cover page of the Offering Memorandum. This indemnity
will be in addition to any liability which the Initial Purchasers may
otherwise have, including under this Agreement.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection, notify
each party against whom indemnification is to be sought in writing of
the commencement thereof (but the failure so to notify an indemnifying
party shall not relieve it from any liability which it may have under
this Section 6 except to the extent that it has been prejudiced in any
material respect by such failure or from any liability which it may
otherwise have). In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall
have the right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel
shall have been authorized in writing by the indemnifying parties in
connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to take charge
17
<PAGE>
of the defense of such action within a reasonable time after notice of
commencement of the action or (iii) such indemnified party or parties
shall have reasonably concluded based upon the advice of counsel that
there may be defenses available to it or them which are different from
or additional to those available to one or all of the indemnifying
parties (in which case the indemnifying party or parties shall not have
the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and
expenses of counsel shall be borne by the indemnifying parties;
provided, however, that the indemnifying party under subsection (a) or
(b) above shall only be liable for the legal expenses of one counsel
(in addition to any local counsel) for all indemnified parties in each
jurisdiction in which any claim or action is brought. Anything in this
subsection to the contrary notwithstanding, an indemnifying party shall
not be liable for any settlement of any claim or action effected
without its prior written consent, provided that such consent was not
unreasonably withheld.
7. Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 6 is for any reason held to
be unavailable or is insufficient to hold harmless a party indemnified
thereunder, the Company and the Guarantors, on the one hand, and each Initial
Purchaser, on the other hand, shall contribute to the aggregate losses, claims,
damages, liabilities and expenses of the nature contemplated by such
indemnification provision (including any investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claims asserted, but after deducting in the case of
losses, claims, damages, liabilities and expenses suffered by the Company and
the Guarantors, any contribution received by the Company and the Guarantors from
persons, other than the Initial Purchasers, who may also be liable for
contribution, including persons who control the Company and the Guarantors
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act) to which the Company, the Guarantors and such Initial Purchaser may be
subject, in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Guarantors, on one hand, and such Initial
Purchaser, on the other hand, from the offering of the Series A Notes or, if
such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 6, in such proportion as is appropriate to reflect not only
the relative benefits referred to above but also the relative fault of the
Company and the Guarantors, on one hand, and such Initial Purchaser, on the
other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Guarantors, on one hand, and each Initial Purchaser, on the other hand,
shall be deemed to be in the same proportion as (i) the total proceeds from the
offering of Series A Notes (net of discounts but before deducting expenses)
received by the Company and the Guarantors and (ii) the discounts and
commissions received by such Initial Purchaser, respectively, in each case as
set forth in the table on the cover page of the Offering Memorandum. The
relative fault of the Company and the Guarantors, on one hand, and of each
Initial Purchaser, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Guarantors or such Initial Purchaser
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Guarantors and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to above. Notwithstanding the provisions
of this Section 7, (i) in no case shall either of the Initial Purchasers be
required to contribute any amount in excess of the amount by which the discounts
and commissions applicable to the Series A Notes purchased by such Initial
Purchaser pursuant to this Agreement exceeds the amount of any damages which
such Initial Purchaser has otherwise been required to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 7, (A)
each person, if any, who controls either of the Initial Purchasers within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and (B)
the respective officers, directors, partners, employees, representatives and
agents of each of the Initial Purchasers or any controlling person shall have
the same rights to contribution as such Initial Purchaser, and (A) each person,
if any, who controls the Company and the Guarantors within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and (B) the
respective officers, directors, partners, employees, representatives and agents
of the Company and the Guarantors shall have the same rights to contribution as
the Company and the Guarantors, subject in each case to clauses (i) and (ii) of
this Section 7. Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for
18
<PAGE>
contribution may be made against another party or parties under this Section 7,
notify such party or parties from whom contribution may be sought, but the
failure to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 7 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its prior
written consent, provided that such written consent was not unreasonably
withheld.
8. Conditions of Initial Purchasers' Obligations. The obligations of
the Initial Purchasers to purchase and pay for the Series A Notes, as provided
herein, shall be subject to the satisfaction of the following conditions:
(a) All of the representations and warranties of the Company
and the Guarantors contained in this Agreement shall be true and
correct on the date hereof and on the Closing Date (after giving effect
to the Recapitalization) with the same force and effect as if made on
and as of the date hereof and the Closing Date, respectively. Each of
the Company and the Guarantors shall have performed or complied with
all of the agreements herein contained and required to be performed or
complied with by it at or prior to the Closing Date.
(b) The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchasers not later than 10:00 a.m., New
York City time, on the second business day following the date of this
Agreement or at such later date and time as to which the Initial
Purchasers may agree, and no stop order suspending the qualification or
exemption from qualification of the Series A Notes in any jurisdiction
referred to in Section 4(e) shall have been issued and no proceeding
for that purpose shall have been commenced or shall be pending or
threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the
issuance of the Series A Notes or the Guarantees or the consummation of
the Recapitalization; no action, suit or proceeding shall have been
commenced and be pending against or affecting or, to the best knowledge
of the Company and the Guarantors, threatened against, the Company or
any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official that, if adversely determined,
could reasonably be expected to adversely affect the issuance of the
Series A Notes or the Guarantees or the consummation of the
Recapitalization; and no stop order shall have been issued preventing
the use of the Offering Memorandum, or any amendment or supplement
thereto, or which could reasonably be expected to have a Material
Adverse Effect.
(d) Since the dates as of which information is given in the
Offering Memorandum, (i) there shall not have been any material adverse
change, or any development that is reasonably likely to result in a
material adverse change, in the capital stock or the long-term debt, or
material increase in the short-term debt, of the Company or any of its
Subsidiaries from that set forth in the Offering Memorandum, (ii) no
dividend or distribution of any kind shall have been declared, paid or
made by the Company or any of its Subsidiaries on any class of its
capital stock and (iii) none of the Company or any of its Subsidiaries
shall have incurred any liabilities or obligations, direct or
contingent, that are or, after giving effect to the Recapitalization,
will be material, individually or in the aggregate, to the Company and
its Subsidiaries, taken as a whole, and that are required to be
disclosed on a balance sheet or notes thereto in accordance with
generally accepted accounting principles and are not disclosed on the
latest balance sheet or notes thereto included in the Offering
Memorandum. Since the date hereof and since the dates as of which
information is given in the Offering Memorandum, there shall not have
occurred any material adverse change in the business, prospects,
financial condition or results of operation of the Company and its
Subsidiaries, taken as a whole.
(e) The Initial Purchasers shall have received certificates,
dated the Closing Date, signed on behalf of the Company and the
Guarantors, in form and substance satisfactory to the Initial
Purchasers, confirming, as of the Closing Date, the matters set forth
in paragraphs (a), (b), (c) and (d) of this Section 8 and that, as of
the Closing Date, the obligations of the Company and the Guarantors to
be performed hereunder on or prior thereto have been duly performed.
(f) The Initial Purchasers shall have received on the Closing
Date an opinion, dated the Closing Date, in form and substance
satisfactory to the Initial Purchasers and counsel for the Initial
19
<PAGE>
Purchasers, of Posternak, Blankstein & Lund, L.L.P., counsel for the
Company and the Guarantors, to the effect set forth in Exhibit D
hereto.
(g) At the time this Agreement is executed and at the Closing
Date, the Initial Purchasers shall have received from Price Waterhouse
LLP, independent public accountants, dated as of the date of this
Agreement and as of the Closing Date, customary comfort letters
addressed to the Initial Purchasers and in form and substance
satisfactory to the Initial Purchasers and counsel for the Initial
Purchasers with respect to the combined financial statements and
certain financial information of Holmes and its subsidiaries, and of
Holmes Far East and its subsidiaries, contained in the Offering
Memorandum.
(h) The Initial Purchasers shall have received an opinion,
dated the Closing Date, in form and substance reasonably satisfactory
to the Initial Purchasers, of Latham & Watkins, counsel for the Initial
Purchasers, covering such matters as are customarily covered in such
opinions.
(i) Latham & Watkins shall have been furnished with such
documents, in addition to those set forth above, as they may reasonably
require for the purpose of enabling them to review or pass upon the
matters referred to in this Section 8 and in order to evidence the
accuracy, completeness or satisfaction in all material respects of any
of the representations, warranties or conditions herein contained.
(j) Prior to the Closing Date, the Company and the Guarantors
shall have furnished to the Initial Purchasers such further
information, certificates and documents as the Initial Purchasers may
reasonably request.
(k) The Company, the Guarantors and the Trustee shall have
entered into the Indenture and the Initial Purchasers shall have
received counterparts, conformed as executed, thereof.
(l) The Company and the Guarantors shall have entered into the
Registration Rights Agreement and the Initial Purchasers shall have
received counterparts, conformed as executed, thereof.
(m) The Recapitalization and the Credit Facility shall be
consummated prior to, or simultaneously with, the Closing of the
Offering on substantially the terms described in the Offering
Memorandum and the Initial Purchasers shall have received counterparts,
conformed as executed, of each of the Transaction Agreements and the
Credit Facility and such other documentation as they deem necessary to
evidence the consummation thereof.
(n) Any applicable waiting period under the Hart Scott Rodino
act shall have been expired or terminated.
(o) All of the opinions to be delivered by the Company and the
Guarantors pursuant to the Credit Facility and the Redemption Agreement
shall be addressed and delivered to the Initial Purchasers.
(p) There shall not have been any announcement by any
"nationally recognized statistical rating organization," as defined for
purposes of Rule 463(g) under the Securities Act, that (i) it is
downgrading its rating assigned to any class of securities of the
Company or (ii) it is reviewing its ratings assigned to any class of
securities of the Company with a view to possible downgrading, or with
negative implications, or direction not determined.
(q) The Notes shall have been approved for trading on PORTAL.
All opinions, certificates, letters and other documents
required by this Section 8 to be delivered by the Company and the Guarantors
will be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Initial Purchasers. The Company and
the Guarantors shall furnish the Initial Purchasers with such conformed copies
of such opinions, certificates, letters and other documents as they shall
reasonably request.
9. Initial Purchasers' Information. The Company and the Guarantors
acknowledge that the
20
<PAGE>
statements with respect to the offering of the Series A Notes set forth in the
last paragraph of the cover page and the third paragraph and the third sentence
of the fourth paragraph under the caption "Plan of Distribution" in the Offering
Memorandum constitute the only information relating to any of the Initial
Purchasers furnished to the Company in writing by or on behalf of any of the
Initial Purchasers expressly for use in the Offering Memorandum.
10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Initial Purchasers, the Company and
the Guarantors contained in this Agreement, including the agreements contained
in Sections 4(f) and 11(d), the indemnity agreements contained in Section 6 and
the contribution agreements contained in Section 7, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
either of the Initial Purchasers, any controlling person thereof, or by or on
behalf of the Company and the Guarantors or any controlling person thereof, and
shall survive delivery of and payment for the Series A Notes to and by the
Initial Purchasers. The representations contained in Section 5 and the
agreements contained in Sections 4(f), 6, 7 and 11(d) shall survive the
termination of this Agreement, including any termination pursuant to Section 11.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective upon execution and
delivery of a counterpart hereof by each of the parties hereto.
(b) The Initial Purchasers shall have the right to terminate
this Agreement at any time prior to the Closing Date by notice to the
Company from the Initial Purchasers, without liability (other than with
respect to Sections 6 and 7) on the Initial Purchasers' part to the
Company or any of the Guarantors if, on or prior to such date, (i) the
Company or any of the Guarantors shall have failed, refused or been
unable to perform in any material respect any agreement on their part
to be performed hereunder, (ii) any other condition to the obligations
of the Initial Purchasers hereunder as provided in Section 8 is not
fulfilled when and as required in any material respect, (iii) in the
reasonable judgment of the Initial Purchasers, any material adverse
change shall have occurred since the respective dates as of which
information is given in the Offering Memorandum in the condition
(financial or otherwise), business, properties, assets, liabilities,
prospects, net worth, results of operations or cash flows of the
Company and its Subsidiaries, taken as a whole, other than as set forth
in the Offering Memorandum, or (iv)(A) any domestic or international
event or act or occurrence has materially disrupted, or in the opinion
of the Initial Purchasers will in the immediate future materially
disrupt, the market for the Company's securities or for securities in
general; or (B) trading in securities generally on the New York or
American Stock Exchange shall have been suspended or materially
limited, or minimum or maximum prices for trading shall have been
established, or maximum ranges for prices for securities shall have
been required, on such exchange, or by such exchange or other
regulatory body or governmental authority having jurisdiction; or (C) a
banking moratorium shall have been declared by federal or state
authorities, or a moratorium in foreign exchange trading by major
international banks shall have been declared; or (D) there is an
outbreak or escalation of armed hostilities involving the United States
on or after the date hereof, or if there has been a declaration by the
United States of a national emergency or war, the effect of which shall
be, in the Initial Purchasers' judgment, to make it inadvisable or
impracticable to proceed with the offering or delivery of the Series A
Notes on the terms and in the manner contemplated in the Offering
Memorandum; or (E) there shall have been such a material adverse change
in general economic, political or financial conditions or if the effect
of international conditions on the financial markets in the United
States shall be such as, in the Initial Purchasers' judgment, makes it
inadvisable or impracticable to proceed with the delivery of the Series
A Notes as contemplated hereby.
(c) Any notice of termination pursuant to this Section 11
shall be by telephone or telephonic facsimile and, in either case,
confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of
the provisions hereof (otherwise than pursuant to clause (iv) of
Section 11(b), in which case each party will be responsible for its own
expenses), or if the sale of the Series A Notes provided for herein is
not consummated because any condition to the obligations of the Initial
Purchasers set forth herein is not satisfied or because of any refusal,
inability or failure on the part of the Company or any of the
Guarantors to perform any agreement herein or comply with any provision
hereof, the Company
21
<PAGE>
and the Guarantors shall reimburse the Initial Purchasers for all
out-of-pocket expenses (including the reasonable fees and expenses of
the Initial Purchasers' counsel), incurred by the Initial Purchasers in
connection herewith.
12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the Initial
Purchasers shall be mailed, delivered, telecopied and confirmed in writing or
sent by a nationally recognized overnight courier service guaranteeing delivery
on the next business day to BancBoston Securities Inc., 100 Federal Street,
Boston, Massachusetts 02110, Attention: Corporate Finance Department, telecopy
number: (617) 434-0624, with a copy to Latham & Watkins, 885 Third Avenue, Suite
1000, New York, New York 10022, Attention: Ian B. Blumenstein, telecopy number:
(212) 751-4864; and if sent to the Company or any of the Guarantors, shall be
mailed, delivered, telecopied and confirmed in writing or sent by a nationally
recognized overnight courier service guaranteeing delivery on the next business
day to Holmes Products Corp., 233 Fortune Boulevard, Milford, Massachusetts
01757, Attention: Chief Financial Officer, telecopy number: (508) 634-1211, with
copies to Posternak, Blankstein & Lund, L.L.P., 100 Charles River Plaza, Boston,
Massachusetts 02114, Attention: Donald H. Siegel P.C., telecopy number: (617)
367-2315 and Hutchins, Wheeler & Dittmar, P.C., 101 Federal Street, Boston,
Massachusetts 02110, Attention: Jim Westra, telecopy number: (617) 951-1295.
13. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Initial Purchasers, the Company and the Guarantors
and the controlling persons and agents referred to in Sections 6 and 7, and
their respective successors and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained. The
term "successors and assigns" shall not include a purchaser, in its capacity as
such, of Notes from the Initial Purchasers.
14. Construction. This Agreement shall be construed in accordance with
the internal laws of the State of New York. TIME IS OF THE ESSENCE IN THIS
AGREEMENT.
15. Captions. The captions included in this Agreement are included
solely for convenience of reference and are not to be considered a part of this
Agreement.
16. Counterparts. This Agreement may be executed in various
counterparts which together shall constitute one and the same instrument.
[Signature page to follow]
22
<PAGE>
If the foregoing correctly sets forth the understanding among
the Initial Purchasers, the Company and the Guarantors please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
HOLMES PRODUCTS CORP.
By: /s/ Jordan A. Kahn
----------------------
Name: Jordan A. Kahn
Title: President
HOLMES MANUFACTURING CORP.
By: /s/ Jordan A. Kahn
----------------------
Name: Jordan A. Kahn
Title: President
HOLMES AIR (TAIWAN) CORP.
By: /s/ Jordan A. Kahn
----------------------
Name: Jordan A. Kahn
Title: President
<PAGE>
Accepted and agreed to as
of the date first above written:
BANCBOSTON SECURITIES INC.
By: /s/ David Weinstein
------------------------
Name: David Weinstein
Title: Managing Director
LEHMAN BROTHERS INC.
By: /s/ John Russell
------------------------
Name: John Russell
Title:
<PAGE>
EXHIBIT B
List of Guarantors
Holmes Manufacturing Corp., a Massachusetts corporation.
Holmes Air (Taiwan) Corp., a Massachusetts corporation.
A-2
<PAGE>
EXHIBIT C
List of Subsidiaries of the Company other than the Guarantors
Holmes Air (Canada) Corp., an Ontario corporation.
Holmes Products (Far East) Limited, a Bahamas corporation.
Esteem Industries Ltd., a Hong Kong corporation.
Raider Motor Corp., a Bahamas corporation.
Dongguan Huixin Electrical Products Company, Ltd., a China corporation.
Dongguan Raider Motor Corp. Ltd., a China corporation.
B-1
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF ORGANIZATION
(Under G. L. Ch. 156B)
Incorporators
NAME POST OFFICE ADDRESS
- ---- -------------------
Include given name in full in case of natural persons; in case of corporation,
give state of incorporation.
Donald H. Siegel 100 Charles River Plaza
Boston, MA 02114
The above-named incorporator(s) do hereby associate (themselves) with the
intention of forming a corporation under the provisions of General Laws, Chapter
156B and hereby state(s):
1. The name of the corporation is:
J.K. Trading Corp.
2. The purpose of the corporation is to engage in the following business
activities:
To import and export goods, products an services; to buy, sell,
manufacture, distribute, warehouse, market and otherwise deal in, or offer goods
and products and services of all kinds and to carry on any and all activities
necessary, related or incidental thereto.
To carry on any business and engage in any other activity, whether or
not related to those in the foregoing paragraph, which may be permitted by the
laws of the Commonwealth of Massachusetts to a corporation organized under
Chapter 156B of the General Laws of Massachusetts, as the same may be amended
from time to time.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one article may be continued on a single sheet so long as each article
requiring each such addition is clearly indicated.
<PAGE>
3. The total shares and the par value, if any, of each class of stock within the
corporation is authorized as follows:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common: 15,000 Common:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established.
None.
*5. The restrictions, if any, imposed by the Articles of Organization upon
the transfer of shares of stock of any class are as follows:
None.
*6. Other lawful provisions, if any, for the conduct and regulation of
business and affairs of the corporation, for its voluntary dissolution,
or for limiting, defining, or regulating the powers of the corporation,
or of its directors or stockholders, of any class of stockholders:
See Continuation Sheet 6A.
If there are no provisions, sate "None".
<PAGE>
7. By-laws of the corporation have been duly adopted and the initial
directors, president, treasurer and clerk, whose names are set out
below, have been duly elected.
8. The effective date of the organization of the corporation shall be the
date of filing with the Secretary of the Commonwealth or later
effective date is desired, specify date (not more than 30 days after
the date of filing).
9. The following information shall not for any purpose be treated as a
permanent part of the Articles of Organization of the corporation.
a. The post office address of the initial principal office of the corporation in
Massachusetts is:
3 Lockland Avenue, Framingham, MA 01701
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
<TABLE>
<CAPTION>
NAME RESIDENCE POST OFFICE ADDRESS
<S> <C> <C> <C>
President: Jordan Kahn 2 Cahill Park Drive 3 Lockland Avenue
Framingham, MA 01701 Framingham, MA 01701
Treasurer: Jordan Kahn 2 Cahill Park Drive 3 Lockland Avenue
Framingham, MA 01701 Framingham, MA 01701
Clerk: Donald H. Siegel 122 Nehoiden Road 100 Charles River Park
Waban, MA 02168 Boston, MA 02114
Directors: Jordan Kahn Framingham, MA 01701 3 Lockland Avenue
Susan Kahn Framingham, MA 01701 Framingham, MA 01701
Fasih Kahlid 62 Wingate Road
Holliston, MA 01746
</TABLE>
c. The date initially adopted on which the corporation's fiscal year end is:
Last day of January
d. The date initially fixed in the By-Laws for the annual meeting of
stockholders of the corporation is:
Second Tuesday in May
e. The name and business address of the resident agent, if any, of the
corporation is:
N/A
IN WITNESS WHEREOF and under the penalties of perjury, sign(s) these Articles of
Organization this 4th day of February, 1982 .
/s/ Donald H. Siegel
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The signature of each incorporator which is not a natural person must be an
individual who shall show the capacity in which he acts and by signing shall
represent under the penalties of perjury that he is duly authorized on its
behalf to assign these Articles of Organization.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 156B, SECTION 12
================================================================================
I hereby certify that, upon examination the within-written articles of
organization, duly submitted to me, it appears that the provisions of the
General Laws relative to the organization of corporations have been complied
with, and I hereby approve said articles; and the filing fee in the amount of
$150.00 having been paid, said articles are deemed to have been filed with me
this 5th day of February, 1982.
Effective date: /s/ Michael Joseph Connolly
---------------------------
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF ORGANIZATION TO BE SENT
TO: Donald H. Siegel, Esq.
---------------------------------------------------
c/o Posternak, Blankstein & Lund, L.L.P.
---------------------------------------------------
100 Charles River Plaza
---------------------------------------------------
Boston, MA 02114
---------------------------------------------------
Telephone: (617) 367-9595
----------------------------------------
FILING FEE: 1/20 of 1% of the total amount of authorized capital stock without
par value, but not less than $150.00 General Laws, Chapter 156B, shares of stock
with a par value less than one dollar shall be deemed to have a par value of one
dollar per share.
<PAGE>
HOLMES MANUFACTURING CORP.
ARTICLES OF ORGANIZATION
Continuation Sheet 6A
The Board of Directors of the Corporation may make, amend, or repeal
the By-Laws of the Corporation, in whole or in part, except with respect to any
provision thereof which, by law, the Articles of Organization, or the By-Laws,
require action exclusively by the Stockholders entitled to vote thereon; but any
By-Law adopted by the Board of Directors may be amended or repealed by the
Stockholders.
All meetings of Stockholders of the Corporation may be held within the
Commonwealth of Massachusetts or elsewhere within the United States. The place
of such meetings shall be fixed in, or determined in the manner provided in, the
By-Laws.
The Corporation may be a partner, general or limited, in any business
enterprise which it would have the power to conduct by itself.
A Director of this Corporation shall not be personally liable to the
Corporation or its Stockholders for monetary damages for breach of fiduciary
duty as a Director, notwithstanding any provision of law imposing such
liability, except for liability (i) for any breach of the Director's duty of
loyalty to the Corporation or Stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 61 or 62 of Chapter 156B of the Massachusetts General
Laws, or (iv) for any transaction from which the Director derived an improper
personal benefit.
Any repeal or modification of the foregoing paragraph by the
Stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
================================================================================
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-2768914
----------
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth within
sixty days after the date of the vote of stockholders adopting the amendment.
The fee for filing this certificate is prescribed by General Laws, Chapter 156B,
Section 114. Make check payable to the Commonwealth of Massachusetts.
--------------------
We, Jordan A. Kahn , President
Donald H. Siegel , Clerk
J. K. TRADING CORP.
- --------------------------------------------------------------------------------
(Name of Corporation)
located at 3 Lockland Avenue, Framingham, MA 01701
---------------------------------------------------------------------
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on , 1984, by vote of
51 shares of Common out of 51 shares outstanding,
- ------- ---------------- ------
(Class of Stock)
shares of out of shares outstanding, and
- ------- ---------------- ------
(Class of Stock)
shares of out of shares outstanding,
- ------- ---------------- ------
(Class of Stock)
being at least a majority of each class outstanding and entitled to vote
thereon:(1)
That the Articles of Organization of this Corporation be amended to change the
name of this Corporation to HOLMES PRODUCTS CORP. and that the proper officers
of this Corporation be, and they hereby are, authorized and empowered to execute
and file Articles of Amendment with the Secretary of the Commonwealth of
Massachusetts to effectuate this amendment.
(1) For amendments adopted pursuant to Chapter 156B, Section 70.
(2) For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth on separate 8-1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one Amendment may be continued on a single sheet so long as each
Amendment requiring each such addition is clearly indicated.
<PAGE>
FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING:
The amount of capital stock already authorized is:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common: Common:
- --------------------------------------------------------------------------------
Class A 7,500
- --------------------------------------------------------------------------------
Class B 7,500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Change the total authorized to:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common: 15,000 Common:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of the General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 2nd day of March , 1984.
- -------------------------------------------------------------, President
Jordan A. Kahn
- -------------------------------------------------------------, Clerk
Donald H. Siegel
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and, the filing fee in the
amount of $ __________ having been paid, said articles are deemed to have been
filed with me this ________ day of _______________, 19___.
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
Photo Copy of Amendment to Be Sent
TO: Donald H. Siegel, P.C.
-----------------------------------------------------
Posternak, Blankstein & Lund, L.L.P.
-----------------------------------------------------
100 Charles River Plaza
-----------------------------------------------------
Boston, MA 02114
-----------------------------------------------------
Telephone: (617) 367-9595
----------------------------------------
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-2768914
----------
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth within
sixty days after the date of the vote of stockholders adopting the amendment.
The fee for filing this certificate is prescribed by General Laws, Chapter 156B,
Section 114. Make check payable to the Commonwealth of Massachusetts.
--------------------
We, Jordan A. Kahn , President
Donald H. Siegel , Clerk
HOLMES PRODUCTS CORP.
- --------------------------------------------------------------------------------
(Name of Corporation)
located at Seven October Hill Road, Holliston, MA 01746
---------------------------------------------------------------------
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on March 17, 1987, by vote
of
490 shares of Class A Common out of 490 shares outstanding,
- ----- -------------------- -----
(Class of Stock)
510 shares of Class B Common out of 510 shares outstanding, and
- ----- -------------------- -----
(Class of Stock)
shares of out of shares outstanding,
- ----- -------------------- -----
(Class of Stock)
being at least two-thirds of each class outstanding and
entitled to vote thereon and of each class or series of stock whose rights are
adversely affected thereby:(1)
SEE INSERT A
<PAGE>
The amount of capital stock already authorized is:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common: Common:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Change the total authorized to:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common: Common:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of the General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 6th day of March , 1987.
- ----------------------------------------------------------------, President
Jordan A. Kahn
- ----------------------------------------------------------------, Clerk
Donald H. Siegel
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and, the filing fee in the
amount of $ __________ having been paid, said articles are deemed to have been
filed with me this ________ day of _______________, 19___.
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
Photo Copy of Amendment to Be Sent
TO: Donald H. Siegel, Esq.
---------------------------------------------------
c/o Posternak, Blankstein & Lund, L.L.P.
---------------------------------------------------
100 Charles River Plaza
---------------------------------------------------
Boston, MA 02114
---------------------------------------------------
Telephone: (617) 367-9595
----------------------------------------
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-2768914
----------
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth within
sixty days after the date of the vote of stockholders adopting the amendment.
The fee for filing this certificate is prescribed by General Laws, Chapter 156B,
Section 114. Make check payable to the Commonwealth of Massachusetts.
--------------------
We, Jordan A. Kahn , President
Donald H. Siegel , Clerk
HOLMES PRODUCTS CORP.
- --------------------------------------------------------------------------------
(Name of Corporation)
located at 3 Lockland Avenue, Framingham, Massachusetts 01701
---------------------------------------------------------------------
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted by unanimous written consent of Stockholders
dated January 16, 1985, by vote of:
51 shares of Common out of 51 shares outstanding,
- ---- --------------------- ----
(Class of Stock)
shares of Class B Common out of shares outstanding, and
- ---- --------------------- ----
(Class of Stock)
shares of out of shares outstanding,
- ---- --------------------- ----
(Class of Stock)
being at least two-thirds of each class outstanding and
entitled to vote thereon and of each class or series of stock whose rights are
adversely affected thereby:(1)
SEE INSERT A
<PAGE>
The amount of capital stock already authorized is:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common: 15,000 Common:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Change the total authorized to:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common: Common:
- --------------------------------------------------------------------------------
Class A 7,500
Class B 7,500
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of the General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 18th day of January , 1985.
- ----------------------------------------------------------------, President
Jordan A. Kahn
- ----------------------------------------------------------------, Clerk
Donald H. Siegel
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and, the filing fee in the
amount of $ __________ having been paid, said articles are deemed to have been
filed with me this ________ day of _______________, 19___.
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
Photo Copy of Amendment to Be Sent
TO: Donald H. Siegel, Esq.
---------------------------------------------------
c/o Posternak, Blankstein & Lund, L.L.P.
---------------------------------------------------
100 Charles River Plaza
---------------------------------------------------
Boston, MA 02114
---------------------------------------------------
Telephone: (617) 367-9595
----------------------------------------
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-2768914
----------
THE COMMONWEALTH OF MASSACHUSETTS
Office of the Secretary of State
Michael J. Connolly, Secretary
One Ashburton Place, Boston, Massachusetts 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
We, Jordan A. Kahn , *President
--------------------------------------------------------------
and Donald H. Siegel , *Clerk
--------------------------------------------------------------
of Holmes Products Corp. ,
-----------------------------------------------------------------------
(Exact name of corporation)
located at 233 Fortune Boulevard, Milford, MA 01757 ,
---------------------------------------------------------------
(Street address of corporation in Massachusetts)
do hereby certify that these ARTICLES OF AMENDMENT affecting articles NUMBERED:
3 & 4
- --------------------------------------------------------------------------------
(Number those articles 1, 2, 3,4, 5, and/or 6 being amended hereby)
by unanimous written consent
of the Articles of Organization were duly adopted on June 21, 1993, by vote of:
------- ----
490 shares of Class A Common out of 490 shares outstanding,
- ----- --------------------------- ----
(type, class & series, if any)
510 shares of Class B Common out of 510 shares outstanding, and
- ----- --------------------------- ----
(type, class & series, if any)
shares of out of shares outstanding,
- ----- --------------------------- ----
(type, class & series, if any)
2** being at least two-thirds of each type, class or series outstanding and
entitled to vote thereon and of each type, class or series of stock whose rights
are adversely affected thereby:
*Delete the inapplicable words. ** Delete the inapplicable clause.
(1) For amendments adopted pursuant to Chapter 156B, Section 70.
(2) For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate 8-1/2 x
11 sheets of paper with a left margin of at least 1 inch. Additions to more than
one article may be made on a single sheet so long as each article requiring each
addition is clearly indicated.
<PAGE>
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common: Common:
- --------------------------------------------------------------------------------
Class A 7,500
- --------------------------------------------------------------------------------
Class B 7,500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common: 15,000 Common:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
and to eliminate in their entirety all of the special rights, privileges and
preferences inuring to the holders of Class A Common Stock and Class B Common
Stock, as such separate classes of stock shall no longer exist from and after
the effective date of the filing of these Articles of Amendment, and that
effective upon the filing of these Articles of Amendment, all presently issued
and outstanding shares of Class A Stock and Class B Stock shall thereby, without
the necessity of any further action, be converted into a like number of shares
of Common Stock, and that the proper officers of the Corporation be, and they
hereby are, authorized and directed to issue to the holders of Class A Stock and
Class B Stock a replacement certificate for an equal number of shares of Common
Stock upon surrender of their stock certificates evidencing their shares of
Class A Stock and Class B Stock.
<PAGE>
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with General Laws, Chapter 156B, Section 6 of The
General Laws unless these articles specify, in accordance with the vote adopting
the amendment, a later effective date not more than thirty days after such
filing, in which event the amendment will become effective on such later date.
Later effective date: .
-----------------------------------------
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this 21st day of June, 1993.
/s/ Jordan A. Kahn , *President
- ---------------------------------------------------------
Jordan A. Kahn
/s/ Donald H. Siegel , *Clerk
- ---------------------------------------------------------
Donald H. Siegel
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 72)
===================================================
I hereby approve the within articles of amendment and, the filing fee in the
amount of $___________ having been paid, said article is deemed to have been
filed with me this ________ day of ________________, 19____.
MICHAEL J. CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT
TO BE SENT:
Andrew B. White, Esq.
-------------------------------------------------------
Posternak, Blankstein & Lund, L.L.P.
-------------------------------------------------------
100 Charles River Plaza
-------------------------------------------------------
Boston, MA 02114
-------------------------------------------------------
Telephone: (617) 973-6100
-------------------------------------------------------
D
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF ORGANIZATION
(Under G. L. Ch. 156B)
Incorporators
ARTICLE I The name of
the corporation is:
Holmes Manufacturing Corp.
ARTICLE II
The purpose of the corporation is to engage in the following business
activities:
To make, manufacture, produce, prepare, process, purchase, or otherwise acquire,
hold, own, use, sell, import, export, distribute, trade or deal in and with
goods and appliances of all kinds, including seasonal items; and
To engage in any other business or activity permitted to a corporation organized
under Chapter 156B of the Massachusetts General Laws.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate 8-1/2 x
11 sheets of paper with a left margin of at least 1 inch. Additions to more than
one article may be made on a single sheet so long as each article requiring each
addition is clearly indicated.
<PAGE>
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to use:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common: 200,000 Common: ------- -------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: ------ Preferred: ------- -------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
None.
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None.
ARTICLE VI
**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, of any class of stockholders:
See Continuation Sheet 6A.
**If there are no provisions state "None".
Note: The preceding six (6) articles are considered to be permanent and may ONLY
be changed by filing appropriate Articles of Amendment.
<PAGE>
ARTICLE VII
The effective date of the restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
later effective date is desired, specify such date which shall not be more than
thirty (30) days after the date of filing.
ARTICLE VIII
The information contained in Article VIII is not a permanent part of the
Articles of Organization.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is:
233 Fortune Boulevard, Milford, MA 01757
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
President: Jordan A. Kahn 21 Pierce Road, Wellesley, MA 02181
Treasurer: Jordan A. Kahn 21 Pierce Road, Wellesley, MA 02181
Clerk: Donald H. Siegel 122 Nehoiden Road, Waban, MA 02168
Directors: Jordan A. Kahn 21 Pierce Road, Wellesley, MA 02181
c. The fiscal year (i.e., tax year) of the corporation shall end on the last day
of the month of: December
d. The name and business address of the resident agent, if any, of the
corporation is: None.
ARTICLE IX
By-laws of the corporation have been duly adopted and the president, treasurer,
clerk and directors whose names are set forth above, have been duly elected.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, I/we, whose signature(s)
appear below as incorporator(s) and whose name(s) and business or residential
address(es) are clearly typed or printed beneath each signature do hereby
associate with the intention of forming this corporation under the provisions of
General Laws, Chapter 156B and do hereby sign these Articles of Organization as
incorporator(s) this _____ day of April, 1993,
/s/ Donald H. Siegel
- --------------------------------------------------------------------------------
Donald H. Siegel, Sole Incorporator
- --------------------------------------------------------------------------------
Posternak, Blankstein & Lund, L.L.P.
- --------------------------------------------------------------------------------
100 Charles River Plaza
- --------------------------------------------------------------------------------
Boston, MA 02114
- --------------------------------------------------------------------------------
Note: If an existing corporation is acting as incorporator, type in the exact
name of the corporation, the state or other jurisdiction where it was
incorporated, the name of the person signing on behalf of said corporation and
the title he/she holds or other authority by which such action is taken.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B)
============================================================
I hereby certify that, upon examination of these Articles of Organization, duly
submitted to me, it appears that the provisions of the General Laws relative to
the organization of corporations have been complied with, and I hereby approve
said articles; and the filing fee in the amount of $200.00 having been paid,
said articles are deemed to have been filed with me this 12th day of May , 1993.
Effective date: /s/ Michael Joseph Connolly
------------------------------------------
MICHAEL JOSEPH CONNOLLY
Secretary of the Commonwealth
FILING FEE: 1/10th of the total amount of authorized capital stock, but not less
than $200,000. For the purpose of filing, shares of stock with a par value less
than one dollar, or no par stock shall be deemed to have a par value of one
dollar per share.
PHOTOCOPY OF ARTICLES OF ORGANIZATION TO BE SENT TO:
Donald H. Siegel, P.C.
- --------------------------------------------------------------------------------
Posternak, Blankstein & Lund, L.L.P.
- --------------------------------------------------------------------------------
100 Charles River Plaza
- --------------------------------------------------------------------------------
Boston, MA 02114
- --------------------------------------------------------------------------------
Telephone: (617) 367-9595
- --------------------------------------------------------------------------------
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF ORGANIZATION
(Under G. L. Ch. 156B)
Incorporators
NAME POST OFFICE ADDRESS
- ---- -------------------
Include given name in full in case of natural persons; in case of corporation,
give state of incorporation.
Keith D. Lind 100 Charles River Plaza
Boston, MA 02114
The above-named incorporator(s) do hereby associate (themselves) with the
intention of forming a corporation under the provisions of General Laws, Chapter
156B and hereby state(s):
1. The name of the corporation is:
Holmes Air (Taiwan) Corp.
2. The purpose of the corporation is to engage in the following business
activities:
To import and export goods, products and services, without limiting the
generality of the foregoing, to and from the United States and Taiwan,
as well as other countries; and
To buy, sell, manufacture, distribute, warehouse, market and otherwise
deal in goods, products and services of all kinds and to carry on any
and all activities necessary, related or incidental thereto; and
To carry on any business and engage in any other activity, whether or
not related to those in the foregoing paragraphs, which may be
permitted by the laws of Massachusetts to a corporation organized under
Chapter 156B of the General Laws of Massachusetts, as may be amended
from time to time.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate 8 1/2 x
11 sheets of paper with a left margin of at least 1 inch. Additions to more than
one article may be made on a single sheet so long as each article requiring each
addition is clearly indicated.
<PAGE>
3. The total shares and the par value, if any, of each class of stock
within the corporation is authorized as follows:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common: 15,000 Common: None $ N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: None Preferred: None $ N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established.
None.
5. The restrictions, if any, imposed by the Articles of Organization upon
the transfer of shares of stock of any class are as follows:
None.
6. **Other lawful provisions, if any, for the conduct and regulation of
business and affairs of the corporation, for its voluntary dissolution,
or for limiting, defining, or regulating the powers of the corporation,
or of its directors or stockholders, of any class of stockholders:
See Continuation Sheet 6A.
**If there are no provisions state "None".
Note: The preceding six (6) articles are considered to be permanent and may ONLY
be changed by filing appropriate Articles of Amendment.
<PAGE>
7. By-laws of the corporation have been duly adopted and the initial
directors, president, treasurer and clerk, whose names are set out
below, have been duly elected.
8. The effective date of the organization of the corporation shall be the
date of filing with the Secretary of the Commonwealth or later
effective date is desired, specify date (not more than 30 days after
the date of filing).
9. The following information shall not for any purpose be treated as a
permanent part of the Articles of Organization of the corporation.
a. The post office address of the initial principal office of the corporation in
Massachusetts is: 7 October Hill Road, Holliston, MA 01746
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
President: 21 Pierce Road 7 October Hill Road
Jordan A. Kahn Wellesley, MA 02181 Holliston, MA 01746
Treasurer: 21 Pierce Road 7 October Hill Road
Jordan A. Kahn Wellesley, MA 02181 Holliston, MA 01746
Clerk: 122 Nehoiden Road 100 Charles River Plaza
Donald H. Siegel Waban, MA 02168 Boston, MA 02114
Directors: 21 Pierce Road 7 October Hill Road
Jordan A. Kahn Wellesley, MA 02181 Holliston, MA 01746
Vice President: 307 Tuttle Street 7 October Hill Road
Bernard Chiu Fall River, MA 02724 Holliston, MA 01746
c. The date initially adopted on which the corporation's fiscal year end is:
December 31
d. The date initially fixed in the By-Laws for the annual meeting of
stockholders of the corporation is:
Second Thursday in April
e. The name and business address of the resident agent, if any, of the
corporation is: N/A
IN WITNESS WHEREOF and under the penalties of perjury, sign(s) these Articles of
Organization this 3rd day of January, 1986.
/s/ Keith D. Lind
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Keith D. Lind
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The signature of each incorporator which is not a natural person must be an
individual who shall show the capacity in which he acts and by signing shall
represent under the penalties of perjury that he is duly authorized on its
behalf to sign these Articles of Organization.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 156B, SECTION 12
===============================
I hereby certify that, upon examination the within-written articles of
organization, duly submitted to me, it appears that the provisions of the
General Laws relative to the organization of corporations have been complied
with, and I hereby approve said articles; and the filing fee in the amount of
$150.00 having been paid, said articles are deemed to have been filed with me
this 6th day of January, 1985.
Effective date: /s/ Michael Joseph Connolly
-------------------------------------------------
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF ORGANIZATION TO BE SENT
TO: Keith D. Lind
-------------------------------------------------
c/o Posternak, Blankstein & Lund, L.L.P.
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100 Charles River Plaza
-------------------------------------------------
Boston, MA 02114
-------------------------------------------------
Telephone: (617) 367-9595
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FILING FEE: 1/20 of 1% of the total amount of authorized capital stock without
par value, but not less than $150.00 General Laws, Chapter 156B, shares of stock
with a par value less than one dollar shall be deemed to have a par value of one
dollar per share.
BY-LAWS
of
HOLMES PRODUCTS CORP.
ARTICLE FIRST
The fiscal year of the corporation shall be the year ending with the
31st day of December in each year.
ARTICLE SECOND
Stockholders
Section 1. Annual Meeting. The annual meeting of stockholders shall be
held on the second Thursday of April in each year commencing with the year 1985
(or if that be a legal holiday in the place where the meeting is to be held, on
the next succeeding full business day) at the hour fixed by the Directors or the
President and stated in the notice of the meeting. The purposes for which the
annual meeting is to be held, in addition to those prescribed by law, by the
Articles of Organization or by these By-Laws, may be specified by the Directors.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu thereof, and any action taken at such
meeting shall have the same effect as if taken at the annual meeting.
Section 2. Special Meetings. Special meetings of the stockholders may
be called by a majority of either Class of Directors acting by vote or by
written instrument or instruments signed by such a majority of them. Special
meetings of the stockholders shall be called by the Clerk, or in case of the
death, absence, incapacity or refusal of the Clerk, by any other officer, upon
written application of one or more stockholders who are entitled to vote at the
meeting and who hold at least one-tenth part in interest of the capital stock
entitled to vote at the meeting, stating the time, place and purposes of the
meeting. No call of a special meeting of the stockholders shall be required if
such notice of the meeting shall have been waived either in writing or by a
telegram by every stockholder entitled to notice thereof, or by his attorney
"hereunto authorized.
<PAGE>
Section 3. Place of Meetings. All meetings of stockholders shall be
held at the principal office of the corporation unless a different place (within
the United States) is fixed by the Directors and stated in the notice of the
meeting.
Section 4. Notices. Notice of all meetings of stockholders shall be
given as follows, to wit:- A written notice, stating the place, day and hour
thereof, shall be given by the Clerk or an Assistant Clerk or the person or
persons calling the meeting, at least seven days before the meeting, to each
stockholder entitled to vote thereat and to each stockholder who, by law, the
Articles of Organization, or these By-laws, is entitled to such notice, by
leaving such notice with him or at his residence or usual place of business, or
by mailing it, postage prepaid, and addressed to such stockholder at his address
as it appears upon the books of the corporation. Notices of all meetings of the
stockholders shall be called by the Clerk, or in case of the death, absence,
incapacity or refusal of the Clerk, by any other officer, upon written
application of one or more stockholders who are entitled to vote at the meeting
and who hold at least one-tenth part in interest of the capital stock entitled
to vote at the meeting, stating the time, place and purposes of the meeting. No
call of a special meeting of the stockholders shall be required if such notice
of the meeting shall have been waived either in writing or by a telegram by
every stockholder entitled to notice thereof, or by his attorney "hereunto
authorized.
Section 3. Place of Meetings. All meetings of stockholders shall be
held at the principal office of the corporation unless a different place (within
the United States) is fixed by the Directors or the President and stated in the
notice of the meeting.
Section 4. Notices. Notice of all meetings of stockholders shall be
given as follows, to wit:- A written notice, stating the place, day and hour
thereof, shall be given by the Clerk or an Assistant Clerk or the person or
persons calling the meeting, at least seven days before the meeting, to each
stockholder entitled to vote thereat and to each stockholder who, by law, the
Articles of Organization, or these By-laws, is entitled to such notice, by
leaving such notice with him or at his residence or usual place of business, or
by mailing it, postage prepaid, and addressed to such stockholder at his address
as it appears upon the books of the corporation. Notices of all meetings of
stockholders shall state the purposes for which the meetings are called. No
notice need be given
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<PAGE>
to any stockholder if a waiver of notice in writing or by telegram, executed
before or after the meeting by the stockholder or his attorney "hereunto
authorized is filed with the records of the meeting.
Section 5. Quorum. At any meeting of stockholders a quorum for the
transaction of business shall consist of one or more individuals appearing in
person and/or as proxies and owning and/or representing a majority of each class
of the shares of the corporation then outstanding and entitled to vote and
provided further that a quorum at meetings of a particular class of stock shall
consist of such representation in person or by proxy of a majority of that class
only. Any meeting may be adjourned from time to time by a majority of the votes
properly cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.
Section 6. Voting and Proxies. Each stockholder shall have one vote for
each share of stock entitled to vote, and a proportionate vote for any
fractional share entitled to vote, held by him of record according to the
records of the corporation, unless otherwise provided by the Articles of
Organization. Stockholders may vote either in person or by written proxy dated
not more than six months before the meeting named therein. Proxies shall be
filed with the Clerk or other person responsible for recording the proceedings
before being voted at any meeting or any adjournment thereof. Except as
otherwise limited therein, proxies shall entitle the persons named therein to
vote at the meeting specified therein and at any adjourned session of such
meeting but shall not be valid after final adjournment of the meeting. A proxy
with respect to stock held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of the proxy the
corporation receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a stockholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger.
Section 7. Action at Meeting. When a quorum is present, the action of
the stockholders on any matter properly brought before such meeting shall be
decided by the stockholders of a majority of each class of the stock present or
represented and entitled to vote and voting on such matter, except where a
different vote is required by law, the Articles of Organization or these
By-laws. Any election of Directors by each class of stockholders shall be
determined by a plurality of the votes
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<PAGE>
cast by the stockholders of that class entitled to vote at the election. No
ballot shall be required for such election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
Section 8. Special Action. Any action to be taken by stockholders or a
class of stockholders may be taken without a meeting if all of the stockholders
of each class entitled to vote on the matter consent to the action by a writing
filed with the records of the meetings of stockholders. Such consent shall be
treated for all purposes as a vote at a meeting.
Section 9. Record Date. The Directors may fix in advance a time which
shall be not more than sixty days prior to (a) the date of any meeting of
stockholders, (b) the date for the payment of any dividend or the making of any
distribution to stockholders, or (c) the last day on which the consent or
dissent of stockholders may be effectively expressed for any purpose, as the
record date for determining the stockholders having the right to notice of and
to vote at such meeting and any adjournment thereof, the right to receive such
dividend or distribution, or the right to give such consent or dissent. In such
case only stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the corporation after the
record date. Without fixing such record date the Directors may for any of such
purposes close the transfer books for all or any part of such period.
ARTICLE THIRD
Directors
Section 1. Powers. The business of the corporation shall be managed by
a Board of Directors who shall have and may exercise all the powers of the
corporation except as otherwise reserved to the stockholders by law, by the
Articles of Organization or by these By-laws.
Section 2. Election. The Board of Directors shall consist of an even
number, not less than three (except that whenever there shall be only two
stockholders the number of directors shall be not less than two and whenever
there shall be only one stockholder or prior to the issuance of any stock the
number of directors shall be not less than one), nor more than fifteen, as shall
be fixed by
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<PAGE>
the stockholders at the annual meeting. The holders of the Class A Common Stock
shall, voting as a class, elect one-half of the Board of Directors, such
Directors to be known as Class A Directors. The holders of the Class B Common
Stock shall, voting as a class, elect one-half of the Board of Directors, such
Directors to be known as Class B Directors.
Section 3. Vacancies. Any vacancy at any time existing in the Board may
be filled as hereinafter provided. In the event of a vacancy in the office of a
Class A Director, the remaining Class A Directors may, at a special meeting
called at least in part for the purpose, or by a written instrument signed by
all of the Class A Directors and delivered to the Clerk, which instrument shall
be filed with the records of the corporation, designate a new Class A Director
to fill the said vacancy. The Class A stockholders, voting as a class, may, at a
special meeting called at least in part for the purpose, or by a written
instrument signed by all Class A stockholders and delivered to the Clerk, which
instrument shall be filed with the records of the Corporation, choose a
successor to a Class A Director whose office is vacant, and the person so chosen
shall forthwith displace any successor chosen by the Class A Directors. In the
event of a vacancy in the office of a Class B Director, the remaining Class B
Directors may, at a special meeting called at least in part for the purpose or
by a written instrument signed by all of the Class B Directors and delivered to
the Clerk, which instrument shall be filed with the records of the corporation,
designate a new Class B Director to fill the said vacancy. The Class B
stockholders, voting as a class, may, at a special meeting called at least in
part for the purpose or by a written instrument signed by all Class B
stockholders and delivered to the Clerk, which instrument shall be filed with
the records of the corporation, choose a successor to a Class B Director whose
office is vacant, and the person so chosen shall forthwith replace any successor
chosen by the Class B Directors.
Section 4. Enlargement of the Board. The number of the Board of
Directors may be increased and additional Directors elected at any special
meeting of the stockholders called at least in part for the purpose.
Section 5. Tenure. Except as otherwise provided by law, by the Articles
of Organization or by these By-laws, a Director shall hold office until the next
annual meeting of stockholders and thereafter until his successor is chosen and
qualified or until he sooner dies, resigns or is removed.
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<PAGE>
Any Director may resign by delivering his written resignation to the corporation
at its principal office or to the President or Clerk. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
Section 6. Removal. A Director may be removed from office (a) with or
without cause by vote of a majority of the stockholders of the class entitled to
vote in the election of such Director or (b) for cause by vote of a majority of
the class of Directors of which said Director is a part. A Director may be
removed for cause only after reasonable notice and opportunity to be heard
before the body proposing to remove him.
Section 7. Annual Meeting. Immediately after each annual meeting of
stockholders, or the special meeting held in lieu thereof, and at the place
thereof, if a quorum of the Class A Directors and a quorum of the Class B
Directors elected at such meeting were present thereat, there shall be a meeting
of the Directors without notice; but if such quorums were not present at such
meeting, or if present do not proceed immediately thereafter to hold a meeting
of the Directors, the annual meeting of the Directors shall be called in the
manner hereinafter provided with respect to the call of special meetings of
Directors.
Section 8. Regular Meetings. Regular meetings of the Directors may be
held at such times and places as shall from time to time be fixed by resolution
of the Board and no notice need be given of regular meetings held at times and
places so fixed, PROVIDED, HOWEVER, that any resolution relating to the holding
of regular meetings shall remain in force only until the next annual meeting of
stockholders, or the special meeting held in lieu thereof, and that if at any
meeting of Directors at which a resolution is adopted fixing the times or place
or places for any regular meetings any Director is absent, no meeting shall be
held pursuant to such resolution until either each such absent Director has in
writing or by telegram approved the resolution or seven days have elapsed after
a copy of the resolution certified by the Clerk has been mailed, postage
prepaid, addressed to each such absent Director at his last known home or
business address.
Section 9. Special Meetings. Special meetings of the Directors may be
called by the President or by the Treasurer or by any two Directors and shall be
held at the place designated in
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<PAGE>
the call thereof.
Section 10. Notices. Notices of any special meeting of the Directors
shall be given by the Clerk or any Assistant Clerk to each Director, by mailing
to him, postage prepaid, and addressed to him at his address as registered on
the books of the corporation, or if not so registered at his last known home or
business address, a written notice of such meeting at least four days before the
meeting or by delivering such notice to him at least forty-eight hours before
the meeting or by sending to him at least forty-eight hours before the meeting,
by prepaid telegram addressed to him at such address, notice of such meeting. If
the Clerk refuses or neglects for more than twenty-four hours after receipt of
the call to give notice of such special meeting, or it the office of Clerk is
vacant or the Clerk is absent from the Commonwealth of Massachusetts, or
incapacitated, such notice may be given by the officer or one of the Directors
calling the meeting. Notice need not be given to any Director if a waiver of
notice in writing or by telegram, executed by him before or after the meeting,
is filed with the records of the meeting, or to any director who is present in
person at the meeting without protesting prior thereto or at its commencement
the lack of notice to him. A notice or waiver of notice of a Directors' meeting
need not specify the purposes of the meeting.
Section 11. Quorum. At any meeting of the Board of Directors, so long
as the Board of Directors consists of four members, one Class A Director and one
Class B Director shall constitute a quorum of the Board for the transaction of
business and provided further that at any meeting of a particular class of
Directors, one Director of that class shall be required to constitute a quorum
of the Directors of that class. At any meeting of the Board of Directors when
the Board of Directors consists of more than four members, a majority of the
Class A Directors and a majority of the Class B Directors shall constitute a
quorum of the Board for the transaction of business. Whether or not a quorum of
the Board is present, any meeting may be adjourned from time to time by a
majority of the votes properly cast upon the question by the Directors of either
class, voting as a class, and the meeting may be held as adjourned without
further notice.
Section 12. Action at Meeting. At any meeting of the Board of Directors
at which a quorum is present, the action of the Board of Directors on any matter
brought before the meeting shall be
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<PAGE>
decided by the vote of a majority of the Directors of each class present, voting
as a class, unless a different vote is required by law, the Articles of
Organization, or these By-laws. At any meeting of a particular class of
Directors at which a quorum is present the action of the class of Directors
shall be decided by the vote of a majority of the Directors of that class
present and voting, unless a different vote is required by law, the Articles
of-Organization or these By-laws.
Section 13. Participation by Telephone at a Meeting. Any Director may
participate in a meeting of the Board of Directors or a meeting of any
particular class of Directors of which he is a member by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting for
all purposes, including, without limitation, for purposes of Sections 10, 11 and
12 of this Article.
Section 14. Special Action. Any action by the Board of Directors or any
particular class of Directors may be taken without a meeting if a written
consent thereto is signed by all the Directors or all the Directors of that
class and filed with the records of the Directors' meetings. Such consent shall
be treated as a vote of the Directors or a vote of that class of Directors for
all purposes.
ARTICLE FOURTH
Officers
Section 1. Enumeration. The officers of the corporation shall be a
President, a Treasurer, a Clerk, and such Vice Presidents, Assistant Treasurers,
Assistant Clerks, and other officers as may from time to time be determined by
the Directors.
Section 2. Election. The President, Treasurer and Clerk shall be
elected by the incorporator(s) at their initial meeting and thereafter shall be
elected annually at the Board of Directors meeting following the annual meeting
of stockholders, or the special meeting held in lieu thereof. Other officers may
be chosen by the incorporator(s) at their initial meeting and by the Directors.
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<PAGE>
Section 3. Qualification. Any officer may, but need not be, a Director
or a stockholder. Any two or more offices may be held by the same person. The
Clerk shall be a resident of Massachusetts unless the corporation has a resident
agent appointed for the purpose of service of process. Any officer may be
required by the Directors to give bond for the faithful performance of his
duties to the corporation in such amount and with such sureties as the Directors
may determine.
Section 4. Tenure. Except as otherwise provided by law, by the Articles
of Organization or by these By-laws, the President, Treasurer and Clerk shall
hold office until the first meeting of the Directors following the annual
meeting of stockholders, or the special meeting held in lieu thereof, and
thereafter until his successor is chosen and qualified. Other officers shall
hold office until the first meeting of the Directors following the annual
meeting of stockholders, or the special meeting held in lieu thereof, unless a
shorter term is specified in the vote choosing or appointing them. Any officer
may resign by delivering his written resignation to the corporation at its
principal office or to the President or Clerk, and such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
Section 5. Removal. The Directors may remove any officer with or
without cause provided, that an officer may be removed for cause only after
reasonable notice and opportunity to be heard by-the Board of Directors prior to
action thereon.
Section 6. President. The President when present shall preside at all
meetings of the stockholders and of the Directors (but not at meetings limited
to only one class of stockholders or one class of Directors). It shall be his
duty and he shall have the power to see that all orders and resolutions of the
Directors are carried into effect. The President, as soon as reasonably possible
after the close of each fiscal year, shall submit to the Directors a report of
the operations of the corporation for such year and a statement of its affairs
and shall from time to time report to the Directors all matters within his
knowledge which the interests of the corporation may require to be brought to
its notice. The President shall perform such duties and have such powers
additional to the foregoing as the Directors shall designate. The President
shall also be the chief operating officer of the Corporation.
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<PAGE>
Section 7. Vice Presidents. In the absence or disability of the
President or a vacancy in such office, his powers and duties shall be performed
by the Vice President, if only one, or, if more than one, by the one designated
for the purpose by the Directors. Each Vice President shall have such other
powers and perform such other duties as the Directors shall from time to time
designate. Section 8. Treasurer. The Treasurer shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositaries as shall be designated by the
Directors or in the absence of such designation in such depositaries as he shall
from time to time deem proper. He shall disburse the funds of the corporation as
shall be ordered by the Directors, taking proper vouchers for such
disbursements. He shall promptly render to the President and to the Directors
such statements of his transactions and accounts as the President and Directors
respectively may from time to time require. The Treasurer shall perform such
duties and have such powers additional to the foregoing as the Directors may
designate. The Treasurer shall also be the chief financial officer of the
Corporation.
Section 9. Assistant Treasurers. In the absence or disability of the
Treasurer, his powers and duties shall be performed by the Assistant Treasurer,
if only one, or, if more than one, by the one designated for the purpose by the
Directors. Each Assistant Treasurer shall have such other powers and perform
such other duties as the Directors shall from time to time designate.
Section 10. Clerk (Clerk/Secretary). The Clerk shall record in books
kept for the purpose all votes and proceedings of the stockholders or any class
of stockholders and, if there be no Secretary or Assistant Secretary, the Clerk
may be referred to as Secretary and shall record as aforesaid all votes and
proceedings of the Directors or any class of Directors at their meetings. Unless
the Directors shall appoint a transfer agent and/or registrar or -other officer
or officers for the purpose, the Clerk shall be charged with the duty of
keeping, or causing to be kept, accurate records of all stock outstanding, stock
certificates issued and stock transfers; and, subject to such other or different
rules as shall be adopted from time to time by the Directors, such records may
be kept solely in the stock certificate books. The Clerk shall perform such
duties and have such powers additional to- the foregoing as the Directors shall
designate.
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<PAGE>
Section 11. Assistant Clerks. In the absence or disability of the Clerk
or in the event of a vacancy in such office, the Assistant Clerk, if one lie
elected, or, if there be more than one, the one designated for the purpose by
the Directors, shall perform the duties of the Clerk. Each Assistant Clerk shall
have such other powers and perform such other duties as these By-laws may
provide or as the Directors may from time to time designate. A Temporary Clerk
designated by the person presiding shall perform the duties of the Clerk in the
absence of the Clerk and Assistant Clerks from any meeting of stockholders or
Directors.
Section 12. Secretary and Assistant Secretaries. If a Secretary is
elected, he shall keep a record of the meetings of the Directors or any class of
Directors and in his absence, an Assistant Secretary, if one be elected, or, if
there be more than one, the one designated for the purpose by the Directors,
otherwise the Clerk/Secretary, or, in his absence, a Temporary Clerk/Secretary
designated by the person presiding at the meeting, shall perform the duties of
the Secretary. Each Assistant Secretary shall have such other powers and perform
such other duties as the Directors may from time to time designate.
ARTICLE FIFTH
Provisions Relating-to Capital Stock
Section 1. Unissued Stock. The Board of Directors shall have the
authority to issue from time to time the whole or any part of any unissued
balance of the authorized stock of the corporation to such persons, for such
consideration, whether cash, property, services or expenses, and on such terms
as the Directors may from time to time determine without first offering the same
for subscription to stockholders of the corporation.
Section 2. Certificates of Stock. Each stockholder shall be entitled to
a certificate or certificates representing in the aggregate the shares owned by
him and certifying the number and class thereof, which shall be in such form as
the Directors shall adopt. Each certificate of stock shall be signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer,
but when a certificate is countersigned by a transfer agent or a registrar,
other than a Director, officer or employee of the corporation, such signatures
may be facsimiles. In case any officer who has signed
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or whose facsimile signature has been placed on such certificate shall have
ceased to be such officer before such certificate is issued, it may be issued by
the corporation with the same effect as if he were such officer at the time of
its issue. Every certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Articles of Organization, the By-laws or
any agreement to which the corporation is a party, shall have the restriction
noted conspicuously on the certificate and shall also set forth on the face or
back either the full text of the restriction or a statement of the existence of
such restriction and a statement that the corporation will furnish a copy to the
holder of such certificate upon written request and without charge. Every
certificate issued when the corporation is authorized to issue more than one
class or series of stock shall set forth on its face or back either the full
text of the "references, voting powers, qualifications and special and relative
rights of the shares of each class and series authorized to be issued or a
statement of the existence of such preferences, powers, qualifications and
rights, and a statement that the corporation will furnish a copy thereof to the
holder of such certificate upon written request and without charge.
Section 3. Transfer of Stock. The stock of the corporation shall be
transferable, so as to affect the rights of the corporation, only by transfer
recorded on the books of the corporation, in person or by duly authorized
attorney, and upon the surrender of the certificate or certificates properly
endorsed or assigned.
Section 4. Equitable Interests Not Recognized. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person except as may be otherwise expressly provided by law.
Section 5. Lost or Destroyed Certificates. The Directors of the
corporation may, subject to Massachusetts General Laws, Chapter 156B, Section
29, as amended from time to time, determine the conditions upon which a new
certificate of stock may be issued in place of any certificate alleged to have
been lost, destroyed, or mutilated.
ARTICLE SIXTH
Stock in Other Corporations
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Except as the Directors may otherwise designate, the President or
Treasurer may waive notice of, and appoint any person or persons to act as proxy
or attorney in fact for this corporation (with or without power of substitution)
at, any meeting of stockholders or shareholders of any other corporation or
organization, the securities of which may be held by this corporation.
ARTICLE SEVENTH
Inspection of Records
Books, accounts, documents and records of the corporation shall be open to
inspection by any Director at all times during the usual hours of business. The
original, or attested copies, of the Articles of Organization, By-laws and
records of all meetings of the incorporators and stockholders, and the stock and
transfer records, which shall contain the names of all stockholders and the
record address and the amount of stock held by each, shall be kept in
Massachusetts at the principal office of the corporation, or at an office of its
transfer agent or of the Clerk or of its registered agent. Said copies and
records need not all be kept in the same office. They shall be available at all
reasonable times to the inspection of any stockholder for any proper purpose but
not to secure a list of stockholders for the purpose of selling said list or
copies thereof or of using the same for a purpose other than in the interest of
the applicant, as a stockholder, relative to the affairs of the corporation.
ARTICLE EIGHTH
Checks, Notes, Drafts and Other Instruments
Checks, notes, drafts and other instruments for the payment of money
drawn or endorsed in the name of the corporation may be signed by any officer or
officers or person or persons authorized by the Directors to sign the same. No
officer or person shall sign any such instrument as aforesaid unless authorized
by the Directors to do so.
ARTICLE NINTH
Seal
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The seal of the corporation shall be circular in form, bearing its
name, the word "Massachusetts", and the year of its incorporation. The Clerk or
any Assistant Clerk may affix the seal (as may any other officer if authorized
by the Directors) to any instrument requiring the corporate seal.
ARTICLE TENTH
Amendments
These By-laws may at any time be amended by vote of the majority of
each class of holders of common stock, provided that notice of the substance of
the proposed amendment is stated in the notice of the meeting. If authorized by
the Articles of Organization, the Directors, by a vote of the majority of each
class of directors, may also make, amend, or repeal these By-laws in whole or in
part, except with respect to any provision thereof which by law, the Articles If
Organization, or these By-laws requires action by the stockholders. Not later
than the time of giving notice of the meeting of stockholders next following the
making, amending or repealing by the Directors of any by-law, notice thereof
stating the substance of such change shall be given to all stockholders entitled
to vote on amending the Bylaws. Any By-law adopted by the Directors may be
amended or repealed by the stockholders.
ARTICLE ELEVENTH
Transactions With Related Parties
The corporation may enter into contracts or transact business with one
or more of its Directors, officers, or stockholders or with any corporation,
association, trust company, organization or other concern in which any one or
more of its Directors, officers or stockholders are Directors, officers,
trustees, shareholders, beneficiaries or stockholders or otherwise interested
and other contracts or transactions in which any one or more of its Directors,
officers or stockholders is in any way interested; and in the absence of fraud,
no such contract or transaction shall be invalidated or in any way affected by
the fact that such Directors, officers or stockholders of the corporation have
or may have interests which are or might be adverse to the interests of the
corporation even though the vote or action of Directors, officers or
stockholders having such adverse interests may have been necessary to obligate
the corporation upon such contract or
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transaction. At any meeting of the Board of Directors of the corporation (or any
duly authorized committee thereof) which shall authorize or ratify any such
contract or transaction, any such Director or Directors, may vote or act thereat
with like force and effect as if he had not such interest, provided, in such
case the nature and extent of such interest shall be disclosed or shall have
been known to the Directors or a majority of each class thereof. A general
notice that a Director or officer is interested in any corporation or other
concern of any kind above referred to shall be a sufficient disclosure as to
such Director or officer with respect to all contracts and transactions with
such corporation or other concern. No Director shall be disqualified from
holding office as Director or officer of the corporation by reason of any such
adverse interests. In the absence of fraud, no Director, officer or stockholder
having such adverse interest shall be liable to the corporation or to any
stockholder or creditor thereof or to any other person for any loss incurred by
it under or by reason of such contract or transaction, nor shall any such
Director, officer or stockholder be accountable for any gains or profits
realized thereon.
ARTICLE TWELFTH
Indemnification of Directors, Officers and Others
The corporation shall, to the extent legally permissible, indemnify any
person serving or who has served as a Director or officer of the corporation, or
at its request as a Director, trustee, officer, employee or other agent of any
organization in which the corporation owns shares or of which it is a creditor
against all liabilities and Expenses, including amounts paid in satisfaction of
judgments, ill compromise or as fines and penalties, and counsel fees reasonably
incurred by him in connection with the defense or disposition of any action,
suit or other proceeding, whether civil, criminal or administrative, in which he
may be involved or with which he may be threatened, while serving or thereafter,
by reason of his being or having been such a Director, officer, trustee,
employee or agent, except with respect to any matter as to which he shall have
been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his action was in the best interests of the corporation;
provided, however, that as to any matter disposed of by a compromise payment by
such Director, officer, trustee, employee or agent, pursuant to a consent decree
or otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless: (a) such compromise shall be approved as in
the best interests of the corporation,
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after notice that it involves such indemnification; (i) by a disinterested
majority of each class of Directors; or (ii) by the holders of a majority of
each class the outstanding stock at the time, exclusive of any stock owned by
any interested Director or officer; or (b) in the absence of action by
disinterested Directors or stockholders, there has been obtained at the request
of a majority of either class of the Directors then in office an opinion in
writing of independent legal counsel to the effect that such Director or officer
Midyears to have acted in good faith in the reasonable belief that this action
was in the best interests of the corporation. Expenses including counsel fees,
reasonably incurred by any such Director, officer, trustee, employee or agent in
connection with the defense or disposition of any such action, suit or other
proceeding may be paid from time to time by the corporation in advance of the
final disposition thereof upon receipt of an undertaking by such individual to
repay the amounts so paid to the corporation if it is ultimately determined that
indemnification for such expenses is not authorized under this section. The
right of indemnification hereby provided shall not be exclusive of or affect any
other rights to which any such Director, officer, trustee, employee or agent may
be entitled. Nothing contained in this Article shall affect any rights to
indemnification to which corporate personnel other than such Directors,
officers, trustees, employees or agents may be entitled by contract or otherwise
under law. As used in this Article the terms 'Director,' 'officer,' 'trustee,'
employee,' and 'agent' include their respective heirs, executors and
administrators, and an 'interested' Director, officer, trustee, employee or
agent is one against whom in such capacity the proceedings in question or other
proceeding on the same or similar grounds is then pending.
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BY-LAWS
of
HOLMES MANUFACTURING CORP.
ARTICLE FIRST
The fiscal year of the corporation shall be the year ending with the
31st day of December in each year.
ARTICLE SECOND
Stockholders
Section 1. Annual Meeting. The annual meeting of stockholders
shall-initially be held on the second Thursday of April in each year commencing
with the year 1994 (or if that be a legal holiday in the place where the meeting
is to be held, on the next succeeding full business day) at the hour fixed by
the Directors or the President and stated in the notice of the meeting, provided
that the Directors or an officer designated by the Directors may, for any
subsequent year or years, fix a different date for the annual meeting, which
date shall be within six (6) months after the end of the fiscal year of the
corporation. The purposes for which the annual meeting is to be held, in
addition to those prescribed by law, by the Articles of Organization or by these
By-Laws, may be specified by the Directors or the President. If no annual
meeting is held in accordance with the foregoing provisions, a special meeting
may be held in lieu thereof, and any action taken at such meeting shall have the
same effect as if taken at the annual meeting.
Section 2. Special Meetings. Special meetings of the stockholders may
be called by the President, or by a majority of the Directors acting by vote or
by written instrument or instruments signed by such a majority of them. Special
meetings of the stockholders shall be called by the Clerk, or in case of the
death, absence, incapacity or refusal of the Clerk, by any other officer, upon
written application of one or more stockholders who are entitled to vote at the
meeting and who hold at least onetenth part in interest of the capital stock
entitled to vote at the meeting, stating the time, place and purposes of the
meeting. No call of a special meeting of the stockholders shall be required if
such notice of the meeting shall have been waived either in writing or by a
telegram by every stockholder entitled to notice thereof, or by his attorney
"hereunto authorized.
Section 3. Place of Meetings. All meetings of stockholders shall be
held at the principal office of the corporation unless a different place (within
the United States) is fixed by the Directors or the President and stated in the
notice of the meeting.
<PAGE>
Section 4. Notices. Notice of all meetings of stockholders shall be
given as follows, to wit:- A written notice, stating the place, day and hour
thereof, shall be given by the Clerk or an Assistant Clerk or the person or
persons calling the meeting, at least seven days before the meeting, to each
stockholder entitled to vote thereat and to each stockholder who, by law, the
Articles of Organization, or these By-laws, is entitled to such notice, by
leaving such notice with him or at his residence or usual place of business, or
by mailing it, postage prepaid, and addressed to such stockholder at his address
as it appears upon the books of the corporation. Notices of all meetings of
stockholders shall state the purposes for which the meetings are called. No
notice need be given to any stockholder if a waiver of notice in writing or by
telegram, executed before or after the meeting by the stockholder or his
attorney "hereunto authorized is filed with the records of the meeting.
Section 5. Quorum. At any meeting of stockholders a quorum for the
transaction of business shall consist of one or more individuals appearing in
person and/or as proxies and owning and/or representing a majority of the shares
of the corporation then outstanding and entitled to vote. Any meeting may be
adjourned from time to time by a majority of the votes properly cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned without further notice.
Section 6. Voting and Proxies. Each stockholder shall have one vote for
each share of stock entitled to vote, and a proportionate vote for any
fractional share entitled to vote, held by him of record according to the
records of the corporation, unless otherwise provided by the Articles of
Organization. Stockholders may vote either in person or by written proxy dated
not more than six months before the meeting named therein; provided that a proxy
coupled with an interest sufficient in law to support an irrevocable power,
including, without limitation, an interest in the shares or in the corporation
generally, may be made irrevocable if it so provides, need not specify the
meeting to which it relates, and shall be valid and enforceable until the
interest terminates, or for such shorter period as may be specified in the
proxy. Proxies shall be filed with the Clerk or other person responsible for
recording the proceedings before being voted at any meeting or any adjournment
thereof. Except as otherwise provided therein, proxies shall entitle the persons
named therein to vote at the meeting specified therein and at any adjourned
session of such meeting but shall not be valid after final adjournment of the
meeting. A proxy with respect to stock held in the name of two or more persons
shall be valid if executed by one of them unless at or prior to exercise of the
proxy the corporation receives a specific written notice to the contrary from
any one of them. A proxy
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purporting to be executed by or on behalf of a stockholder shall be deemed valid
unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger.
Section 7. Action at Meeting. When a quorum is present, the action of
the stockholders on any matter properly brought before such meeting shall be
decided by the stockholders of a majority of the stock present or represented
and entitled to vote and voting on such matter, except where a different vote is
required by law, the Articles of Organization or these By-laws. Any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election. No ballot shall be required for
such election unless requested by a stockholder present or represented at the
meeting and entitled to vote in the election.
Section 8. Special Action. Any action to be taken by stockholders may
be taken without a meeting if all stockholders entitled to vote on the matter
consent to the action by a writing filed with the records of the meetings of
stockholders. Such consent shall be treated for all purposes as a vote at a
meeting.
Section 9. Record Date. The Directors may fix in advance a time which
shall be not more than sixty days prior to (a) the date of any meeting of
stockholders, (b) the date for the payment of any dividend or the making of any
distribution to stockholders, or (c) the last day on which the consent or
dissent of stockholders may be effectively expressed for any purpose, as the
record date for determining the stockholders having the right to notice of and
to vote at such meeting and any adjournment thereof, the right to receive such
dividend or distribution, or the right to give such consent or dissent. In such
case only stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the corporation after the
record date. Without fixing such record date the Directors may for any of such
purposes close the transfer books for all or any part of such period.
ARTICLE THIRD
Directors
Section 1. Powers. The business of the corporation shall be managed by
a Board of Directors who shall have and may exercise all the powers of the
corporation except as otherwise reserved to the stockholders by law, by the
Articles of Organization or by these By-laws.
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Section 2. Election. A Board of Directors of such number, not less than
three (except that whenever there shall be only two stockholders the number of
directors shall be not less than two and whenever there shall be only one
stockholder or prior to the issuance of any stock the number of directors shall
be not less than one), nor more than fifteen, as shall be fixed by the
stockholders, shall be elected by the stockholders at the annual meeting.
Section 3. Vacancies. Any vacancy at any time existing in the Board may
be filled by the Board at any meeting. The stockholders having voting power may,
at a special meeting called at least in part for the purpose, choose a successor
to a Director whose office is vacant, and the person so chosen shall displace
any successor chosen by the Directors. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
Section 4. Enlargement of the Board. The number of the Board of
Directors may be increased and one or more additional Directors elected at any
special meeting of the stockholders, called at least in part for the purpose, or
by the Directors by vote of a majority of the Directors then in office.
Section 5. Tenure. Except as otherwise provided by law, by the Articles
of Organization or by these By-laws, a Director shall hold office until the next
annual meeting of stockholders and thereafter until his successor is chosen and
qualified or until he sooner dies, resigns or is removed. Any Director may
resign by delivering his written resignation to the corporation at its principal
office or to the President or Clerk. Such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
Section 6. Removal. A Director may be removed from office (a) with or
without cause by vote of a majority of the stockholders entitled to vote in the
election of Directors or (b) for cause by vote of a majority of the Directors
then in office. A Director may be removed for cause only after reasonable notice
and opportunity to be heard before the body proposing to remove him.
Section 7. Annual Meeting. Immediately after each annual meeting of
stockholders, or the special meeting held in lieu thereof, and at the place
thereof, if a quorum of the Directors elected at such meeting were present
thereat, there shall be a meeting of the Directors without notice; but if such a
quorum of the Directors elected thereat were not present at such meeting, or if
present do not proceed immediately thereafter to hold a meeting of the
Directors, the annual meeting of the
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Directors shall be called in the manner hereinafter provided with respect to the
call of special meetings of Directors.
Section 8. Regular Meetings. Regular meetings of the Directors may be
held at such times and places as shall from time to time be fixed by resolution
of the Board and no notice need be given of regular meetings held at times and
places so fixed, PROVIDED, HOWEVER, that any resolution relating to the holding
of regular meetings shall remain in force only until the next annual meeting of
stockholders, or the special meeting held in lieu thereof, and that if at any
meeting of Directors at which a resolution is adopted fixing the times or place
or places for any regular meetings any Director is absent, no meeting shall be
held pursuant to such resolution until either each such absent Director has in
writing or by telegram approved the resolution or seven days have elapsed after
a copy of the resolution certified by the Clerk has been mailed, postage
prepaid, addressed to each such absent Director at his last known home or
business address.
Section 9. Special Meetings. Special meetings of the Directors may be
called by the President or by the Treasurer or by any two Directors and shall be
held at the place designated in the call thereof.
Section 10. Notices. Notices of any special meeting of the Directors
shall be given by the Clerk or any Assistant Clerk to each Director, by mailing
to him, postage prepaid, and addressed to him at his address as registered on
the books of the corporation, or if not so registered at his last known home or
business address, a written notice of such meeting at least four days before the
meeting or by delivering such notice to him at least forty-eight hours before
the meeting or by sending to him at least forty-eight hours before the meeting,
by prepaid telegram addressed to him at such address, notice of such meeting. If
the Clerk refuses or neglects for more than twenty-four hours after receipt of
the call to give notice of such special meeting, or if the office of Clerk is
vacant or the Clerk is absent from the Commonwealth of Massachusetts, or
incapacitated, such notice may I waif be given by the officer or one of the
Directors calling the meeting. Notice need not be given to any Director if a
waiver of notice in writing or by telegram, executed by him before or after the
meeting, is filed with the records of the meeting, or to any director who is
present in person at the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice of a
Directors' meeting need not specify the purposes of the meeting.
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Section 11. Quorum. At any meeting of the Directors a majority of the
number of Directors required to constitute a full Board, as fixed in or
determined pursuant to these By-laws as then in effect, shall constitute a
quorum for the transaction of business. Whether or not a quorum is present, any
meeting may be adjourned from time to time by a majority of the votes properly
cast upon the question and the meeting may be held as adjourned without further
notice.
Section 12. Action at Meeting. At any meeting of the Directors at which
a quorum is present, the action of the Directors on any matter brought before
the meeting shall be decided by the vote of a majority of those present and
voting, unless a different vote is required by law, the Articles of
Organization, or these By-laws.
Section 13. Participation by Telephone at a Meeting. Any Director or
member of any committee designated by the Directors may participate in a meeting
of the Directors or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such means
shall constitute presence in person at a meeting for all purposes, including,
without limitation, for purposes of Sections 10, 11, 12 and 15 of this Article.
Section 14. Special Action. Any action by the Directors may be taken
without a meeting if a written consent thereto is signed by all the Directors
and filed with the records of the Directors' meetings. Such consent shall be
treated as a vote of the Directors for all purposes.
Section 15. Committees. The Directors may, by vote of a majority of the
number of Directors required to constitute a full Board as fixed in or
determined pursuant to these By-laws as then in effect, elect from their number
an executive or other committees and may by like vote delegate thereto some or
all of their powers except those which by law, the Articles of Organization or
these By-laws they are prohibited from delegating. Except as the Directors may
otherwise determine, any such committee may make rules for the conduct of its
business, but unless otherwise provided by the Directors or in such rules, its
business shall be conducted as nearly as may be in the same manner as is
provided by these By-laws for the Directors.
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ARTICLE FOURTH
Officers
Section 1. Enumeration. The officers of the corporation shall be a
President, a Treasurer, a Clerk, and such Vice Presidents, Assistant Treasurers,
Assistant Clerks, and other officers as may from time to time be determined by
the Directors.
Section 2. Election. The President, Treasurer and Clerk shall be
elected by the incorporator(s) at their initial meeting and thereafter shall be
elected annually by the Directors at their first meeting following the annual
meeting of stockholders, or the special meeting held in lieu thereof. Other
officers may be chosen by the incorporator(s) at their initial meeting and by
the Directors.
Section 3. Qualification. Any officer may, but need not be, a Director
or a stockholder. Any two or more offices may be held by the same person. The
Clerk shall be a resident of Massachusetts unless the corporation has a resident
agent appointed for the purpose of service of process. Any officer may be
required by the Directors to give bond for the faithful performance of his
duties to the corporation in such amount and with such sureties as the Directors
may determine.
Section 4. Tenure. Except as otherwise provided by law, by the Articles
of Organization or by these By-laws, the President, Treasurer and Clerk shall
hold office until the first meeting of the Directors following the annual
meeting of stockholders, or the special meeting held in lieu thereof, and
thereafter until his successor is chosen and qualified. Other officers shall
hold office until the first meeting of the Directors following the annual
meeting of stockholders, or the special meeting held in -lieu thereof, unless a
shorter term is specified in the vote choosing or appointing them. Any officer
may resign by delivering his written resignation to the corporation at its
principal office or to the President or Clerk, and such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
Section 5. Removal. The Directors may remove any officer with or
without cause by a vote of a majority of the entire number of Directors then in
office, provided, that an officer may be removed for cause only after reasonable
notice and opportunity to be heard by the Board of Directors prior to action
thereon.
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Section 6. President. The President when present shall preside at all
meetings of the stockholders and of the Directors. It shall be his duty and he
shall have the power to see that all I orders and resolutions of the Directors
are carried into effect. The President, as soon as reasonably possible after the
close of each fiscal year, shall submit to the Directors a report of the
operations of the corporation for such year and a statement of its affairs and
shall from time to time report to the Directors all matters within his knowledge
which the interests of the corporation may require to be brought to its notice.
The President shall perform such duties and have such powers additional to the
foregoing as the Directors shall designate.
Section 7. Vice Presidents. In the absence or disability of the
President or a vacancy in such office, his powers and duties shall be performed
by the Vice President, if only one, or, if more than one, by the one designated
for the purpose by the Directors. Each Vice President shall have such other
powers and perform such other duties as the Directors shall from time to time
designate.
Section 8. Treasurer. The Treasurer shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositaries as shall be designated by the
Directors or in the absence of such designation in such depositaries as he shall
from time to time deem proper. He shall disburse the funds of the corporation as
shall be ordered by the Directors, taking proper vouchers for such
disbursements. He shall promptly render to the President and to the Directors
such statements of his transactions and accounts as the President and Directors
respectively may from time to time require. The Treasurer shall perform such
duties and have such powers additional to the foregoing as the Directors may
designate.
Section 9. Assistant Treasurers. In the absence or disability of the
Treasurer, his powers and duties shall be performed by the Assistant Treasurer,
if only one, or, if more than one, by the one designated for the purpose by the
Directors. Each Assistant Treasurer shall have such other powers and perform
such other duties as the Directors shall from time to time designate.
Section 10. Clerk (Clerk/Secretary). The Clerk shall record in books
kept for the purpose all votes and proceedings of the stockholders and, if there
be no Secretary or Assistant Secretary, the Clerk may be referred to as
Secretary and shall record as aforesaid all votes and proceedings of the
Directors at their meetings. Unless the Directors shall appoint a transfer agent
and/or registrar or other officer or officers for the purpose, the Clerk shall
be charged with the duty of keeping, or causing to be kept, accurate records of
all stock outstanding, stock certificates issued and stock
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transfers; and, subject to such other or different rules as shall be adopted
from time to time by the Directors, such records may be kept solely in the stock
certificate books. The Clerk shall perform such duties and have such powers
additional to the foregoing as the Directors shall designate. Section 11.
Assistant Clerks. In the absence or disability of the Clerk or in the event of a
vacancy in such office, the Assistant Clerk, if one be elected, or, if there be
more than one, the one designated for the purpose by the Directors, shall
perform the duties of the Clerk. Each Assistant Clerk shall have such other
powers and perform such other duties as these By-laws may provide or as the
Directors may from time to time designate. A Temporary Clerk designated by the
person presiding shall perform the duties of the Clerk in the absence of the
Clerk and Assistant Clerks from any meeting of stockholders or Directors.
Section 12 . Secretary and Assistant Secretaries. If a Secretary is
elected, he shall keep a record of the meetings of the Directors and in his
absence, an Assistant Secretary, if one be elected, or, if there be more than
one, the one designated for the purpose by the Directors, otherwise the
Clerk/Secretary, or, in his absence, a Temporary Clerk/Secretary designated by
the person presiding at the meeting, shall perform the duties of the Secretary.
Each Assistant Secretary shall have such other powers and perform such other
duties as the Directors may from time to time designate.
ARTICLE FIFTH
Provisions Relating to Capital Stock
Section 1. Unissued Stock. The Board of Directors shall have the
authority to issue from time to time the whole or any part of any unissued
balance of the authorized stock of the corporation to such persons, for such
consideration, whether cash, property, services or expenses, and on such terms
as the Directors may from time to time determine without first offering the same
for subscription to stockholders of the corporation.
Section 2. Certificates of Stock. Each stockholder shall be entitled to
a certificate or certificates representing in the aggregate the shares owned by
him and certifying the number and class thereof, which shall be in such form as
the Directors shall adopt. Each certificate of stock shall be signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer,
but when a certificate is countersigned by a transfer agent or a registrar,
other than a Director, officer or employee of the corporation, such signatures
may be facsimiles. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the corporation
with the same effect as if he
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were such officer at the time of its issue. Every certificate for shares of
stock which are subject to any restriction on transfer pursuant to the Articles
of Organization, the By-laws or any agreement to which the corporation is a
party, shall have the restriction noted conspicuously on the certificate and
shall also set forth on the face or back either the full text of the restriction
or a statement of the existence of such restriction and a statement that the
corporation will furnish a copy to the holder of such certificate upon written
request and without charge. Every certificate issued when the corporation is
authorized to issue more than one class or series of stock shall set forth on
its face or back either the full text of the preferences, voting powers,
qualifications and special and relative rights of the shares of each class and
series authorized to be issued or a statement of the existence of such
preferences, powers, qualifications and rights, and a statement that the
corporation will furnish a copy thereof to the holder of such certificate upon
written request and without charge.
Section 3. Transfer of Stock. The stock of the corporation shall be
transferable, so as to affect the rights of the corporation, only by transfer
recorded on the books of the corporation, in person or by duly authorized
attorney, and upon the surrender of the certificate or certificates properly
endorsed or assigned.
Section 4. Equitable Interests Not Recognized. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact hereof and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person
except as may be otherwise expressly provided by law.
Section 5. Lost or Destroyed Certificates. The Directors of the
corporation may, subject to Massachusetts General Laws, Chapter 156B, Section
29, as amended from time to time, determine the conditions upon which a new
certificate of stock may be issued in place of any certificate alleged to have
been lost, destroyed, or mutilated.
ARTICLE SIXTH
Stock in Other Corporations
Except as the Directors may otherwise designate, the President or
Treasurer may waive notice of, and appoint any person or persons to act as proxy
or attorney in fact for this corporation (with or without power of substitution)
at, any meeting of stockholders or shareholders of any other corporation or
organization, the securities of which may be held by this corporation.
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ARTICLE SEVENTH
Inspection of Records
Books, accounts, documents and records of the corporation shall be open
to inspection by any Director at all times during the usual hours of business.
The original, or attested copies, of the Articles of Organization, By-laws and
records of all meetings of the incorporators and stockholders, and the stock and
transfer records, which shall contain the names of all stockholders and the
record address and the amount of stock held by each, shall be kept in
Massachusetts at the principal office of the corporation, or at an office of its
transfer agent or of the Clerk or of its registered agent. Said copies and
records need not all be kept in the same office. They shall be available at all
reasonable times to the inspection of any stockholder for any proper purpose but
not to secure a list of stockholders for the purpose of selling said list or
copies thereof or of using the same for a purpose other than in the interest of
the applicant, as a stockholder, relative to the affairs of the corporation.
ARTICLE EIGHTH
Checks, Notes, Drafts and Other Instruments
Checks, notes, drafts and other instruments for the payment of money
drawn or endorsed in the name of the corporation may be signed by any officer or
officers or person or persons authorized by the Directors to sign the same. No
officer or person shall sign any such instrument as aforesaid unless authorized
by the Directors to do so.
ARTICLE NINTH
Seal
The seal of the corporation shall be circular in form, bearing its
name, the word "Massachusetts", and the year of its incorporation. The Clerk or
any Assistant Clerk may affix the seal (as may any other officer if authorized
by the Directors) to any instrument requiring the corporate seal.
ARTICLE TENTH
Amendments
These By-laws may at any time be amended by vote of the stockholders,
provided that notice of the substance of the proposed amendment is stated in the
notice of the meeting. If authorized by the Articles of Organization, the
Directors may also make, amend, or repeal these
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By-laws in whole or in part, except with respect to any provision thereof which
by law, the Articles of Organization, or these By-laws requires action by the
stockholders. Not later than the time of giving notice of the meeting of
stockholders next following the making, amending or repealing by the Directors
of any by-law, notice thereof stating the substance of such change shall be
given to all stockholders entitled to vote on amending the By-laws. Any By-law
adopted by the Directors may be amended or repealed by the stockholders.
ARTICLE ELEVENTH
Transactions With Related Parties
The corporation may enter into contracts or transact business with one
or more of its Directors, officers, or stockholders or with any corporation,
association, trust company, organization or other concern in which any one or
more of its Directors, officers or stockholders are Directors, officers,
trustees, shareholders, beneficiaries or stockholders or otherwise interested
and other contracts or transactions in which any one or more of its Directors,
officers or stockholders is in any way interested; and in the absence of fraud,
no such contract or transaction shall be invalidated or in any way affected by
the fact that such Directors, officers or stockholders of the corporation have
or may have interests which are or might be adverse to the interest of the
corporation even though the vote or action of Directors, officers or
stockholders having such adverse interests may have been necessary to obligate
the corporation upon such contract or transaction. At any meeting of the Board
of Directors of the corporation (or any duly authorized committee thereof) which
shall authorize or ratify any such contract or transaction, any such Director or
Directors, may vote or act thereat with like force and effect as if he had not
such interest, provided that, in such case the nature of such interest (though
not necessarily the extent or details thereof) shall be disclosed or shall have
been known to the Directors or a majority thereof. A general notice that a
Director or officer is interested in any corporation or other concern of any
kind above referred to shall be a sufficient disclosure as to such Director or
officer with respect to all contracts and transactions with such-corporation or
other concern. No Director shall be disqualified from holding office as Director
or officer of the corporation by reason of any such adverse interests. In the
absence of fraud, no Director, officer or stockholder having such adverse
interest shall be liable to the corporation or to any stockholder or creditor
thereof or to any other person for any loss incurred by it under or by reason of
such contract or transaction, nor shall any such Director, officer or
stockholder be accountable for any gains or profits realized thereon.
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ARTICLE TWELFTH
Indemnification of Directors, Officers and Others
The corporation shall, to the extent legally permissible, indemnify any
person serving or who has served as a Director or officer of the corporation, or
at its request as a Director, trustee, officer, employee or other agent of any
organization in which the corporation owns shares or of which it is a creditor
against all liabilities and expenses, including amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees reasonably
incurred by him in connection with the defense or disposition of any action,
suit or other proceeding, whether civil, criminal or administrative, in which he
may be involved or with which he may be threatened, while serving or thereafter,
by reason of his being or having been such a Director, officer, trustee,
employee or agent, except with respect to any matter as to which he shall have
been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his action was in the best interests of the corporation;
provided, however, that as to any matter disposed of by a compromise payment by
such Director, officer, trustee, employee or agent, pursuant to a consent decree
or otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless:
(a) such compromise shall be approved as in the best interests
of the corporation, after notice that it involves such indemnification;
(i) by a disinterested majority of the directors then
in office; or
(ii) by the holders of a majority of the outstanding
stock at the time entitled to vote for Directors, voting as a
single class, exclusive of any stock owned by any interested
Director or officer; or
(b) in the absence of action by disinterested Directors or
stockholders, there has been obtained at the request of a majority of
the Directors then in office an opinion in writing of independent legal
counsel to the effect that such Director or officer appears to have
acted in good faith in the reasonable belief that this action was in
the best interests of the corporation.
Expenses including counsel fees, reasonably incurred by any such Director,
officer, trustee, employee or agent in connection with the defense or
disposition of any such action, suit or other proceeding may be paid from time
to time by the corporation in advance of the final disposition thereof upon
receipt of an undertaking by such individual to repay the amounts so paid to the
corporation if it is ultimately determined that indemnification for such
expenses is not authorized under this section. The right of indemnification
hereby provided shall not be exclusive of or affect
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any other rights to which any such Director, officer, trustee, employee or agent
may be entitled. Nothing contained in this Article shall affect any rights to
indemnification to which corporate personnel other than such Directors,
officers, trustees, employees or agents may be entitled by contract or otherwise
under law. As used in this Article the terms 'Director,' 'officer,' 'trustee,'
employee,' and 'agent' include their respective heirs, executors and
administrators, and an 'interested' Director, officer, trustee, employee or
agent is one against whom in such capacity the proceedings in question or other
proceeding on the same or similar grounds is then pending.
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BY-LAWS
of
HOLMES AIR (TAIWAN) CORP.
ARTICLE FIRST
The fiscal year of the corporation shall be the year ending with the
31st day of December in each year.
ARTICLE SECOND
Stockholders
Section 1. Annual Meeting. The annual meeting of stockholders shall be
held on the second Thursday of April in each year commencing with the year 1987
(or if that be a legal holiday in the place where the meeting is to be held, on
the next succeeding full business day) at the hour fixed by the Directors or the
President and stated in the notice of the meeting. The purposes for which the
annual meeting is to be held, in additions to those prescribed by law, by the
Articles of Organization or by these By-Laws, may be specified by the Directors
or the President. If no annual meeting i" held in accordance with the foregoing
provisions, a special meeting may be held in lieu thereof, and any action taken
at such meeting shall have the same effect as if taken at the annual meeting.
Section 2. Special Meetings. Special meetings of the stockholders may
be called by the President, or by a majority of the Directors acting by vote or
by written instrument or instruments signed by such a majority of them. Special
meetings of the stockholders shall be called by the Clerk, or in case of the
death, absence, incapacity or refusal of the Clerk, by any other officer, upon
written application of one or more stockholders who are entitled to vote at the
meeting and who hold at least onetenth part in interest of the capital stock
entitled to vote at the meeting, stating the time, place and purposes of the
meeting. No call of a special meeting of the stockholders shall be required if
such notice of the meeting shall have been waived either in writing or by a
telegram by every stockholder entitled to notice thereof, or by his attorney
"hereunto authorized.
Section 3. Place of Meetings. All meetings of stockholders shall be
held at the principal office of the corporation unless a different place (within
the United States) is fixed by the Directors
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or the President and stated in the notice of the meeting.
Section 4. Notices. Notice of all meetings of stockholders shall be
given as follows, to wit:- A written notice, stating the place, day and hour
thereof, shall be given by the Clerk or an Assistant Clerk or the person or
persons calling the meeting, at least seven days before the meeting, to each
stockholder entitled to vote thereat and to each stockholder who, by law, the
Articles of Organization, or these By-laws, is entitled to such notice, by
leaving such notice with him or at his residence or usual place of business, or
by mailing it, postage prepaid, and addressed to such stockholder at his address
as it appears upon the books of the corporation. Notices of all meetings of
stockholders shall state the purposes for which the meetings are called. No
notice need be given to any stockholder if a waiver of notice in writing or by
telegram, executed before or after the meeting by the stockholder or his
attorney "hereunto authorized is filed with the records of the meeting.
Section 5. Quorum. At any meeting of stockholders a quorum for the
transaction of business shall consist of one or more individuals appearing in
person and/or as proxies and owning and/or representing a majority of the shares
of the corporation then outstanding and entitled to vote. Any meeting may be
adjourned from time to time by a majority of the votes properly cast upon the
question, whether or not a quorum i. present, and the meeting may be held as
adjourned without further notice.
Section 6. Voting and Proxies. Each stockholder shall have one vote for
each share of stock entitled to vote, and a proportionate vote for any
fractional share entitled to vote, held by him of record according to the
records of the corporation, unless otherwise provided by the Articles of
Organization. Stockholders may vote either in person or by written proxy dated
not more than six months before the meeting named therein. Proxies shall be
filed with the Clerk or other person responsible for recording the proceedings
before being voted at any meeting or any adjournment thereof. Except as
otherwise limited therein, proxies shall entitle the persons named therein to
vote at the meeting specified therein and at any adjourned session of such
meeting but shall not be valid after final adjournment of the meeting. A proxy
with respect to stock held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of the proxy the
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corporation receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a stockholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger.
Section 7. Action at Meeting. When a quorum is present, the action of
the stockholders on any matter properly brought before such meeting shall be
decided by the stockholders of a majority of the stock present or represented
and entitled to vote and voting on such matter, except where a different vote is
required by law, the Articles of Organization or these By-laws. Any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election. No ballot shall be required for
such election unless requested by a stockholder present or represented at the
meeting and entitled to vote in the election.
Section 8. Special Action. Any action to be taken by stockholders may
be taken without a meeting if all stockholders entitled to vote on the matter
consent to the action by a writing filed with the records of the meetings of
stockholders. Such consent shall be treated for all purposes as a vote at a
meeting.
Section 9. Record Date. The Directors may fix in advance a time which
shall be not more than sixty days prior to (a) the date of any meeting of
stockholders, (b) the date for the payment of any dividend or the making of any
distribution to stockholders, or (c) the last day on which the consent or
dissent of stockholders may be effectively expressed for any purpose, as the
record date for determining the stockholders having the right to notice of and
to vote at such meeting and any adjournment thereof, the right to receive such
dividend or distribution, or the right to give such consent or dissent. In such
case only stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the corporation after the
record date. Without fixing such record date the Directors may for any of such
purposes close the transfer books for all or any part of such period.
ARTICLE THIRD
Directors
Section 1. Powers. The business of the corporation shall be managed by
a Board of
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Directors who shall have and may exercise all the powers of the corporation
except as otherwise reserved to the stockholders by law, by the Articles of
Organization or by these By-laws.
Section 2. Election. A Board of Directors of such number, not less than
three (except that whenever there shall be only two stockholders the number of
directors shall be not less than two and whenever there shall be only one
stockholder or prior to the issuance of any stock the number of directors shall
be not less than one), nor more than fifteen, as shall be fixed by the
stockholders, shall be elected by the stockholders at the annual meeting.
Section 3. Vacancies. Any vacancy at any time existing in the Board may
be filled by the Board at any meeting. The stockholders having voting power may,
at a special meeting called at least in part for the purpose, choose a successor
to a Director whose office is vacant, and the person so chosen shall displace
any successor chosen by the Directors. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
Section 4. Enlargement of the Board. The number of the Board of
Directors may be increased and one or more additional Directors elected at any
special meeting of the stockholders, called at least in part for the purpose, or
by the Directors by vote of a majority of the Directors then in office.
Section 5. Tenure. Except as otherwise provided by law, by the Articles
of organization or by these By-laws, a Director shall hold office until the next
annual meeting of stockholders and thereafter until his successor is chosen and
qualified or until he sooner dies, resigns or is removed. Any Director may
resign by delivering his written resignation to the corporation at its principal
office or to the President or Clerk. Such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
Section 6. Removal. A Director may be removed from office (a) with or
without cause by vote of a majority of the stockholders entitled to vote in the
election of Directors or (b) for cause by vote of a majority of the Directors
then in office. A Director may be removed for cause only after
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reasonable notice and opportunity to be heard before the body proposing to
remove him.
Section 7. Annual Meeting. Immediately after each annual meeting of
stockholders, or the special meeting held in lieu thereof, and at the place
thereof, if a quorum of the Directors elected at such meeting were present
thereat, there shall be a meeting of the Directors without notice; but if such a
quorum of the Directors elected thereat were not present at such meeting, or if
present do not proceed immediately thereafter to hold a meeting of the
Directors, the annual meeting of the Directors shall be called in the manner
hereinafter provided with respect to the call of special meetings of Directors.
Section 8. Regular Meetings. Regular meetings of the Directors may be
held at such times and places as shall from time to time be fixed by resolution
of the Board and no notice need be given of regular meetings held at times and
places so fixed, PROVIDED, HOWEVER, that any resolution relating to the holding
of regular meetings shall remain in force only until the next annual meeting of
stockholders, or the special meeting held in lieu thereof, and that if at any
meeting of Directors at which a resolution is adopted fixing the times or place
or places for any regular meetings any Director is absent, no meeting shall be
held pursuant to such resolution until either each such absent Director has in
writing or by telegram approved the resolution or seven days have elapsed after
a copy of the resolution certified by the Clerk has been mailed, postage
prepaid, addressed to each such absent Director at his last known home or
business address.
Section 9. Special Meetings. Special meetings of the Directors may be
called by the President or by the Treasurer or by any two Directors and shall be
held at the place designated in the call thereof.
Section 10. Notices. Notices of any special meeting of the Directors
shall be given by the Clerk or any Assistant Clerk to each Director, by mailing
to him, postage prepaid, and addressed to him at his address as registered on
the books of the corporation, or if not so registered at his last known home or
business address, a written notice of such meeting at least four days before the
meeting or by delivering such notice to him at least forty-eight hours before
the meeting or by sending to him at least forty-eight hours before the meeting,
by prepaid telegram addressed to him
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at such address, notice of such meeting. If the Clerk refuses or neglects for
more than twenty-four hours after receipt of the call to give notice of such
special meeting, or if the office of Clerk is vacant or the Clerk is absent from
the Commonwealth of Massachusetts, or incapacitated, such notice may be given by
the officer or one of the Directors calling the meeting. Notice need not be
given to any Director if a waiver of notice in writing or by telegram, executed
by him before or after the meeting, is filed with the records of the meeting, or
to any director who is present in person at the meeting without protesting prior
thereto or at its commencement the lack of notice to him. A notice or waiver of
notice of a Directors' meeting need not specify the purposes of the meeting.
Section 11. Quorum. At any meeting of the Directors a majority of the
number of Directors required to constitute a full Board, as fixed in or
determined pursuant to these By-laws as then in effect, shall constitute a
quorum for the transaction of business. Whether or not a quorum is present, any
meeting may be adjourned from time to time by a majority of the votes properly
cast upon the question and the meeting may be held as adjourned without further
notice.
Section 12. Action at Meeting. At any meeting of the Directors at which
a quorum is present, the action of the Directors on any matter brought before
the meeting shall be decided by the vote of a majority of those present and
voting, unless a different vote is required by law, the Articles of
Organization, or these By-laws.
Section 13. Participation by Telephone at a Meeting. Any Director or
member of any committee designated by the Directors may participate in a meeting
of the Directors or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such means
shall constitute presence in person at a meeting for all purposes, including,
without limitation, for purposes of Sections 10, 11, 12 and 15 of this Article.
Section 14. Special Action. Any action by the Directors may be taken
without a meeting if a written consent thereto is signed by all the Directors
and filed with the records of the Directors' meetings. Such consent shall be
treated as a vote of the Directors for all purposes.
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Section 15. Committees. The Directors may, by vote of a majority of the
number of Directors required to constitute a full Board as fixed in or
determined pursuant to these By-laws as then in effect, elect from their number
an executive or other committees and may by like vote delegate thereto some or
all of their powers except those which by law, the Articles of Organization or
these By-laws they are prohibited from delegating. Except as the Directors may
otherwise determine, any such committee may make rules for the conduct of its
business, but unless otherwise provided by the Directors or in such rules, its
business shall be conducted as nearly as may be in the same manner as is
provided by these By-laws for the Directors.
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ARTICLE FOURTH
Officers
Section 1. Enumeration. The officers of the corporation shall be a
President, a Treasurer, a Clerk, and such Vice Presidents, Assistant Treasurers,
Assistant Clerks, and other officers as may from time to time be determined by
the Directors.
Section 2. Election. The President, Treasurer and Clerk shall be
elected by the incorporator(s) at their initial meeting and thereafter shall be
elected annually by the Directors at their first meeting following the annual
meeting of stockholders, or the special meeting held in lieu thereof. Other
officers may be chosen by the incorporator(s) at their initial meeting and by
the Directors.
Section 3. Qualification. Any officer may, but need not be, a Director
or a stockholder. Any two or more offices may be held by the same person. The
Clerk shall be a resident of Massachusetts unless the corporation has a resident
agent appointed for the purpose of service of process. Any officer may be
required by the Directors to give bond for the faithful performance of his
duties to the corporation in such amount and with such sureties as the Directors
may determine.
Section 4. Tenure. Except as otherwise provided by law, by the Articles
of Organization or by these By-laws, the President, Treasurer and Clerk shall
hold office until the first meeting of the Directors following the annual
meeting of stockholders, or the special meeting held in lieu thereof, and
thereafter until his successor is chosen and qualified. Other officers shall
hold office until the first meeting of the Directors following the annual
meeting of stockholders, or the special meeting held in lieu thereof, unless a
shorter term is specified in the vote choosing or appointing them. Any officer
may resign by delivering his written resignation to the corporation at its
principal office or to the President or Clerk, and such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
Section 5. Removal. The Directors may remove any officer with or
without cause by a vote of a majority of the entire number of Directors then in
office, provided, that an officer may be
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removed for cause only after reasonable notice and opportunity to be heard by
the Board of Directors prior to action thereon.
Section 6. President. The President when present shall preside at all
meetings of the stockholders and of the Directors. It shall be his duty and he
shall have the power to see that all orders and resolutions of the Directors are
carried into effect. The President, as soon as reasonably possible after the
close of each fiscal year, shall submit to the Directors a report of the
operations of the corporation for such year and a statement of its affairs and
shall from time to time report to the Directors all matters within his knowledge
which the interests of the corporation may require to be brought to its notice.
The President shall perform such duties and have such powers additional to the
foregoing as the Directors shall designate.
Section 7. Vice Presidents. In the absence or disability of the
President or a vacancy in such office, his powers and duties shall be performed
by the Vice President, if only one, or, if more than one, by the one designated
for the purpose by the Directors. Each Vice President shall have such other
powers and perform such other duties as the Directors shall from time to time
designate.
Section 8. Treasurer. The Treasurer shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositaries as shall be designated by the
Directors or in the absence of such designation in such depositaries as he shall
from time to time deem proper. He shall disburse the funds of the corporation as
shall be ordered by the Directors, taking proper vouchers for such
disbursements. He shall promptly render to the President and to the Directors
such statements of his transactions and accounts as the President and Directors
respectively may from time to time require. The Treasurer shall perform such
duties and have such powers additional to the foregoing as the Directors may
designate.
Section 9. Assistant Treasurers. In the absence or disability of the
Treasurer, his powers and duties shall be performed by the Assistant Treasurer,
if only one, or, if more than one, by the one designated for the purpose by the
Directors. Each Assistant Treasurer shall have such other powers and perform
such other duties as the Directors shall from time to time designate.
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Section 10. Clerk (Clerk/Secretary). The Clerk shall record in books
kept for the purpose all votes and proceedings of the stockholders and, if there
be no Secretary or Assistant Secretary, the Clerk may be referred to as
Secretary and shall record as aforesaid all votes and proceedings of the
Directors at their meetings. Unless the Directors shall appoint a transfer agent
and/or registrar or other officer or officers for the purpose, the Clerk shall
be charged with the duty of keeping, or causing to be kept, accurate records of
all stock outstanding, stock certificates issued and stock transfers; and,
subject to such other or different rules as shall be adopted from time to time
by the Directors, such records may be kept solely in the stock certificate
books. The Clerk shall perform such duties and have such powers additional to
the foregoing as the Directors shall designate.
Section 11. Assistant Clerks. In the absence or disability of the Clerk
or in the event of a vacancy in such office, the Assistant Clerk, if one be
elected, or, if there be more than one, the one designated for the purpose by
the Directors, shall perform the duties of the Clerk. Each Assistant Clerk shall
have such other powers and perform such other duties as these By-laws may
provide or as the Directors may from time to time designate. A Temporary Clerk
designated by the person presiding shall perform the duties of the Clerk in the
absence of the Clerk and Assistant Clerks from any meeting of stockholders or
Directors.
Section 12. Secretary and Assistant Secretaries. If a Secretary is
elected, he shall keep a record of the meetings of the Directors and in his
absence, an Assistant Secretary, if one be elected, or, if there be more than
one, the one designated for the purpose by the Directors, otherwise the
Clerk/Secretary, or, in his absence, a Temporary Clerk/Secretary designated by
the person presiding at the meeting, shall perform the duties of the Secretary.
Each Assistant Secretary shall have such other powers and perform such other
duties as the Directors may from time to time designate.
ARTICLE FIFTH
Provisions Relating to Capital Stock
Section 1. Unissued Stock. The Board of Directors shall have the
authority to issue from time to time the whole or any part of any unissued
balance of the authorized stock of the corporation to such persons, for such
consideration, whether cash, property, services or expenses, and on such terms
as the Directors may from time to time determine without first offering the same
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for subscription to stockholders of the corporation.
Section 2. Certificates of Stock. Each stockholder shall be entitled to
a certificate or certificates representing in the aggregate the shares owned by
him and certifying the number and class thereof, which shall be in such form as
the Directors shall adopt. Each certificate of stock shall be signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer,
but when a certificate is countersigned by a transfer agent or a registrar,
other than a Director, officer or employee of the corporation, such signatures
may be facsimiles. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer at the time of its issue. Every
certificate for shares of stock which are subject to any restriction on transfer
pursuant to the Articles of Organization, the By-laws or any agreement to which
the corporation is a party, shall have the restriction noted conspicuously on
the certificate and shall also set forth on the face or back either the full
text of the restriction or a statement of the existence of such restriction and
a statement that the corporation will furnish a copy to the holder of such
certificate upon written request and without charge. Every certificate issued
when the corporation is authorized to issue more than one class or series of
stock shall set forth on its face or back either the full text of the
preferences, voting powers, qualifications and special and relative rights of
the shares of each class and series authorized to be issued or a statement of
the existence of such preferences, powers, qualifications and rights, and a
statement that the corporation will furnish a copy thereof to the holder of such
certificate upon written request and without charge.
Section 3. Transfer of Stock. The stock of the corporation shall be
transferable, so as to affect the rights of the corporation, only by transfer
recorded on the books of the corporation, in person or by duly authorized
attorney, and upon the surrender of the certificate or certificates properly
endorsed or assigned.
Section 4. Equitable Interests Not Recognized. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact hereof and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person
except as may be otherwise expressly provided by law.
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Section 5. Lost or Destroyed Certificates. The Directors of the
corporation may, subject to Massachusetts General Laws, Chapter 156B, Section
29, as amended from time to time, determine the conditions upon which a new
certificate of stock may be issued in place of any certificate alleged to have
been lost, destroyed, or mutilated.
ARTICLE SIXTH
Stock in Other Corporations
Except as the Directors may otherwise designate, the President or
Treasurer may waive notice of, and appoint any person or persons to act as proxy
or attorney in fact for this corporation (with or without power of substitution)
at, any meeting of stockholders or shareholders of any other corporation or
organization, the securities of which may be held by this corporation.
ARTICLE SEVENTH
Inspection of Records
Books, accounts, documents and records of the corporation shall be open
to inspection by any Director at all times during the usual hours of business.
The original, or attested copies, of the Articles of Organization, By-laws and
records of all meetings of the incorporators and stockholders, and the stock and
transfer records, which shall contain the names of all stockholders and the
record address and the amount of stock held by each, shall be kept in
Massachusetts at the principal office of the corporation, or at an office of its
transfer agent or of the Clerk or of its registered agent. Said copies and
records need not all be kept in the same office. They shall be available at all
reasonable times to the inspection of any stockholder for any proper purpose but
not to secure a list of stockholders for the purpose of selling said list or
copies thereof or of using the same for a purpose other than in the interest of
the applicant, as a stockholder, relative to the affairs of the corporation.
ARTICLE EIGHTH
Checks, Notes, Drafts and Other Instruments
Checks, notes, drafts and other instruments for the payment of money
drawn or endorsed in the name of the corporation may be signed by any officer or
officers or person or persons
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authorized by the Directors to sign the same. No officer or person shall sign
any such instrument as aforesaid unless authorized by the Directors to do so.
ARTICLE NINTH
Seal
The seal of the corporation shall be circular in form, bearing its
name, the word "Massachusetts", and the year of its incorporation. The Clerk or
any Assistant Clerk may affix the seal (as may any other officer if authorized
by the Directors) to any instrument requiring the corporate seal.
ARTICLE TENTH
Amendments
These By-laws may at any time be amended by vote of the stockholders,
provided that notice of the substance of the proposed amendment is stated in the
notice of the meeting. If authorized by the Articles of Organization, the
Directors may also make, amend, or repeal these By-laws in whole or in part,
except with respect to any provision thereof which by law, the Articles of
Organization, or these By-laws requires action by the stockholders. Not later
than the time of giving notice of the meeting of stockholders next following the
making, amending or repealing by the Directors of any by-law, notice thereof
stating the substance of such change shall be given to all stockholders entitled
to vote on amending the By-laws. Any By-law adopted by the Directors may be
amended or repealed by the stockholders.
ARTICLE ELEVENTH
Transactions With Related Parties
The corporation may enter into contracts or transact business with one
or more of its Directors, officers, or stockholders or with any corporation,
association, trust company, organization or other concern in which any one or
more of its Directors, officers or stockholders are Directors, officers,
trustees, shareholders, beneficiaries or stockholders or otherwise interested
and
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other contracts or transactions in which any one or more of its Directors,
officers or stockholders is in any way interested; and in the absence of fraud,
no such contract or transaction shall be invalidated or in any way affected by
the fact that such Directors, officers or stockholders of the corporation have
or may have interests which are or might be adverse to the interest of the
corporation even though the vote or action of Directors, officers or
stockholders having such adverse interests may have been necessary to obligate
the corporation upon such contract or transaction. At any meeting of the Board
of Directors of the corporation (or any duly authorized committee thereof) which
shall authorize or ratify any such contract or transaction, any such Director or
Directors, may vote or act thereat with like force and effect as if he had not
such interest, provided, in such case the nature of such interest (though not
necessarily the extent or details thereof) shall be disclosed or shall have been
known to the Directors or a majority thereof. A general notice that a Director
or officer is interested in any corporation or other concern of any kind above
referred to shall be a sufficient disclosure as to such Director or officer with
respect to all contracts and transactions with such corporation or other
concern. No Director shall be disqualified from holding office as Director or
officer of the corporation by reason of any such adverse interests. In the
absence of fraud, no Director, officer or stockholder having such adverse
interest shall be liable to the corporation or to any stockholder or creditor
thereof or to any other person for any loss incurred by it under or by reason of
such contract or transaction, nor shall any such Director, officer or
stockholder be accountable for any gains or profits realized thereon.
ARTICLE TWELFTH
Indemnification of Directors, Officers and Others
The corporation shall, to the extent legally permissible, indemnify any
person serving or who has served as a Director or officer of the corporation, or
at its request as a Director, trustee, officer, employee or other agent of any
organization in which the corporation owns shares or of which it is a creditor
against all liabilities and expenses, including amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees reasonably
incurred by him in connection with the defense or disposition of any action,
suit or other proceeding, whether civil, criminal or administrative, in which he
may be involved or with which he may be threatened, while serving or thereafter,
by reason of his being or having been such a Director, officer, trustee,
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employee or agent, except with respect to any matter as to which he shall have
been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his action was in the best interests of the corporation;
provided, however, that as to any matter disposed of by a compromise payment by
such Director, officer, trustee, employee or agent, pursuant to a consent decree
or otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless:
(a) such compromise shall be approved as in the best interests
of the corporation, after notice that it involves such indemnification;
(i) by a disinterested majority of the directors then
in office; or
(ii) by the holders of a majority of the outstanding
stock at the time entitled to vote for Directors, voting as a
single class, exclusive of any stock owned by any interested
Director or officer; or
(b) in the absence of action by disinterested Directors or
stockholders, there has been obtained at the request of a majority of
the Directors then in office an opinion in writing of independent legal
counsel to the effect that such Director or officer appears to have
acted in good faith in the reasonable belief that this action was in
the best interests of the corporation.
Expenses including counsel fees, reasonably incurred by any such Director,
officer, trustee, employee or agent in connection with the defense or
disposition of any such action, suit or other proceeding may be paid from time
to time by the corporation in advance of the final disposition thereof upon
receipt of an undertaking by such individual to repay the amounts so paid to the
corporation if it is ultimately determined that indemnification for such
expenses is not authorized under this section. The right of indemnification
hereby provided shall not be exclusive of or affect any-other rights to which
any such Director, officer, trustee, employee or agent may be entitled. Nothing
contained in this Article shall affect any rights to indemnification to which
corporate personnel other than such Directors, officers, trustees, employees or
agents may be entitled by contract or otherwise under law. A" used in this
Article the terms 'Director,' 'officer,' 'trustee,' employee,' and 'agent'
include their respective heirs, executors and administrators, and an
'interested' Director, officer, trustee, employee or agent is one against whom
in such capacity the proceedings in question or other proceeding on the same or
similar grounds is then pending.
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REGISTRATION RIGHTS AGREEMENT
Dated as of November 26, 1997
by and among
Holmes Products Corp.,
the Guarantors Named on the Signature Pages Hereto
and
BancBoston Securities Inc.,
Lehman Brothers Inc.
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<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of November 26, 1997 by and among Holmes Products Corp., a
Massachusetts corporation (the "Company"), Holmes Manufacturing Corp., Holmes
Air (Taiwan) Corp. (together, the "Guarantors"), and BancBoston Securities Inc.
and Lehman Brothers Inc. (together, the "Initial Purchasers"), who have agreed
to purchase the Company's 9-7/8% Series A Senior Subordinated Notes due 2007
(the "Series A Notes") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
November 19, 1997 (the "Purchase Agreement"), by and among the Company, the
Guarantors and the Initial Purchasers. In order to induce the Initial Purchasers
to purchase the Series A Notes, the Company and the Guarantors have agreed to
provide the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the obligations of the Initial
Purchasers set forth in Section 3 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Registration Statement as continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof, and (c) the delivery by the Company to
the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series A Notes that were
tendered by Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Series A Notes, each
Interest Payment Date.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the Act of the
Series B Notes pursuant to the Exchange Offer Registration Statement pursuant to
which the Company offers the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities held by such Holders for Series B Notes in an aggregate principal
amount equal to the aggregate principal amount of the Transfer Restricted
Securities tendered in such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Series A Notes to (a) certain other "qualified institutional
buyers," as such term is defined in Rule 144A under the Act and (b) non-U.S.
persons outside the United States in reliance upon Regulation S under the Act.
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Holders: As defined in Section 2(b) hereof.
Indenture: The Indenture, dated as of November 26, 1997, among the
Company, the Guarantors and State Street Bank and Trust Company, as trustee (the
"Trustee"), pursuant to which the Notes are to be issued, as such Indenture is
amended or supplemented from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Series A Notes and the Series B Notes.
Person: An individual, partnership, corporation, limited liability
company, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Record Holder: With respect to any Damages Payment Date relating to
Notes, each Person who is a Holder of Notes as listed on the books of the
Trustee as of the close of business on the record date with respect to the
Interest Payment Date corresponding to such Damages Payment Date.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
Series B Notes: The Company's 9-7/8% Series B Senior Subordinated
Notes due 2007 to be issued pursuant to the Indenture (a) in the Exchange Offer
or (b) pursuant to a Shelf Registration Statement, in each case, in exchange for
Series A Notes.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939, as amended (15 U.S.C. Section
77aaa-77bbbb), as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been effectively registered under the Act and disposed of in accordance with
a Shelf Registration Statement and (c) the date on which such Note is first
eligible to be distributed to the public pursuant to Rule 144 under the Act or
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein).
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
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<PAGE>
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with), the Company and the Guarantors shall (i)
cause to be filed with the Commission on or prior to 60 days after the Closing
Date, the Exchange Offer Registration Statement, (ii) use their best efforts to
cause such Exchange Offer Registration Statement to become effective on or prior
to 120 days after the Closing Date, (iii) in connection with the foregoing, file
(A) all pre-effective amendments to such Exchange Offer Registration Statement
as may be necessary in order to cause such Exchange Offer Registration Statement
to become effective, (B) if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Series B Notes to be offered in
exchange for the Transfer Restricted Securities and to permit resales of Notes
held by Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company shall cause the Exchange Offer Registration Statement
to be effective continuously and shall keep the Exchange Offer open for a period
of not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 business days. The Company shall cause
the Exchange Offer to comply with all applicable federal and state securities
laws. No securities other than the Notes shall be included in the Exchange Offer
Registration Statement. The Company shall use its best efforts to cause the
Exchange Offer to be Consummated on or prior to 30 business days after the
Exchange Offer Registration Statement has become effective.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Series A Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company) may exchange such
Series A Notes pursuant to the Exchange Offer; however, such Broker-Dealer may
be deemed to be an "underwriter" within the meaning of the Act and must,
therefore, deliver a prospectus meeting the requirements of the Act in
connection with any resales of the Series B Notes received by such Broker-Dealer
in the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such Broker-Dealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such resales by Broker-Dealers
that the Commission may require in order to permit such resales pursuant
thereto, but such "Plan of Distribution" shall not name any such Broker- Dealer
or disclose the amount of Notes held by any such Broker-Dealer except to the
extent required by the Commission as a result of a change in policy after the
date of this Agreement.
The Company and the Guarantors shall use their best efforts to keep
the Exchange Offer Registration Statement continuously effective, supplemented
and amended as required by the provisions of Section 6(c) below to the extent
necessary to ensure that it is available for resales of Notes acquired by
Broker-Dealers for their own accounts as a result of market-making activities or
other trading activities, and to ensure that it conforms with the requirements
of this Agreement, the Act and the policies, rules and
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<PAGE>
regulations of the Commission as announced from time to time, for a period of
one year from the date on which the Exchange Offer Registration Statement is
declared effective.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker- Dealers promptly upon request at any time during such
one-year period in order to facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company and the Guarantors are not
required to file an Exchange Offer Registration Statement or permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with) or (ii) if any Holder of Transfer Restricted
Securities notifies the Company on or prior to the 20th business day following
the Consummation of the Exchange Offer (A) that such Holder is prohibited by
applicable law or Commission policy from participating in the Exchange Offer, or
(B) that such Holder may not resell the Series B Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and that the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder, or (C) that such
Holder is a Broker-Dealer and holds Series A Notes acquired directly from the
Company or one of its affiliates, then the Company and the Guarantors shall:
(x) Use their best efforts to file a shelf registration
statement with the Commission pursuant to Rule 415 under the Act, which
may be an amendment to the Exchange Offer Registration Statement (in any
event, the "Shelf Registration Statement") on or prior to the earliest to
occur of (1) the 60th day after the date on which the Company and the
Guarantors determine that they are not required to file the Exchange Offer
Registration Statement and (2) the 60th day after the date on which the
Company receives notice from a Holder of Transfer Restricted Securities as
contemplated by clause (ii) above (such earliest date being the "Shelf
Filing Deadline"), which Shelf Registration Statement shall provide for
resales of all Transfer Restricted Securities the Holders of which shall
have provided the information required pursuant to Section 4(b) hereof;
and
(y) Cause such Shelf Registration Statement to be declared
effective by the Commission on or prior to the 120th day after the Shelf
Filing Deadline.
The Company and the Guarantors shall use their best efforts to keep such Shelf
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for resales of Notes by the Holders of
Transfer Restricted Securities entitled to the benefit of this Section 4(a), and
to ensure that it conforms with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, until the earlier to occur of (i) the date all of the Transfer Restricted
Securities registered under such Shelf Registration Statement have been sold and
(ii) the second anniversary following the Closing Date.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have used its best efforts to provide all such reasonably
requested information. Each Holder of Notes as to which any Shelf Registration
Statement is being effected, by its participation in the Shelf Registration
Statement, shall be deemed to agree to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
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<PAGE>
SECTION 5. LIQUIDATED DAMAGES
If (a) any of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (b) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (c) the
Exchange Offer has not been Consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (d) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself immediately declared effective (each such event referred to
in clauses (a) through (d), a "Registration Default"), as the sole remedy for
such Registration Defaults, the Company and the Guarantors hereby jointly and
severally agree to pay liquidated damages to each Holder of Transfer Restricted
Securities affected thereby with respect to the first 90-day period immediately
following the occurrence of the first Registration Default, in an amount equal
to $.05 per week per $1,000 principal amount of Transfer Restricted Securities
held by such Holder for each week or portion thereof that the Registration
Default continues. The amount of the liquidated damages shall increase by an
additional $.05 per week per $1,000 principal amount of Transfer Restricted
Securities with respect to each subsequent 90-day period until all Registration
Defaults affecting such Holder have been cured, up to a maximum amount of
liquidated damages of $.50 per week per $1,000 principal amount of Transfer
Restricted Securities for each week or portion thereof that the Registration
Default continues. All accrued liquidated damages shall be paid by the Company
on each Damages Payment Date to Record Holders by wire transfer of immediately
available funds or by federal funds check and to Holders of Certificated
Securities by wire transfers to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified on
each Damages Payment Date, as provided in the Indenture. Following the cure of
all Registration Defaults relating to any particular Transfer Restricted
Securities, the accrual of liquidated damages with respect to such Transfer
Restricted Securities will cease.
All obligations of the Company and the Guarantors set forth in the
preceding paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall comply with all of the
provisions of Section 6(c) below, shall use their best efforts to effect such
exchange to permit the sale of Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If in the reasonable opinion of counsel to the Company there
is a question as to whether the Exchange Offer is permitted by applicable
law, the Company and the Guarantors hereby agree to seek a no-action
letter or other favorable decision from the Commission allowing the
Company and the Guarantors to Consummate an Exchange Offer for such Series
A Notes. Each of the Company and the Guarantors hereby agrees to pursue
the issuance of such a decision to the Commission staff level but shall
not be required to take commercially unreasonable action to effect a
change of Commission policy. Each of the Company and the Guarantors hereby
agrees, however, to (A) participate in telephonic conferences with the
Commission, (B) deliver to the Commission staff an analysis prepared by
counsel to the Company setting forth the legal bases, if any, upon which
such counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursue a resolution (which need not be favorable) by
the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation thereof, a written representation to the Company
(which may be
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contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an affiliate of
the Company or any Guarantor, (B) it is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with any
person to participate in, a distribution of the Series B Notes to be
issued in the Exchange Offer and (C) it is acquiring the Series B Notes in
its ordinary course of business. In addition, all such Holders of Transfer
Restricted Securities shall otherwise cooperate in the Company's
preparations for the Exchange Offer. Each Holder hereby acknowledges and
agrees that any Broker-Dealer and any such Holder using the Exchange Offer
to participate in a distribution of the securities to be acquired in the
Exchange Offer (1) could not under Commission policy as in effect on the
date of this Agreement rely on the position of the Commission enunciated
in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital
Holdings Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and similar
no-action letters (including any no-action letter obtained pursuant to
clause (i) above), and (2) must comply with the registration and
prospectus delivery requirements of the Act in connection with a secondary
resale transaction and that such a secondary resale transaction should be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K if the resales are of Series B Notes obtained by such
Holder in exchange for Series A Notes acquired by such Holder directly
from the Company.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental
letter to the Commission (A) stating that the Company and the Guarantors
are registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) and, if
applicable, any no-action letter obtained pursuant to clause (i) above and
(B) including a representation that neither the Company nor any of the
Guarantors has entered into any arrangement or understanding with any
Person to distribute the Series B Notes to be received in the Exchange
Offer and that, to the best of the Company's and the Guarantors'
information and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall comply with all the
provisions of Section 6(c) below and shall use their best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof.
(c) General Provisions. In connection with any Registration Statement
and any Prospectus required by this Agreement to permit the sale or resale of
Transfer Restricted Securities (including, without limitation, any Registration
Statement and the related Prospectus required to permit resales of Notes by
Broker-Dealers), the Company and the Guarantors shall:
(i) use their best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
(including, if required by the Act or any regulation thereunder, financial
statements of the Guarantors) for the period specified in Section 3 or 4
hereof, as applicable; upon the occurrence of any event that would cause
any such Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective and
usable for resale of Transfer Restricted Securities during the period
required by this Agreement, the Company shall file promptly an appropriate
amendment to such Registration Statement, in the case of clause (A),
correcting any such misstatement or omission, and, in the case of either
clause (A) or (B), use their best efforts to cause such amendment to be
declared effective and such Registration Statement and the related
Prospectus to become usable for their intended purpose(s) as soon as
practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments
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to the Registration Statement as may be necessary to keep the Registration
Statement effective for the applicable period set forth in Section 3 or 4
hereof, as applicable, or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Registration Statement have
been sold; cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 under the Act, and to comply fully with the applicable provisions of
Rules 424 and 430A under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement to
the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders (in
the case of a Shelf Registration Statement) promptly and, if requested by
such Persons, to confirm such advice in writing, (A) when the Prospectus
or any Prospectus supplement or post-effective amendment has been filed,
and, with respect to any Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any request
by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information
relating thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the Act
or of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or sale
in any jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening of
any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement
thereto, or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the Registration
Statement in order to make the statements therein not misleading, or that
requires the making of any additions to or changes in the Prospectus in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. If at any time the Commission shall
issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption
from qualification of the Transfer Restricted Securities under state
securities or Blue Sky laws, the Company and the Guarantors shall use
their reasonable best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
(iv) furnish to each of the selling Holders and each of the
underwriter(s), if any, before filing with the Commission, copies of any
Shelf Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or Prospectus
(including all documents incorporated by reference after the initial
filing of such Registration Statement), which documents will be subject to
the review and comment of such Holders and underwriter(s), if any, for a
period of at least three business days, and the Company will not file any
such Registration Statement or Prospectus or any amendment or supplement
to any such Registration Statement or Prospectus (including all such
documents incorporated by reference) to which a selling Holder of Transfer
Restricted Securities covered by such Registration Statement or the
underwriter(s), if any, shall reasonably object within three business days
after the receipt thereof. An objection from a selling Holder or
underwriter, if any, shall be deemed to be reasonable if such Registration
Statement, amendment, Prospectus or supplement, as applicable, as proposed
to be filed, contains a material misstatement or omission or fails to
comply with the applicable requirements of the Act;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Shelf Registration Statement or
Prospectus, provide copies of such document to the selling Holders and to
the underwriter(s), if any, make the Company's representatives available
(and representatives of the Guarantors) for discussion of such document
and other customary due diligence matters, and include such information in
such document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any underwriter participating in any disposition pursuant
to such Registration Statement, and any attorney or accountant retained by
such selling Holders or any of the underwriter(s), all financial and other
records, pertinent corporate documents and properties of the Company and
the Guarantors and cause the Company's and the Guarantors' officers,
directors and employees to supply all information
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reasonably requested by any such Holder, underwriter, attorney or
accountant in connection with such Registration Statement subsequent to
the filing thereof and prior to its effectiveness;
(vii) if requested by any selling Holders or the underwriter(s),
if any, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Holders and underwriter(s), if any, may
reasonably request to have included therein, including, without
limitation, information relating to the "Plan of Distribution" of the
Transfer Restricted Securities, information with respect to the principal
amount of Transfer Restricted Securities being sold to such
underwriter(s), the purchase price being paid therefor and any other terms
of the offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is
notified of the matters to be included in such Prospectus supplement or
post-effective amendment;
(viii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating agencies,
if so requested by the Holders of a majority in aggregate principal amount
of Notes covered thereby or the underwriter(s), if any;
(ix) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the Shelf
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(x) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such Persons reasonably may request; the Company and the
Guarantors hereby consent to the use of the Prospectus and any amendment
or supplement thereto by each of the selling Holders and each of the
underwriter(s), if any, in connection with the offering and the sale of
the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(xi) enter into such agreements (including an underwriting
agreement on customary terms), and make such representations and
warranties, and take all such other actions in connection therewith in
order to expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any Shelf Registration Statement contemplated by
this Agreement, all to such extent as may be reasonably requested by the
Initial Purchasers or by any Holder of Transfer Restricted Securities or
underwriter in connection with any sale or resale pursuant to any Shelf
Registration Statement contemplated by this Agreement; and whether or not
an underwriting agreement is entered into and whether or not the
registration is an Underwritten Registration, in connection with any Shelf
Registration Statement, the Company and the Guarantors shall:
(A) furnish to each selling Holder and each underwriter, if any,
in such substance and scope as they may request and as are
customarily made by issuers to underwriters in primary underwritten
offerings, upon the date of the effectiveness of the Shelf
Registration Statement:
(1) a certificate, dated the date of effectiveness of the
Shelf Registration Statement, signed by (x) the President or any
Vice President and (y) a principal financial or accounting
officer of each of the Company and the Guarantors, confirming,
as of the date thereof, the matters set forth in paragraphs (a),
(b), (c) and (d) of Section 8 of the Purchase Agreement and such
other matters as such parties may reasonably request;
(2) an opinion, dated the date of effectiveness of the
Shelf Registration Statement, of counsel for the Company and the
Guarantors, covering the matters set forth in the opinion
rendered pursuant to paragraph (f) of Section 8 of the Purchase
Agreement, as applicable, and such other matters as such parties
may reasonably request, and in any event including a statement
to the effect that such counsel has participated in conferences
with officers and other representatives of the Company and the
Guarantors, representatives of the independent public
accountants for the Company, the Initial Purchasers'
representatives and the Initial Purchasers' counsel in
connection with the preparation of such Shelf Registration
Statement
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and the related Prospectus and have considered the matters
required to be stated therein and the statements contained
therein, although such counsel has not independently verified
the accuracy, completeness or fairness of such statements; and
that such counsel advises that, on the basis of the foregoing
(relying as to materiality to the extent such counsel deems
appropriate upon facts provided to such counsel by officers and
other representatives of the Company and the Guarantors and
without independent verification of such facts), no facts came
to such counsel's attention that caused such counsel to believe
that the applicable Shelf Registration Statement, at the time
such Shelf Registration Statement or any post-effective
amendment thereto became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus
contained in such Shelf Registration Statement as of its date,
contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. Without limiting the foregoing, such
counsel may state further that such counsel assumes no
responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial data included in any
Shelf Registration Statement contemplated by this Agreement or
the related Prospectus; and
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters by underwriters in connection with primary underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 8 of the Purchase
Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
pursuant to this clause (xi), if any.
If at any time the representations and warranties of the Company and
the Guarantors contemplated in clause (A)(1) above cease to be true and
correct, the Company or the Guarantors shall so advise the underwriter(s),
if any, and each selling Holder promptly and, if requested by such
Persons, shall confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities
or Blue Sky laws of such jurisdictions as the selling Holders or
underwriter(s) may request and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of
the Transfer Restricted Securities covered by the Shelf Registration
Statement; provided, however, that neither the Company nor any of the
Guarantors shall be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to the service of process in suits or to taxation, other
than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xiii) shall issue, upon the request of any Holder of Series A
Notes covered by the Shelf Registration Statement, Series B Notes, having
an aggregate principal amount equal to the aggregate principal amount of
Series A Notes surrendered to the Company by such Holder in exchange
therefor or being sold by such Holder; such Series B Notes to be
registered in the name of such Holder or in the name of the purchaser(s)
of such Notes, as the case may be; in return, the Series A Notes held by
such Holder shall be surrendered to the Company for cancellation;
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<PAGE>
(xiv) cooperate with the selling Holders and the underwriter(s),
if any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and enable such Transfer Restricted Securities to be
in such denominations and registered in such names as the Holders or the
underwriter(s), if any, may request at least two business days prior to
any sale of Transfer Restricted Securities made by such underwriter(s);
(xv) use their reasonable best efforts to cause the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof or
the underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (viii)
above;
(xvi) if any fact or event contemplated by clause (c)(iii)(D)
above shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration Statement
and provide the Trustee under the Indenture with printed certificates for
the Transfer Restricted Securities which are in a form eligible for
deposit with the Depositary Trust Company;
(xviii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter") that
is required to be retained in accordance with the rules and regulations of
the NASD, and use its reasonable best efforts to cause such Registration
Statement to become effective and approved by such governmental agencies
or authorities as may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such Transfer
Restricted Securities;
(xix) otherwise use their best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as practicable, a consolidated
earnings statement meeting the requirements of Rule 158 (which need not be
audited) for the twelve-month period (A) commencing at the end of any
fiscal quarter in which Transfer Restricted Securities are sold to
underwriters in a firm or best efforts Underwritten Offering or (B) if not
sold to underwriters in such an offering, beginning with the first month
of the Company's first fiscal quarter commencing after the effective date
of the Registration Statement;
(xx) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement, and, in connection therewith, cooperate with the Trustee
and the Holders of Notes to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the
terms of the TIA; and execute and use their best efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
and
(xxi) cause all Transfer Restricted Securities covered by the
Registration Statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed if requested by
the Holders of a majority in aggregate principal amount of Series A Notes
or the managing underwriter(s), if any.
Each Holder shall be deemed to agree by acquisition of a Transfer
Restricted Security that, upon receipt of any notice from the Company of the
existence of any fact of the kind described in Section 6(c)(iii)(D) hereof, such
Holder will forthwith discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration Statement until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xvi) hereof, or until it is advised in
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<PAGE>
writing (the "Advice") by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings that
are incorporated by reference in the Prospectus. If so directed by the Company,
each Holder will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Transfer Restricted Securities that was current at the
time of receipt of such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(iii)(D) hereof to and including
the date when each selling Holder covered by such Registration Statement shall
have received the copies of the supplemented or amended Prospectus contemplated
by Section 6(c)(xvi) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's or the Guarantors'
performance of or compliance with this Agreement will be borne by the Company
and the Guarantors, regardless of whether a Registration Statement becomes
effective, including without limitation: (i) all registration and filing fees
and expenses (including filings made by any Initial Purchasers or Holder with
the NASD (and, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel that may be required by the rules and
regulations of the NASD)); (ii) all fees and expenses of compliance with federal
securities and state Blue Sky or securities laws; (iii) all expenses of printing
(including printing certificates for the Series B Notes to be issued in the
Exchange Offer and printing of Prospectuses), messenger and delivery services
and telephone; (iv) all fees and disbursements of counsel for the Company, the
Guarantors and, subject to Section 7(b) below, the Holders of Transfer
Restricted Securities; (v) all application and filing fees in connection with
listing Notes on a national securities exchange or automated quotation system
pursuant to the requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of the Company and the Guarantors
(including the expenses of any special audit and comfort letters required by or
incident to such performance); provided, however, the foregoing shall exclude
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of the Notes by a Holder.
The Company and the Guarantors will, in any event, bear their
internal expenses (including, without limitation, all salaries and expenses of
their officers and employees performing legal or accounting duties), the
expenses of any annual audit and the fees and expenses of any Person, including
special experts, retained by the Company.
(b) In connection with any Shelf Registration Statement required by
this Agreement, the Company and the Guarantors will reimburse the Initial
Purchasers and the Holders of Transfer Restricted Securities being registered
pursuant to the Shelf Registration Statement for the reasonable fees and
disbursements of not more than one counsel, who shall be Latham & Watkins or
such other counsel as may be chosen by the Holders of a majority in aggregate
principal amount of the Transfer Restricted Securities for whose benefit such
Shelf Registration Statement is being prepared.
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<PAGE>
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors, jointly and severally, agree to
indemnify and hold harmless (i) each Holder, (ii) each person, if any, who
controls any Holder within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act and (iii) the respective officers, directors, partners,
employees, representatives and agents of each Holder or any controlling person
to the fullest extent lawful, from and against any and all losses, liabilities,
claims, damages and expenses whatsoever (including but not limited to reasonable
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any investigation or litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement or Prospectus, or in
any supplement thereto or amendment thereof, 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 therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company will not be liable in any such case to the extent, but only to
the extent, that any such loss, liability, claim, damage or expense arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with information relating to any Holder furnished to the Company in writing by
or on behalf of such Holder expressly for use therein. This indemnity agreement
will be in addition to any liability which the Company and the Guarantors may
otherwise have, including under this Agreement. The indemnification contained in
this paragraph (a) with respect to any Registration Statement or Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) shall not inure to the benefit of any Holder (or to the
benefit of any person controlling such Holder) on account of any such loss,
liability, claim, damage or expense (i) arising from the sale of the Notes by
such Holder to any person if a copy of the Registration Statement shall not have
been delivered or sent to such person, at or prior to the written confirmation
of such sale, and the untrue statement or alleged untrue statement or omission
or alleged omission of a material fact contained in the Registration Statement
or Prospectus was corrected in the Registration Statement or Prospectus (as
amended or supplemented), provided that the Company has delivered the
Registration Statement or Prospectus (as amended or supplemented) to the Holders
in requisite quantity on a timely basis to permit such delivery or sending or
(ii) resulting from the use by such Holder of any Registration Statement or
Prospectus, or any amendment or supplement thereto, when, under Section 6 hereof
such Holder was not permitted to do so; provided that the exceptions in clauses
(i) and (ii) shall not affect the indemnity with respect to any other Holder not
otherwise subject to such exceptions.
(b) Each Holder, by its participation in the Exchange Offer or Shelf
Registration Statement, shall be deemed to acknowledge and agree, severally and
not jointly, to indemnify and hold harmless (i) the Company and the Guarantors,
(ii) each person, if any, who controls the Company and the Guarantors within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and (iii)
the respective officers, directors, partners, employees, representatives and
agents of each of them, or any controlling person, against any losses,
liabilities, claims, damages and expenses whatsoever (including but not limited
to reasonable attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any investigation or litigation,
commenced or threatened, or any claim whatsoever and any and all amounts paid in
settlement of any claim or litigation), joint or several, to which they or any
of them may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus, or in any amendment thereof or supplement 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 therein,
in the light of the circumstances under which they were made, not misleading, in
each case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with information relating to any Holder
furnished to the Company in writing by or on behalf of such Holder expressly for
use therein; provided, however, that in no case shall any Holder be liable or
responsible for any amount in excess of the dollar amount of the proceeds
received
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<PAGE>
by such Holder upon the sale of the Notes giving rise to such indemnification
obligation. This indemnity will be in addition to any liability which any Holder
may otherwise have, including under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may otherwise have). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action, (ii) the indemnifying parties
shall not have employed counsel to take charge of the defense of such action
within a reasonable time after notice of commencement of the action, or (iii)
such indemnified party or parties shall have reasonably concluded, based upon
the advice of counsel, that there may be defenses available to it or them which
are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying party or parties shall not
have the right to direct the defense of such action on behalf of the indemnified
party or parties), in any of which events such fees and expenses of counsel
shall be borne by the indemnifying parties; provided, however, that the
indemnifying party under subsection (a) or (b) above shall only be liable for
the legal expenses of one counsel (in addition to any local counsel) for all
indemnified parties in each jurisdiction in which any claim or action is
brought. Anything in this subsection to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or action
effected without its prior written consent; provided, however, that such consent
was not unreasonably withheld.
(d) In order to provide for contribution in circumstances in which
the indemnification provided for in this Section 8 is for any reason held to be
unavailable or is insufficient to hold harmless a party indemnified hereunder,
the Company and the Guarantors, on the one hand, and each Holder (who shall be
deemed to agree to these terms by its participation in the Exchange Offer or the
Shelf Registration Statement), on the other hand, shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Company and the Guarantors, any contribution received by the
Company and the Guarantors from persons, other than the Holders, who may also be
liable for contribution, including persons who control the Company and the
Guarantors within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act) to which the Company, the Guarantors and such Holder may be
subject, in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Guarantors, on one hand, and such Holder, on the
other hand, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in this Section 8, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company and the Guarantors, on the one hand, and such
Holder, on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Guarantors, on one hand, and each Holder, on the other hand,
shall be deemed to be in the same proportion as (i) the total proceeds from the
offering of the Notes (net of discounts but before deducting expenses) received
by the Company and the Guarantors and (ii) the total proceeds received by such
Holder upon the sale of the Notes giving rise to such indemnification
obligation. The relative fault of the Company and the Guarantors, on the one
hand, and of each Holder, on the other hand, shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Guarantors or such Holder
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the
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<PAGE>
Guarantors agree and the Holders shall be deemed to agree by their participation
in the Exchange Offer or the Shelf Registration Statement that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to above. Notwithstanding the
provisions of this Section 8(d), (i) in no case shall any Holder be required to
contribute any amount in excess of the dollar amount by which the proceeds
received by such Holder upon the sale of the Notes exceeds the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8(d),
(A) each person, if any, who controls any Holder within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and (B) the respective
officers, directors, partners, employees, representatives and agents of each
Holder or any controlling person shall have the same rights to contribution as
such Holder, and each person, if any, who controls the Company and the
Guarantors within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as the Company and the
Guarantors, subject in each case to clauses (i) and (ii) of this Section 8(d).
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 8(d), notify such party or parties from whom contribution may
be sought, but the failure to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have under this Section 8(d) or otherwise. No party shall be liable
for contribution with respect to any action or claim settled without its prior
written consent; provided, however, that such written consent was not
unreasonably withheld.
SECTION 9. RULE 144A
The Company and the Guarantors hereby agree with each Holder, for so
long as any Transfer Restricted Securities remain outstanding, to make available
to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by a Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
SECTION 12. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors agree that monetary
damages (including the liquidated damages contemplated hereby) would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agree to waive the defense in any
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action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company and the Guarantors will
not, on or after the date of this Agreement, enter into any agreement with
respect to their respective securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. As of the date hereof, there is no agreement in effect
wherein the Company or any of the Guarantors has granted registration rights
with respect to its securities to any Person that is inconsistent wth the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. Neither the Company nor any
Guarantor will take any action, or permit any change to occur, with respect to
the terms of the Notes that would materially and adversely affect the ability of
the Holders to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or any of the Guarantors:
Holmes Products Corp.
233 Fortune Boulevard
Milford, Massachusetts 01757
Telecopy No.: (508) 634-1211
Attention: Chief Financial Officer
With copies to:
Posternak, Blankstein & Lund, L.L.P.
100 Charles River Plaza
Boston, Massachusetts 02114
Telecopy No.: (617) 367-2315
Attention: Donald H. Siegel, P.C.
and
Hutchins, Wheeler & Dittmar, P.C.
101 Federal Street
Boston, Massachusetts 02110
Telecopy No.: (617) 951-1295
Attention: James Westra, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage
15
<PAGE>
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and on the next business day, if timely delivered to an air
courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, however, that
this Agreement shall not inure to the benefit of or be binding upon a successor
or assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement, together with the other
Operative Documents (as defined in the Purchase Agreement), is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
[signature page follows]
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
HOLMES PRODUCTS CORP.
By: /s/ Jordan A. Kahn
----------------------
Name: Jordan A. Kahn
Title: President
HOLMES MANUFACTURING CORP.
By: /s/ Jordan A. Kahn
----------------------
Name: Jordan A. Kahn
Title: President
HOLMES AIR (TAIWAN) CORP.
By: /s/ Jordan A. Kahn
----------------------
Name: Jordan A. Kahn
Title: President
BANCBOSTON SECURITIES INC.
BY: /s/ Neal J. Reiner
-------------------------
Name: Neal J. Reiner
Title: Managing Director
LEHMAN BROTHERS INC.
BY: /s/ John Russell
-------------------------
Name: John Russell
Title:
================================================================================
HOLMES PRODUCTS CORP.
SERIES A AND SERIES B
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
INDENTURE
------------------------
Dated as of November 26, 1997
------------------------
State Street Bank and Trust Company
Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310 (a)(1)........................................................7.10
(a)(2) ...........................................................7.10
(a)(3)............................................................N.A.
(a)(4)............................................................N.A.
(a)(5)............................................................7.10
(i)(b)............................................................7.10
(ii)(c)...........................................................N.A.
311(a)............................................................7.11
(b)...............................................................7.11
(iii(c)...........................................................N.A.
312 (a)...........................................................2.05
(b) .............................................................11.03
(iv)(c)...........................................................11.03
313(a)............................................................7.06
(b)(1)............................................................10.03
(b)(2)............................................................7.07
(v)(c)............................................................7.06;
11.02
(vi)(d)...........................................................7.06
314(a)............................................................4.03;
11.02
(A)(b)............................................................10.02
(c)(1)............................................................11.04
(c)(2)............................................................11.04
(c)(3)............................................................N.A.
(d) .............................................................10.03,
10.04, 10.05
(vii)(e)..........................................................11.05
(f) .............................................................NA
315 (a)...........................................................7.01
(b) .............................................................7.05,
11.02
(B)(c)............................................................7.01
(d) .............................................................7.01
(e) .............................................................6.11
316 (a)(last sentence)............................................2.09
(a)(1)(A).........................................................6.05
(a)(1)(B).........................................................6.04
(a)(2)............................................................N.A.
(b) .............................................................6.07
(C)(c)............................................................2.12
317 (a)(1)........................................................6.08
(a)(2)............................................................6.09
(b) .............................................................2.04
318 (a)...........................................................11.01
(b) ..............................................................N.A.
(c) .............................................................11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE 1
Section 1.01. Definitions. 1
Section 1.02. Other Definitions. 15
Section 1.03. Incorporation by Reference of Trust Indenture Act. 15
Section 1.04. Rules of Construction. 16
ARTICLE 2. THE NOTES 17
Section 2.01. Form and Dating. 17
Section 2.02. Execution and Authentication. 18
Section 2.03. Registrar and Paying Agent. 18
Section 2.04. Paying Agent to Hold Money in Trust. 19
Section 2.05. Holder Lists. 19
Section 2.06. Transfer and Exchange. 19
Section 2.07. Replacement Notes. 30
Section 2.08. Outstanding Notes. 31
Section 2.09. Treasury Notes. 31
Section 2.10. Temporary Notes. 31
Section 2.11. Cancellation. 31
Section 2.12. Defaulted Interest. 32
ARTICLE 3. REDEMPTION AND PREPAYMENT 33
Section 3.01. Notices to Trustee. 33
Section 3.02. Selection of Notes to Be Redeemed. 33
Section 3.03. Notice of Redemption. 33
Section 3.04. Effect of Notice of Redemption. 34
i
<PAGE>
Section 3.05. Deposit of Redemption Price 34
Section 3.06. Notes Redeemed in Part. 34
Section 3.07. Optional Redemption. 35
Section 3.08. Mandatory Redemption. 35
Section 3.09. Offer to Purchase by Application of Excess Proceeds. 35
ARTICLE 4. COVENANTS 37
Section 4.01. Payment of Notes. 37
Section 4.02. Maintenance of Office or Agency. 37
Section 4.03. Reports. 38
Section 4.04. Compliance Certificate. 38
Section 4.05. Taxes. 39
Section 4.06. Stay, Extension and Usury Laws. 39
Section 4.07. Restricted Payments. 40
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries. 42
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock. 43
Section 4.10. Asset Sales 44
Section 4.11. Transactions with Affiliates. 45
Section 4.12. Liens. 45
Section 4.13. Corporate Existence. 45
Section 4.14. Offer to Repurchase Upon Change of Control. 46
Section 4.15. Limitation On Other Senior Subordinated Debt. 47
Section 4.16. Payments for Consent. 47
Section 4.17. Additional Note Guarantees. 47
ARTICLE 5. SUCCESSORS 48
Section 5.01. Merger, Consolidation, or Sale of Assets. 48
Section 5.02. Successor Corporation Substituted. 48
<PAGE>
ARTICLE 6. DEFAULTS AND REMEDIES. 49
Section 6.01. Events of Default. 49
Section 6.02. Acceleration. 50
Section 6.03. Other Remedies. 51
Section 6.04. Waiver of Past Defaults. 51
Section 6.05. Control by Majority. 51
Section 6.06. Limitation on Suits. 52
Section 6.07. Rights of Holders of Notes to Receive Payment. 52
Section 6.08. Collection Suit by Trustee. 52
Section 6.09. Trustee May File Proofs of Claim. 52
Section 6.10. Priorities. 53
Section 6.11. Undertaking for Costs. 53
ARTICLE 7. TRUSTEE. 53
Section 7.01. Duties of Trustee. 54
Section 7.02. Rights of Trustee. 55
Section 7.03. Individual Rights of Trustee. 55
Section 7.04. Trustee's Disclaimer. 55
Section 7.05. Notice of Defaults. 55
Section 7.06. Reports by Trustee to Holders of the Notes. 56
Section 7.07. Compensation and Indemnity. 56
Section 7.08. Replacement of Trustee. 57
Section 7.09. Successor Trustee by Merger, etc. 58
Section 7.10. Eligibility; Disqualification. 58
Section 7.11. Preferential Collection of Claims Against Company. 58
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE 58
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. 58
<PAGE>
Section 8.02. Legal Defeasance and Discharge. 58
Section 8.03. Covenant Defeasance. 59
Section 8.04. Conditions to Legal or Covenant Defeasance. 59
Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. 60
Section 8.06. Repayment to Company. 61
Section 8.07. Reinstatement. 61
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER 61
Section 9.01. Without Consent of Holders of Notes. 62
Section 9.02. With Consent of Holders of Notes. 62
Section 9.03. Compliance with Trust Indenture Act. 63
Section 9.04. Revocation and Effect of Consents. 64
Section 9.05. Notation on or Exchange of Notes. 64
Section 9.06. Trustee to Sign Amendments, etc. 64
ARTICLE 10. SUBORDINATION 64
Section 10.01. Agreement to Subordinate. 64
Section 10.02. Liquidation; Dissolution; Bankruptcy. 64
Section 10.03. Default on Designated Senior Debt. 65
Section 10.04. Acceleration of Securities. 66
Section 10.05. When Distribution Must Be Paid Over. 66
Section 10.06. Notice by Company. 66
Section 10.07. Subrogation. 66
Section 10.08. Relative Rights. 66
Section 10.09. Subordination May Not Be Impaired by Company. 67
Section 10.10. Distribution or Notice to Representative. 67
Section 10.11. Rights of Trustee and Paying Agent. 67
<PAGE>
Section 10.12. Authorization to Effect Subordination. 68
Section 10.13. Amendments. 68
ARTICLE 11. NOTE GUARANTEES 68
Section 11.01. Guarantee. 68
Section 11.02. Subordination of Note Guarantee. 69
Section 11.03. Limitation on Guarantor Liability. 69
Section 11.04. Execution and Delivery of Note Guarantee. 69
Section 11.05. Consolidation, etc. by Guarantors. 70
Section 11.06 Releases Following Sale of Assets. 70
ARTICLE 12. MISCELLANEOUS 71
Section 12.01. Trust Indenture Act Controls. 71
Section 12.02. Notices. 71
Section 12.03. Communication by Holders of Notes with Other Holders of Notes. 72
Section 12.04. Certificate and Opinion as to Conditions Precedent. 72
Section 12.05. Statements Required in Certificate or Opinion. 73
Section 12.06. Rules by Trustee and Agents. 73
Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders. 73
Section 12.08. Governing Law. 73
Section 12.09. No Adverse Interpretation of Other Agreements. 73
Section 12.10. Successors. 73
Section 12.11. Severability. 74
Section 12.12. Counterpart Originals. 74
Section 12.13. Table of Contents, Headings, etc. 74
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
<PAGE>
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit E FORM OF NOTE GUARANTEE
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
</TABLE>
<PAGE>
INDENTURE dated as of November 26, 1997 among Holmes Products
Corp., a Massachusetts corporation, (the "Company"), Holmes Manufacturing Corp.,
Holmes Air (Taiwan) Corp. (together, the "Guarantors") and State Street Bank and
Trust Company, as trustee (the "Trustee").
The Company, the Guarantors and the Trustee agree as follows
for the benefit of each other and for the equal and ratable benefit of the
Holders of the 9 7/8% Series A Senior Subordinated Notes due 2007 (the "Series A
Notes") and the 9 7/8% Series B Senior Subordinated Notes due 2007 (the "Series
B Notes" and, together with the Series A Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Note" means a global note in the form of Exhibit
A-1 hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with or in contemplation
of, such other Person merging with or into or becoming a Subsidiary of such
specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale or leaseback), excluding sales of inventory in the ordinary course of
business consistent with past practices (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Restricted Subsidiaries taken as a whole shall be governed by
Sections 4.14 and 5.01 hereof and not by Section 4.10 hereof), and (ii) the
issue or sale by the Company or any of its Subsidiaries of Equity Interests of
any of the
1
<PAGE>
Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (ii)
an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary and (iii) a Restricted
Payment that is permitted by Section 4.07 hereof shall not be deemed to be Asset
Sales.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the
Company or, any authorized committee thereof; provided that "Board of Directors"
shall not include any authorized committee of the Company's Board of Directors
for purposes of the definition of Change of Control.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distribution of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued by or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any domestic commercial
bank having capital and surplus in excess of $500.0 million and a Thompson or
Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Corporation and in each case maturing within
six months after the date of acquisition and (vi) money market deposit accounts
all of the investments of which consist of cash or Cash Equivalents of the type
described in clauses (i) through (v) above.
"Cedel" means Cedel Bank, SA.
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Restricted
2
<PAGE>
Subsidiaries, taken as a whole, other than to the Principals; (ii) the adoption
of a plan for the liquidation or dissolution of the Company; (iii) prior to the
consummation of an Initial Public Offering, the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that the Principals fail to be the "beneficial owners" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of at least 51% of the aggregate voting power of the outstanding
Voting Stock of the Company; (iv) following the consummation of an Initial
Public Offering, the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" or "group" (as such terms are used in Section 13(d)(3) of the Exchange
Act), other than the Principals, becomes the "beneficial owner" (as such term is
defined in Rule 13-d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of (a) more than 35% of the aggregate voting power of the
outstanding Voting Stock of the Company or (b) more of the voting power of the
outstanding Voting Stock of the Company than the aggregate of that beneficially
owned by the Principals; or (v) the first day on which more than a majority of
the members of the Board of Directors are not Continuing Directors.
"Company" means Holmes Products Corp., a Massachusetts
corporation, and any and all successors thereto.
"Consolidated Cash Flow" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period plus, to
the extent deducted in computing such Consolidated Net Income, (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale, (ii) provision for taxes based on income or profits, (iii)
consolidated interest expense whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations),
excluding, however, amortization of debt issuance costs relating to Indebtedness
incurred in connection with the Transactions (as defined in the Offering
Memorandum), (iv) depreciation and amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period), (v) any compensation expense
resulting from the payment of cash bonuses as a result of the Transactions as
described in the Offering Memorandum under the caption "Management-Employment
Agreements" and (vi) any non-cash compensation expense resulting from
compensation paid in Equity Interests (other than Disqualified Stock) of the
Company, in each case, on a consolidated basis and determined in accordance with
GAAP. Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization of, a Restricted Subsidiary
of a Person shall be added to Consolidated Net Income to compute Consolidated
Cash Flow only to the extent (and in the same proportion) that the Net Income of
such Restricted Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained) pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income (but not
3
<PAGE>
loss) of any Person that is not a Restricted Subsidiary or that is accounted for
by the equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid in cash to the referent Person or a
Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) the Net Income (but not loss) of
any Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as
of any date, the sum of (i) the consolidated equity of the common stockholders
of such Person and its consolidated Restricted Subsidiaries as of such date,
plus (ii) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (a) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the date of this Indenture
in the book value of any asset owned by such Person or a consolidated Restricted
Subsidiary of such Person, (b) all investments (other than Permitted
Investments) as of such date in unconsolidated Subsidiaries and in Persons that
are not Restricted Subsidiaries and (c) all unamortized debt discount and
expense and unamortized deferred charges as of such date, in each case,
determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors who (i) was a member of such Board of
Directors on the date of this Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election.
"Credit Facility" means that certain credit agreement, dated
the date of this Indenture, by and among the Company, each Subsidiary of the
Company party thereto, the lenders party thereto and BankBoston, N.A., as Agent,
as amended, restated, modified, renewed, refunded, replaced, substituted,
restructured or refinanced in whole or in part from time to time, whether with
the present lenders or any other lenders, including any Guarantees thereof.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 12.02 hereof or such other address
as to which the Trustee may give notice to the Company.
"Custodian" means the Trustee, as custodian with respect to
the Notes in global form, or any successor entity thereto.
4
<PAGE>
"Default" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Definitive Note" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.06 hereof, in
the form of Exhibit A-1 hereto except that such Note shall not bear the Global
Note Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depositary with respect to the Notes, and any and all successors
thereto appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Designated Senior Debt" means (i) any Indebtedness and other
obligations outstanding under the Credit Facility (and any guarantees thereof)
and (ii) any other Senior Debt permitted under this Indenture the principal
amount of which is $10.0 million or more and that has been designated in writing
to the Trustee by the Company, and, so long as the Credit Facility is in effect,
the Agent (as defined therein) thereunder, as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the Holder thereof, in whole or in part, on or
prior to the date that is 91 days after the date on which the Notes mature.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary
that is organized pursuant to the laws of any state or other jurisdiction in the
United States.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the Notes issued in the Exchange Offer
pursuant to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration
Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set
forth in the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness in existence on the
date of this Indenture (other than Indebtedness under the Credit Facility),
until such Indebtedness is repaid.
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"Fixed Charge Coverage Ratio" means with respect to any Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person and its Restricted Subsidiaries for
such period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, guarantees, repays or redeems any Indebtedness (other than
revolving credit borrowings) or issues or redeems preferred stock subsequent to
the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee, repayment or redemption of
Indebtedness, or such issuance or redemption of preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period (including any pro forma expense and cost reductions) and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges shall not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations),
excluding, however, amortization of debt issuance costs relating to Indebtedness
incurred in connection with the Transactions, (ii) the consolidated interest
expense of such Person and its Restricted Subsidiaries that was capitalized
during such period, (iii) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted Subsidiaries
(whether or not such Guarantee or Lien is called upon) and (iv) the product of
(a) all dividend payments, whether or not in cash, on any series of preferred
stock of such Person or any of its Restricted Subsidiaries, other than dividend
payments on Equity Interests payable solely in Equity Interests of the Company,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect as of the date of this
Indenture.
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"Global Notes" means, individually and collectively, each of
the Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A-1 hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii) and, if applicable, Section 2.06(g)(iii), which are required to be
placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America, and the payment for
which the United States pledges its full faith and credit.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Guarantor" means each Person named as a Guarantor in the
preamble to this Indenture, any Domestic Restricted Subsidiary that executes a
Note Guarantee in accordance with the provisions of this Indenture, and all
successors and assigns of each of the foregoing.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means the global Note in the form of Exhibit
A-1 hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.
"Indebtedness" means, with respect to any Person, without
duplication, (i) any indebtedness of such Person, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
indebtedness (other than letters of credit and Hedging Obligations) would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, (ii) all indebtedness of others secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Person) up to the
fair market value of such asset and (iii) to the extent not otherwise included,
the Guarantee by such Person of any indebtedness of any other Person.
Notwithstanding the foregoing, Indebtedness shall not include payment,
performance or surety bonds or standby letters of credit issued in the ordinary
course of business.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
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"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Initial Purchasers" means BancBoston Securities Inc. and
Lehman Brothers Inc.
"Initial Public Offering" means one or more underwritten
public offerings of the common stock of the Company registered under the
Securities Act.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. If the Company or any Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Subsidiary not sold or
disposed of in an amount determined as provided in the third full paragraph of
Section 4.07 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York, New York or Boston, Massachusetts
or at a place of payment are authorized by law, regulation or executive order to
remain closed. If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue on such payment for the intervening
period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Notes for use by such
Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such
8
<PAGE>
Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any
extraordinary or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
severance, termination, closing, relocation or similar expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness: (i) as to which
neither the Company nor any of its Restricted Subsidiaries (a) provides credit
support of any kind (including any undertaking, agreement or instrument that
would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise) or (c) constitutes the lender; (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes) of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Guarantee" means the Guarantee by each Guarantor of the
Company's payment obligations under this Indenture and the Notes, executed
pursuant to the provisions of this Indenture.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Obligations" means any principal, interest (including
Post-Petition Interest), penalties, fees, expenses, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Offering Memorandum" means the Offering Memorandum, dated
November 19, 1997, relating to the Notes.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
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"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Sections
12.04 and 12.05 hereof. The counsel may be an employee of or counsel to the
Company, any Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear
or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"Participating Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Permitted Investments" means (i) any Investment in the
Company or in a Wholly Owned Restricted Subsidiary of the Company; (ii) any
Investment in Cash Equivalents; (iii) any Investment by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (a) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company and a Guarantor or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Restricted
Subsidiary of the Company; (iv) any Restricted Investment made as a result of
the receipt of non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with Section 4.10 hereof; (v) any acquisition of an
Investment solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; (vi) advances to employees in the ordinary
course of business; and (vii) other Investments in any Person (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (vii) that are at the time outstanding, not to exceed $5.0
million.
"Permitted Junior Securities" means Equity Interests in the
Company or debt securities that (i) are subordinated to all Senior Debt (and any
debt securities issued in exchange for Senior Debt) to substantially the same
extent as, or to a greater extent than, the Notes are subordinated to Senior
Debt pursuant to Article 10 hereof and (ii) have a maturity no earlier than the
maturity of the Notes and a weighted Average Life to Maturity no shorter than
the weighted Average Life to Maturity of the Notes.
"Permitted Liens" means (i) Liens securing Senior Debt of the
Company and its Restricted Subsidiaries that was permitted by the terms of this
Indenture to be incurred; (ii) Liens in favor of the Company or any of its
Restricted Subsidiaries; (iii) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens existing, or created pursuant to
obligations existing, on the date of this Indenture; (vii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefore; (viii) statutory or common law Liens of
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landlords, and Liens of carriers, warehousemen, mechanics and materialmen, and
other Liens imposed by law created in the ordinary course of business for
amounts not yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves are being maintained;
(ix) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security; (x) easements, rights of way and other similar Liens not
materially interfering with the ordinary conduct of the business of the Company
and its Restricted Subsidiaries or any of their respective properties; (xi)
Liens with respect to obligations that do not exceed $2.0 million at any one
time outstanding and that (a) are not incurred in connection with the borrowing
of money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Restricted Subsidiary; (xii) Liens
incurred in the ordinary course of business consistent with past practices in
favor of a Person providing insurance of collection of certain of the Company's
accounts receivable, provided such Liens cover only those receivables so
insured; and (xiii) extensions, renewals or replacements of any Lien referred to
in clauses (i) through (xii) of this paragraph, provided that the principal
amount of the Indebtedness or Obligation secured thereby is not increased and
that any such extension, renewal or replacement is limited to the property
originally encumbered by the Lien being extended, renewed or replaced.
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness is subordinated in right of payment to the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary that is an obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Transferee" means each person or entity to whom
Jordan A. Kahn may transfer shares of common stock of the Company pursuant to
Section 4.1 of the Stock Purchase Agreement, dated as of October 27, 1997,
between Jordan A. Kahn and Homes Acquisition LLC, as in effect on the date of
this Indenture.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
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"Post-Petition Interest" means, with respect to any Senior
Debt after the commencement of any liquidation or dissolution of the Company,
any bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, any assignment for the benefit of
creditors or any marshaling of the Company's assets and liabilities, interest at
the rate specified in the documents governing such Senior Debt, whether or not a
claim therefor would be allowed in any such proceeding.
"Principals" means Berkshire Partners LLC, Berkshire Fund IV
L.P., Berkshire Fund IV Investment Corp., Berkshire Investors LLC and any of
their respective Affiliates, Jordan A. Kahn and his Affiliates, Stanley
Rosenzweig and Gregory F. White; provided, however, that for purposes of the
provisions of this Indenture set forth under Section 4.14 and the definition of
"Change of Control" set forth in this Section 1.01, any shares of Capital Stock
of the Company owned by a Permitted Transferee on the Closing Date, and any
shares of Capital Stock of the Company owned by Jordan A. Kahn on the Closing
Date but that subsequently are transferred to a Permitted Transferee, will in
each case be deemed to be owned by Jordan A. Kahn.
"Private Placement Legend" means the legend set forth in
Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except
where otherwise permitted by the provisions of this Indenture.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of November 26, 1997, by and among the Company, the
Guarantors and the Initial Purchasers as such agreement may be amended, modified
or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Regulation S Global Note" means the Regulation S Permanent
Global Note or the Regulation S Temporary Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global
Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the
Private Placement Legend and deposited with or on behalf of and registered in
the name of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global
Note in the form of Exhibit A-2 hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee, issued in a denomination equal to the outstanding principal amount
of the Notes initially sold in reliance on Rule 903 of Regulation S.
"Representative" means the indenture trustee or other trustee,
agent or representative for the holders of any Senior Debt.
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Department of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above
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designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing
the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the
Private Placement Legend.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Period" means the 40-day restricted period as
defined in Regulation S.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities
Act.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"Rule 903" means Rule 903 promulgated under the Securities
Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" of a Person means (i) all Obligations of such
Person outstanding under the Credit Facility, (ii) any other Indebtedness of
such Person permitted to be incurred under the terms of this Indenture, unless
the instrument under which such Indebtedness is incurred expressly provides that
it is subordinated in right of payment to any Senior Debt of such Person and
(iii) all Obligations of such Person with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt of a
Person shall not include (a) any liability for federal, state, local or other
taxes owed or owing by such Person, (b) any Indebtedness of such Person to any
of its Subsidiaries or other Affiliates, (c) any trade payables or (d) any
Indebtedness that is incurred in violation of this Indenture.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect
on the date hereof.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be redeemed or paid in the
original documentation governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
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"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital 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 or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.ss.ss.)
as in effect on the date on which this Indenture is qualified under the TIA.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive
Notes that do not bear and are not required to bear the Private Placement
Legend.
"Unrestricted Global Note" means a permanent Global Note in
the form of Exhibit A-1 attached hereto that bears the Global Note Legend and
that has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Subsidiary" means (i) any Subsidiary that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
board resolution, but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not a party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company, (c) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (1) to subscribe for additional Equity Interests or (2) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; and (e) has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries.
"Voting Stock" of any Person as of any date means Capital
Stock of such Person that is at the time entitled to vote in the election of the
Board of Directors.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
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"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"............................4.11
"Asset Sale Offer".................................4.10
"Authentication Order".............................2.02
"Change of Control Offer"..........................4.14
"Change of Control Payment"........................4.14
"Change of Control Payment Date" ..................4.14
"Covenant Defeasance"..............................8.03
"Event of Default".................................6.01
"Excess Proceeds"..................................4.10
"incur"............................................4.09
"Legal Defeasance" ................................8.02
"Offer Amount".....................................3.09
"Offer Period".....................................3.09
"Paying Agent".....................................2.03
"Payment Default" .................................6.01
"Payment Blockage Notice" .........................10.03
"Permitted Debt"...................................4.09
"Purchase Date"....................................3.09
"Registrar"........................................2.03
"Restricted Payments"..............................4.07
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
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"obligor" on the Notes and the Note Guarantees means the
Company and the Guarantors, respectively, and any successor obligor upon the
Notes and the Note Guarantees, respectively.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute, replacement of
successor sections or rules adopted by the SEC from time to time.
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ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) General. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A-1 hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company, the Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and agree to be bound
thereby. However, to the extent any provision of any Note conflicts with the
express provisions of this Indenture, the provisions of this Indenture shall
govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially
in the form of Exhibits A-1 or A-2, as applicable, attached hereto (including
the Global Note Legend thereon and the "Schedule of Exchanges of Interests in
the Global Note" attached thereto). Notes issued in definitive form shall be
substantially in the form of Exhibit A-1 attached hereto (but without the Global
Note Legend thereon and without the "Schedule of Exchanges of Interests in the
Global Note" attached thereto). Each Global Note shall represent such of the
outstanding Notes as shall be specified therein and each shall provide that it
shall represent the aggregate principal amount of outstanding Notes from time to
time endorsed thereon and that the aggregate principal amount of outstanding
Notes represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the aggregate
principal amount of outstanding Notes represented thereby shall be made by the
Trustee or the Custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.06 hereof.
(c) Temporary Global Notes. Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S Temporary
Global Note, which shall be deposited on behalf of the purchasers of the Notes
represented thereby with the Trustee, as custodian for the Depositary, and
registered in the name of the Depositary or the nominee of the Depositary for
the accounts of designated agents holding on behalf of Euroclear or Cedel, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The Restricted Period shall be terminated upon the receipt by the
Trustee of (i) a written certificate from the Depositary, together with copies
of certificates from Euroclear and Cedel certifying that they have received
certification of non-United States beneficial ownership of 100% of the aggregate
principal amount of the Regulation S Temporary Global Note (except to the extent
of any beneficial owners thereof who acquired an interest therein during
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the Restricted Period pursuant to another exemption from registration under the
Securities Act and who will take delivery of a beneficial ownership interest in
a 144A Global Note or an IAI Global Note bearing a Private Placement Legend, all
as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers'
Certificate from the Company. Following the termination of the Restricted
Period, beneficial interests in the Regulation S Temporary Global Note shall be
exchanged for beneficial interests in the Regulation S Permanent Global Note
pursuant to the Applicable Procedures. Simultaneously with the authentication of
the Regulation S Permanent Global Note, the Trustee shall cancel the Regulation
S Temporary Global Note. The aggregate principal amount of the Regulation S
Temporary Global Note and the Regulation S Permanent Global Notes may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depositary or its nominee, as the case may be, in connection
with transfers of interest as hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" of Euroclear and the "General Terms and Conditions
of Cedel Bank" and "Customer Handbook" of Cedel shall be applicable to transfers
of beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by Participants through
Euroclear or Cedel.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes and may
be in facsimile form.
If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed
by two Officers (an "Authentication Order"), authenticate Notes for original
issue up to the aggregate principal amount stated in paragraph 4 of the Notes.
The aggregate principal amount of Notes outstanding at any time may not exceed
such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be
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presented for payment ("Paying Agent"). The Registrar shall keep a register of
the Notes and of their transfer and exchange. The Company may appoint one or
more co-registrars and one or more additional paying agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent" includes any
additional paying agent. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company shall notify the Trustee in writing of
the name and address of any Agent not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Company or any of its Subsidiaries may act as
Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Custodian with respect to the Global
Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that such Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at least
seven Business Days before each interest payment date and at such other times as
the Trustee may request in writing, a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, by the Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary. All Global Notes will be exchanged by the
Company for Definitive Notes if (i) the Company delivers to the Trustee notice
from the Depositary that it is no longer willing or able to act as Depositary or
that it is no longer a clearing
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agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by the Company within 90 days after the date of such
notice from the Depositary or (ii) the Company in its sole discretion determines
that the Global Notes (in whole but not in part) should be exchanged for
Definitive Notes and delivers a written notice to such effect to the Trustee;
provided that in no event shall the Regulation S Temporary Global Note be
exchanged by the Company for Definitive Notes prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act.
Upon the occurrence of either of the preceding events in (i)
or (ii) above, Definitive Notes shall be issued in such names as the Depositary
shall instruct the Trustee. Global Notes also may be exchanged or replaced, in
whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note
authenticated and delivered in exchange for, or in lieu of, a Global Note or any
portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof,
shall be authenticated and delivered in the form of, and shall be, a Global
Note. A Global Note may not be exchanged for another Note other than as provided
in this Section 2.06(a), however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof through the Depositary in the form of a
beneficial interest in the same Restricted Global Note in accordance with
the transfer restrictions set forth in the Private Placement Legend;
provided, however, that prior to the expiration of the Restricted Period,
transfers of beneficial interests in the Temporary Regulation S Global Note
may not be made to a U.S. Person or for the account or benefit of a U.S.
Person (other than the Initial Purchasers) Beneficial interests in any
Unrestricted Global Note may be transferred to Persons who take delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note. No written orders or instructions shall be required to be delivered
to the Registrar to effect the transfers described in this Section
2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 2.06(b)(i) above, the transferor
of such beneficial interest must deliver to the Registrar either (A) (1) a
written order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given in accordance with the
Applicable
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Procedures containing information regarding the Participant account to be
credited with such increase or (B) (1) a written order from a Participant
or an Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary to
the Registrar containing information regarding the Person in whose name
such Definitive Note shall be registered to effect the transfer or exchange
referred to in (1) above; provided that in no event shall Definitive Notes
be issued upon the transfer or exchange of beneficial interests in the
Regulation S Temporary Global Note prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903 under the Securities Act. Upon consummation
of an Exchange Offer by the Company in accordance with Section 2.06(f)
hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to
have been satisfied upon receipt by the Registrar of the instructions
contained in the Letter of Transmittal delivered by the Holder of such
beneficial interests in the Restricted Global Notes. Upon satisfaction of
all of the requirements for transfer or exchange of beneficial interests in
Global Notes contained in this Indenture and the Notes or otherwise
applicable under the Securities Act, the Trustee shall adjust the principal
amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof through the Depositary
in the form of a beneficial interest in another Restricted Global Note if
the transfer complies with the requirements of Section 2.06(b)(ii) above
and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or
the Regulation S Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications and certificates and Opinion of
Counsel required by item (3) thereof, if applicable.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof through the Depositary
in the form of a beneficial interest in an Unrestricted Global Note if the
exchange or transfer complies with the requirements of Section 2.06(b)(ii)
above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in the
case
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of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a broker-dealer, (2) a Person participating in
the distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a beneficial
interest in an Unrestricted Global Note, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item (1)(a) thereof;
or
(2) if the holder of such beneficial interest in a Restricted
Global Note proposes to transfer such beneficial interest to a Person who shall
take delivery thereof through the Depositary in the form of a beneficial
interest in an Unrestricted Global Note, a certificate from such holder in the
form of Exhibit B hereto, including the certifications in item (4) thereof; and,
in each such case set forth in this subparagraph (D), if the Registrar so
requests or if the Applicable Procedures so require, an Opinion of Counsel in
form reasonably acceptable to the Registrar to the effect that such exchange or
transfer is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no longer
required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof from the Trustee in the form of a Restricted
Definitive Note, then, upon receipt by the Registrar of the following
documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a
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certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than
those listed in subparagraphs (B) through (D) above, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by
item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in
item (3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(c) thereof, the Trustee shall cause
the aggregate principal amount of the applicable Global Note to be
reduced accordingly pursuant to Section 2.06(h) hereof, and the
Company shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive
Note in the appropriate principal amount. Any Definitive Note
issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c)(i) shall be
registered in such name or names and in such authorized
denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from
the Depositary and the Participant or Indirect Participant. The
Trustee shall deliver such Definitive Notes to the Persons in
whose names such Notes are so registered. Any Definitive Note
issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c)(i) shall bear the
Private Placement Legend and shall be subject to all restrictions
on transfer contained therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
exchanged for a Definitive Note or transferred to a Person who takes
delivery thereof in the form of a Definitive Note prior to (x) the
expiration of
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the Restricted Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903(c)(3)(ii)(B) under the
Securities Act, except in the case of a transfer pursuant to an exemption
from the registration requirements of the Securities Act other than Rule
903 or Rule 904.
(iii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A holder of a beneficial interest in a Restricted Global
Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes
delivery thereof from the Trustee in the form of an Unrestricted Definitive
Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest, in the case
of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not
(1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a Definitive Note that does not bear the Private Placement Legend,
a certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest to
a Person who shall take delivery thereof from the Trustee in the form
of a Definitive Note that does not bear the Private Placement Legend, a
certificate from such holder in the form of Exhibit B hereto, including
the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted
Definitive Notes. If any holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for a Definitive
Note or to transfer such beneficial interest to a Person who takes delivery
thereof from the Trustee in the form of a Definitive Note, then, upon
satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the
Trustee shall cause the aggregate principal
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amount of the applicable Global Note to be reduced accordingly pursuant to
Section 2.06(h) hereof, and the Company shall execute and, upon receipt of
an Authentication Order, the Trustee shall authenticate and deliver to the
Person designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iv) shall be registered in such
name or names and in such authorized denomination or denominations as the
holder of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to the Persons
in whose names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest pursuant to this Section 2.06(c)(iv)
shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note or
to transfer such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted Global Note,
then, upon surrender of Restricted Definitive Notes to the Trustee and
receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes
to exchange such Note for a beneficial interest in a Restricted
Global Note, a certificate from such Holder in the form of Exhibit
C hereto, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to
a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to
a Non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to
an Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other
than those listed in subparagraphs (B) through (D) above, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications, certificates and Opinion of Counsel required
by item (3) thereof, if applicable;
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(F) if such Restricted Definitive Note is being transferred to
the Company or any of its Subsidiaries, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case of
clause (A) above, the appropriate Restricted Global Note, in the case
of clause (B) above, the 144A Global Note, in the case of clause (C)
above, the Regulation S Global Note, and in all other cases, the IAI
Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note
or transfer such Restricted Definitive Note to a Person who takes delivery
thereof from the Trustee in the form of a beneficial interest in an
Unrestricted Global Note upon surrender of the Restricted Definitive Notes
only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a
Person participating in the distribution of the Exchange Notes or
(3) a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof in the
form of a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B hereto, including
the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
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Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note
or transfer such Definitive Notes to a Person who takes delivery thereof
from the Trustee in the form of a beneficial interest in an Unrestricted
Global Note at any time. Upon receipt of a request for such an exchange or
transfer and surrender of the Unrestricted Definitive Note, the Trustee
shall cancel the applicable Unrestricted Definitive Note and increase or
cause to be increased the aggregate principal amount of one of the
Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present and surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his or her attorney, duly authorized in writing. In addition, the requesting
Holder shall provide any additional certifications, documents and information,
as applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the name
of Persons who take delivery thereof from the Trustee in the form of a
Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications in
item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2)
thereof; and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities
Act, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable.
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(ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any
Restricted Definitive Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Note or transferred to a Person or Persons who take
delivery thereof from the Trustee in the form of an Unrestricted Definitive
Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a
Person participating in the distribution of the Exchange Notes or
(3) a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit C hereto, including
the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take delivery
thereof from the Trustee in the form of an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A
Holder of Unrestricted Definitive Notes may transfer such Notes to a Person
who takes delivery thereof from the Trustee in the form of an Unrestricted
Definitive Note. Upon receipt of a request to register such a transfer, the
Registrar shall register the Unrestricted Definitive Notes pursuant to the
instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of
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Transmittal that (x) they are not broker-dealers, (y) they are not participating
in a distribution of the Exchange Notes and (z) they are not affiliates (as
defined in Rule 144) of the Company, and accepted for exchange in the Exchange
Offer and (ii) Definitive Notes in an aggregate principal amount equal to the
principal amount of the Restricted Definitive Notes accepted for exchange in the
Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall
cause the aggregate principal amount of the applicable Restricted Global Notes
to be reduced accordingly, and the Company shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the Holders of Definitive
Notes so accepted Definitive Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of
all Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT
ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS
ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT
WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING
INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF
APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE
TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(A) TO THE COMPANY, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES
IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE
UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS
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RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS
IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF
TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR
(F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH
ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE
TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING
RESTRICTIONS."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii),
(c)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this
Section 2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE
SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF
THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT
IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL
NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO
SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF
THE COMPANY."
(iii) Regulation S Temporary Global Note Legend The Regulation S
Temporary Global Note shall bear a legend in substantially the following
form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND
THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED
NOTES, ARE AS SPECIFIED IN THE INDENTURE. NEITHER THE HOLDER NOR THE
BENEFICIAL OWNER OF THIS REGULATION S TEMPORARY
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GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 3.09, 4.10, 4.14 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any registration
of transfer or exchange of Global Notes or Definitive Notes shall be the
valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Global Notes or Definitive
Notes surrendered upon such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business on
the day of selection, (B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part
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or (c) to register the transfer of or to exchange a Note between a record
date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of any
Note, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Note is registered as the absolute owner of such Note for
the purpose of receiving payment of principal of and interest on such Notes
and for all other purposes, and none of the Trustee, any Agent or the
Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive Notes
in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee,
upon receipt of an Authentication Order, shall authenticate a replacement Note
if the Trustee's requirements are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
any Agent and any authenticating agent from any loss that any of them may suffer
if a Note is replaced. The Company may charge for its expenses in replacing a
Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, those reductions in the interest in a Global Note effected
by the Trustee in accordance with the provisions hereof and those described in
this Section 2.08 as not outstanding. Except as set forth in Section 2.09
hereof, a Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
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SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that the Trustee knows are so owned
shall be so disregarded.
SECTION 2.10. TEMPORARY NOTES.
Until certificates representing Notes are ready for delivery,
the Company may prepare and the Trustee, upon receipt of an Authentication
Order, shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of certificated Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
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ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed or purchased
in an offer to purchase at any time, the Trustee shall select the Notes to be
redeemed or purchased among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or in accordance with any other method the Trustee considers fair and
appropriate; provided that no Notes of $1,000 or less shall be redeemed in part.
In the event of partial redemption by lot, the particular Notes to be redeemed
shall be selected, unless otherwise provided herein, not less than 30 nor more
than 60 days prior to the redemption date by the Trustee from the outstanding
Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not a multiple
of $1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30
days but not more than 60 days before a redemption date, the Company shall mail
or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
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(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section
3.03 hereof, Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE
One Business Day prior to the redemption date, the Company
shall deposit with the Trustee or with the Paying Agent money sufficient to pay
the redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon receipt of an Authentication Order, the Trustee shall
authenticate for the Holder, at the expense of the Company, a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
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SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07, the Notes
shall not be redeemable at the Company's option prior to November 15, 2002.
Thereafter, the Notes shall be subject to redemption at any time at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on November 15 of the years indicated below:
Year Percentage
---- ----------
2002......................................104.938%
2003......................................103.292%
2004......................................101.646%
2005 and thereafter.......................100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07,
prior to November 15, 2000, the Company may redeem up to an aggregate of $33.0
million in principal amount of Notes at redemption price of 109.875% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date, with the net cash proceeds of
one or more offerings of Equity Interests (other than Disqualified Stock) of the
Company, provided that (i) at least $72.0 million in principal amount of the
Notes originally issued under this Indenture remains outstanding immediately
after the occurrence of each such redemption and (ii) notice of such redemption
shall be given within 90 days of the date of the consummation of each such
public offering.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth in Sections 4.10 and 4.14 hereof, the
Company shall not be required to make mandatory redemption payments with respect
to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the
Company shall be required to commence an Asset Sale Offer, it shall follow the
procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
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If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company
shall send, by first class mail, a notice to each of the Holders, with a copy to
the Trustee. The notice shall contain all instructions and materials necessary
to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The
Asset Sale Offer shall be made to all Holders. The notice, which shall govern
the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may only elect to have all of such Note purchased and may not
elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Company, a depositary, if appointed by
the Company, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Trustee shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
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(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the
extent lawful, accept for payment, on a pro rata basis to the extent necessary,
the Offer Amount of Notes or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered, all Notes
tendered, and shall deliver to the Trustee an Officers' Certificate stating that
such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Company, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, and the Company shall promptly issue a new
Note, and the Trustee, upon written request from the Company, shall authenticate
and mail or deliver such new Note to such Holder, in a principal amount equal to
any unpurchased portion of the Note surrendered. Any Note not so accepted shall
be promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce the results of the Asset Sale Offer on the
Purchase Date.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
purchase of Notes in connection with an Asset Sale Offer.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, holds as of 10:00 a.m. New York Time on the due date
money deposited by the Company in immediately available funds and designated for
and sufficient to pay all principal, premium, if any, and interest then due. The
Company shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at the
rate equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace period)
at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or
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co-registrar) where Notes may be surrendered for registration of transfer or for
exchange and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company shall give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or the Company shall fail to furnish the Trustee with
the address thereof, such presentations, surrenders, notices and demands may be
made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in accordance with
Section 2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the SEC,
so long as any Notes are outstanding, the Company shall furnish to Trustee and
the Holders of Notes, (i) all quarterly and annual financial information
(excluding exhibits and financial schedules) that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were
required to file such Forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and its consolidated
Subsidiaries (showing in reasonable detail, either on the face of the financial
statements or in the footnotes thereto, the consolidated financial condition and
results of operations of the Company and its Restricted Subsidiaries separate
from the financial information and results of operations of the Unrestricted
Subsidiaries of the Company) and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the SEC on Form 8-K if
the Company were required to file such reports. In addition, whether or not
required by the rules and regulations of the SEC, the Company shall file a copy
of all such information and reports with the SEC for public availability (unless
the SEC will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. The Company shall at
all times comply with TIA ss. 314(a).
(b) For so long as any Notes remain outstanding, the Company and its
Restricted Subsidiaries shall furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company and each Guarantor (to the extent that such Guarantor
is so required under the TIA) shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company or such Guarantor, as applicable, have kept,
observed, performed and fulfilled its obligations under this Indenture and
further stating, as to each such Officer signing such certificate, that to the
best of his or her knowledge the Company and the Guarantors have kept, observed,
performed and fulfilled each and every covenant contained in this Indenture and
is not in default in the performance or observance of any of the terms,
provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action the Company or such
Guarantor, as applicable, is taking or proposes to take with respect thereto)
and that to the best of his or her knowledge, no event has occurred and remains
in existence by reason of which payments on account of the principal of or
interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company or such Guarantor, as
applicable, is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) hereof shall be accompanied by
a written statement of the Company's independent public accountants (who shall
be a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
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SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and each of the Guarantors covenant (to the extent
that they may lawfully do so) that they shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and the Company and each of the Guarantors (to the extent that they may lawfully
do so) hereby expressly waives all benefit or advantage of any such law, and
covenants that they shall not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company) or to any direct or indirect
holders of the Company's Equity Interests in their capacity as such (other than
dividends or distributions (a) payable in Equity Interests (other than
Disqualified Stock) of the Company or (b) to the Company or any Wholly Owned
Restricted Subsidiary of the Company; (ii) purchase, redeem or otherwise acquire
or retire for value (including, without limitation, in connection with any
merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company (other than any such
Equity Interests owned by the Company or any Wholly Owned Restricted Subsidiary
of the Company); (iii) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness of the
Company or any Restricted Subsidiary that is subordinated to the Notes or any
Note Guarantee, except a payment of interest or principal at Stated Maturity; or
(iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment has been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of this Indenture (excluding Restricted Payments permitted by
clause (ii) through (iv) of the next succeeding paragraph), is less than the sum
of (i) 50% of the Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing after the date of this Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
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Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale since the date of this Indenture of Equity
Interests of the Company (other than Disqualified Stock) or of Disqualified
Stock or debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or convertible debt securities that have been converted into
Disqualified Stock), plus (iii) 50% of any dividends received by the Company or
a Wholly Owned Restricted Subsidiary of the Company after the date of this
Indenture from an Unrestricted Subsidiary of the Company, to the extent that
such dividends that were not otherwise included in Consolidated Net Income of
the Company for such period.
The foregoing provisions shall not prohibit (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at the
date of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
or any Restricted Subsidiary in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c)(ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) payments pursuant to the Transactions as
described under the caption "The Transactions; Use of Proceeds" and
"Management--Employment Agreements" in the Offering Memorandum; (v) so long as
no Default or Event of Default shall have occurred and be continuing immediately
after such transaction, the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any of its
Restricted Subsidiaries') management or Board of Directors pursuant to any
management equity subscription agreement, stock option agreement or other
similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed the
sum of (a) $500,000 in any twelve-month period plus (b) the aggregate net
proceeds received by the Company from the issuance after the date of this
Indenture of Equity Interests (other than Disqualified Stock) of the Company to
members of management or the Board of Directors of the Company or any of its
Restricted Subsidiaries; provided that the amount of any such net cash proceeds
that are utilized for any such repurchase, redemption or other acquisition or
retirement shall be excluded from clause (c)(ii) of the preceding paragraph),
and, (vi) payments to Berkshire Partners LLC pursuant to the Management
Agreement (as defined in the Offering Memorandum) in an amount not to exceed
$400,000 in any calendar year; provided that any such payments that could have
been made in a calendar year pursuant to this clause (vi) but that are not so
made, may be made in any subsequent calendar year.
The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined in
good faith by the Board of Directors whose resolution with respect thereto shall
be delivered to the Trustee. Not later
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than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Section 4.07 were computed.
The Board of Directors may designate any Restricted Subsidiary
to be an Unrestricted Subsidiary if such designation would not cause a Default.
For purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated shall be deemed to be Restricted Payments at the
time of such designation and shall reduce the amount available for Restricted
Payments under the first paragraph of this Section 4.07. All such outstanding
Investments shall be deemed to constitute Investments in an amount equal to the
greatest of (i) the net book value of such Investments at the time of such
designation, (ii) the fair market value of such Investments at the time of such
designation and (iii) the original fair market value of such Investments at the
time they were made. Such designation shall only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
board resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions. If, at
any time, any Unrestricted Subsidiary would fail to meet the definition of an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09 hereof, the Company shall be in
default of such Section). The Board of Directors may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under Section 4.09 hereof, calculated on a pro forma basis as if
such designation had occurred at the beginning of the four-quarter reference
period, and (ii) no Default or Event of Default would be in existence
immediately following such designation.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a)(i) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (A) on its
Capital Stock or (B) with respect to any other interest or participation in, or
measured by, its profits or (ii) pay any indebtedness owed to the Company or any
of its Restricted Subsidiaries, (b) make loans or advances to the Company or any
of its Restricted Subsidiaries or (c) transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reasons of (i) Existing
Indebtedness as in effect on the date of this Indenture, (ii) the Credit
Facility as in effect as of the date of this Indenture and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Credit
Facility as in effect on the date of this Indenture, (iii) this Indenture, the
Notes and the Note Guarantees, (iv) applicable law, (v) any instrument governing
Indebtedness or
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Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of this Indenture to
be incurred, (vi) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of businesses, (vii) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (c) above on the property so
acquired, (viii) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced, or (ix) restrictions with respect
to a Subsidiary of the Company imposed pursuant to a binding agreement which has
been entered into for the sale or disposition of all of the Capital Stock or all
or substantially all of the assets of such Subsidiary .
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company shall not permit any
of its Restricted Subsidiaries to issue any shares of preferred stock (other
than to the Company or another Restricted Subsidiary); provided, however, that
the Company and its Restricted Subsidiaries may incur Indebtedness (including
Acquired Debt) and the Company's Restricted Subsidiaries may issue shares of
preferred stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such preferred stock is issued would have been at
least 2.0 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or the preferred stock had been issued at the beginning of
such four-quarter period.
The provisions of the first paragraph of this Section 4.09
shall not apply to the incurrence of any of the following (collectively,
"Permitted Debt");
(i) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness under the Credit Facility; in an aggregate amount not to
exceed the greater of (a) $100.0 million at any time outstanding, less the
aggregate amount of all Net Proceeds of Asset Sales applied to repay any
such Indebtedness pursuant to clause (a) of the second paragraph of Section
4.10 or (b) the sum of 80% of the accounts receivable plus 50% of the
inventory, in each case of the Company and its Restricted Subsidiaries, net
of reserves, as shown on the most recent balance sheet of the Company and
its Restricted Subsidiaries ;
(ii) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes and the Note Guarantees;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
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(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
that was permitted to be incurred by the first paragraph, or by clauses
(ii) through (viii) of the second paragraph of this Section 4.09;
(v) the incurrence of Indebtedness between or among the Company and any
of its Wholly Owned Restricted Subsidiaries; provided, however, that (a) if
the Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full of all Obligations with
respect to the Notes and (b) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person
other than the Company or a Wholly Owned Restricted Subsidiary, and any
sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Wholly Owned Restricted Subsidiary, shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Restricted Subsidiary, as the case may be;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate amount not to
exceed $15.0 million at any time; and
(viii) the guarantee by the Company or any of the Guarantors of
Indebtedness that was permitted to be incurred by another provision of this
Section 4.09.
For purposes of determining compliance with this Section 4.09,
in the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Debt described in clauses (i) through (viii) above
or is entitled to be incurred pursuant to the first paragraph of this Section
4.09, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this Section 4.09 and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. Accrual of interest, the
accretion of accreted value and the payment of interest in the form of
additional Indebtedness shall not be deemed to be an incurrence of Indebtedness
for purposes of this Section 4.09.
SECTION 4.10. ASSET SALES
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (a) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or such Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any Note
Guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (b) any securities, notes or
other obligations received by the Company or such Restricted Subsidiary
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from such transferee that are immediately converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received) shall be
deemed to be cash for purposes of this provision.
Within 360 days of the receipt of any Net Proceeds from an
Asset Sale, the Company or any of its Restricted Subsidiaries may apply such Net
Proceeds, at its option, (a) to repay Senior Debt of the Company or any of its
Restricted Subsidiaries or to provide cash collateral with respect to any
letters of credit outstanding under the Credit Facility and, in each case, to
correspondingly reduce commitments with respect thereto in the case of revolving
borrowings or (b) to the acquisition of a controlling interest in another
business, the making of a capital expenditure or the acquisition of other
long-term assets. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce Senior Debt or otherwise invest such Net Proceeds
in any manner that is not prohibited by this Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph shall be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall be
required to make an offer to all Holders of Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds at an offer price in cash in an amount equal to 100% of the
principal amount thereof; plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase, in accordance with the
procedures set forth in this Indenture. To the extent that the aggregate
principal amount of Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of an Asset Sale Offer, the amount of Excess Proceeds shall be reset
at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (a) such Affiliate Transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (b) the Company delivers to the Trustee
(i) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (a) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (ii) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Company of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing.
The foregoing provisions shall not apply to: (i) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business; (ii) transactions between or
among the Company and/or its Restricted Subsidiaries; and (iii) any Restricted
Payment that is permitted by Section 4.07 hereof.
SECTION 4.12. LIENS.
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The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
SECTION 4.13. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Subsidiaries, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or any
such Subsidiary and (ii) the rights (charter and statutory), licenses and
franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate, partnership or other existence of any of its Subsidiaries, if
the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company shall make
an offer (a "Change of Control Offer") to each Holder to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes at
an offer price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon, to the date
of purchase (the "Change of Control Payment"). Within 30 days following a Change
of Control, the Company shall mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and stating:
(1) that the Change of Control Offer is being made pursuant to this Section 4.14
and that all Notes tendered will be accepted for payment; (2) the purchase price
and the purchase date, which date shall be no earlier than 30 days and no later
than 60 days from the date such notice is mailed (the "Change of Control Payment
Date"); (3) that any Note not tendered will continue to accrue interest; (4)
that, unless the Company defaults in the payment of the Change of Control
Payment, all Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date; (5)
that Holders electing to have any Notes purchased pursuant to a Change of
Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have the Notes purchased; and (7) that Holders whose
Notes are being purchased only in part will be issued new Notes equal in
principal
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amount to the unpurchased portion of the Notes surrendered, which unpurchased
portion must be equal to $1,000 in principal amount or an integral multiple
thereof. The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes in connection with a Change of Control.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note shall be in a
principal amount of $1,000 or an integral multiple thereof. Prior to complying
with the provisions of this Section 4.14, but in any event within 90 days
following a Change of Control, the Company shall either repay all outstanding
Senior Debt or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Debt to permit the repurchase of Notes required by
this Section 4.14. The Company shall publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
(c) Notwithstanding anything to the contrary in this Section 4.14, the
Company shall not be required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in this Section 4.14 and Section 3.09 hereof and purchases all Notes validly
tendered and not withdrawn under such Change of Control Offer.
SECTION 4.15. LIMITATION ON OTHER SENIOR SUBORDINATED DEBT.
Notwithstanding the provisions of Section 4.09 hereof, neither
the Company nor any Guarantor shall directly or indirectly incur any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt of the Company or such Guarantor, as the case may be, and senior in any
respect in right of payment to the Notes or such Guarantor's Note Guarantee.
SECTION 4.16. PAYMENTS FOR CONSENT.
Neither the Company nor any of Restricted Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
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provisions of this Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
SECTION 4.17. ADDITIONAL NOTE GUARANTEES.
If the Company or any Guarantor shall acquire or create
another Domestic Restricted Subsidiary after the date of this Indenture, or any
Unrestricted Subsidiary shall cease to be an Unrestricted Subsidiary and shall
become a Domestic Restricted Subsidiary, then such Subsidiary shall execute a
guarantee of the Notes and deliver an Opinion of Counsel in accordance with the
terms of this Indenture.
ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
Neither the Company nor any Guarantor shall consolidate or
merge with or into (whether or not the Company or such Guarantor, as the case
may be, is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another corporation, Person or entity
unless (i) the Company or such Guarantor, as the case may be, is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company or such Guarantor) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company or such Guarantor) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Company or such Guarantor, as the
case may be, under the Notes or such Guarantor's Note Guarantee thereof and this
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) except in the case of a merger of the Company or a
Guarantor with or into the Company or a Wholly Owned Restricted Subsidiary of
the Company, the Company, such Guarantor or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company or such
Guarantor), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made (a) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
worth of the Company immediately preceding the transaction and (b) will, at the
time of such transaction and after giving pro forma effect thereto (including
pro forma expense and cost reductions) as if such transaction had occurred at
the beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 4.09 hereof.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company or any Guarantor in accordance with Section 5.01
hereof, the successor corporation formed by such consolidation or into or with
which the Company, or such Guarantor is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and
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after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company," or
such "Guarantor" shall refer instead to the successor corporation and not to the
Company, or such Guarantor), and may exercise every right and power of the
Company or such Guarantor under this Indenture with the same effect as if such
successor Person had been named as the Company, or such Guarantor herein;
provided, however, that the predecessor Company or Guarantor shall not be
relieved from the obligation to pay the principal of and interest on the Notes
except in the case of a sale of all of the Company's or any Guarantor's assets
that meets the requirements of Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES.
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes (whether or not
prohibited by Article 10 hereof) and such default continues for a period of 30
days;
(b) the Company defaults in the payment when due of the principal of
or premium, if any, on the Notes (whether or not prohibited by Article 10
hereof);
(c) the Company or any of its Restricted Subsidiaries fails to comply
with any of the provisions of Section 4.07, 4.09, 4.10, 4.14 or 5.01 hereof;
(d) the Company or any of its Restricted Subsidiaries fails to comply
with any of its other agreements in this Indenture or the Notes for 60 days
after written notice of such failure to comply by the Trustee or the Holders of
at least 25% in principal amount of the then outstanding Notes;
(e) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or
is created after the date of this Indenture, which default (i) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
at final maturity (a "Payment Default") or (ii) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more.
(f) the Company or any of its Restricted Subsidiaries fails to pay
final judgments aggregating in excess of $5.0 million, entered by a court or
courts of competent jurisdiction
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against the Company or any of its Restricted Subsidiaries, and either (i) any
creditor commences enforcement proceedings upon any such judgment or (ii) such
judgments are not paid, discharged or stayed for a period of 60 days;
(g) the Company, any of its Restricted Subsidiaries that constitutes a
Significant Subsidiary or any group of Restricted Subsidiaries of the Company
that, taken together, would constitute a Significant Subsidiary pursuant to or
within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors, or
(v) generally is not paying its debts as they become due;
(h) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company, any of its Restricted
Subsidiaries that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries of the Company that, taken together, would
constitute a Significant Subsidiary in an involuntary case;
(ii) appoints a Custodian of the Company, any of its Restricted
Subsidiaries that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries of the Company that, taken together, would
constitute a Significant Subsidiary or is for all or substantially all of
the property of the Company, any of its Restricted Subsidiaries that
constitutes a Significant Subsidiary or any group of Restricted
Subsidiaries of the Company that, taken together, would constitute a
Significant Subsidiary; or
(iii) orders the liquidation of the Company, any of its Restricted
Subsidiaries that constitute Significant Subsidiary or any group of
Restricted Subsidiaries of the Company, that, taken together, would
constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive
days; or
(iv) except as permitted by this Indenture, any Note Guarantee is held
in any judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person acting on
behalf of any Guarantor, shall deny or disaffirm its obligations under its Note
Guarantee.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default
specified in clause (g) or (h) of Section 6.01 hereof occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately,
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provided, that so long as any Indebtedness permitted to be incurred pursuant to
the Credit Facility shall be outstanding, no such acceleration shall be
effective until the earlier of (i) acceleration of any Indebtedness under the
Credit Facility or (ii) five business days after the giving of written notice of
such acceleration to the Company and the Credit Facility Representative (as
defined in the Credit Facility). Notwithstanding the foregoing, if an Event of
Default specified in clause (g) or (h) of Section 6.01 hereof occurs with
respect to the Company, any of its Restricted Subsidiaries that constitute
Significant Subsidiary or any group of Restricted Subsidiaries of the Company
that, taken together, would constitute a Significant Subsidiary, all outstanding
Notes shall be due and payable immediately without further action or notice.
Holders of the Notes may not enforce this Indenture or the Notes except as
provided herein. The Holders of a majority in aggregate principal amount of the
then outstanding Notes by written notice to the Trustee may on behalf of all of
the Holders rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest or premium that has become due solely
because of the acceleration) have been cured or waived.
If an Event of Default occurs on or after November 15, 2002 by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of the Company with the intention of avoiding payment of the premium that the
Company would have had to pay if the Company then had elected to redeem the
Notes pursuan
t to Section 3.07 hereof, then, upon acceleration of the Notes, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, anything in this Indenture or in the Notes to the
contrary notwithstanding. If an Event of Default occurs prior to November 15,
2002 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then, upon acceleration of the
Notes, a premium shall also become and be immediately due and payable so that
the Company shall be obligated to pay an amount (expressed as percentages of
principal amount), for each of the years beginning on November 15 of the years
as set forth below;
Year Percentage
---- ----------
1997...................................113.168%
1998...................................111.522%
1999...................................109.876%
2000...................................108.230%
2001...................................106.584%
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
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Holders of not less than a majority in aggregate principal
amount of the then outstanding Notes by notice to the Trustee may on behalf of
the Holders of all of the Notes waive an existing Default or Event of Default
and its consequences hereunder, except a continuing Default or Event of Default
in the payment of the principal of, or premium, interest and Liquidated Damages,
if any, on the Notes (including in connection with an offer to purchase);
provided, however, that the Holders of a majority in aggregate principal amount
of the then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration. Upon
any such waiver, such Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture, the Notes, or the Note Guarantees only if:
(a) the Holder of a Note gives to the Trustee written notice
of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the
then outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Note, on or after the respective
due dates expressed in the Note (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
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SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b)
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium and Liquidated Damages, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders of the Notes allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6,
it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium and Liquidated Damages, if
any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
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The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE.
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those duties
that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against
the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
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(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), (c), (e) and (f) of this Section 7.01 and Section 7.02 hereof.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
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The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company, the
Guarantors, or any Affiliate of the Company or the Guarantors with the same
rights it would have if it were not Trustee. However, in the event that the
Trustee acquires any conflicting interest it must eliminate such conflict within
90 days, apply to the SEC for permission to continue as trustee or resign. Any
Agent may do the same with like rights and duties. The Trustee is also subject
to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the Notes or
the Note Guarantees, it shall not be accountable for the Company's use of the
proceeds from the Notes or any money paid to the Company or upon the Company's
direction under any provision of this Indenture, it shall not be responsible for
the use or application of any money received by any Paying Agent other than the
Trustee, and it shall not be responsible for any statement or recital herein or
any statement in the Notes or any other document in connection with the sale of
the Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs. Except
in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Note, the Trustee may withhold the notice if
and so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA ss. 313(a) (but if no
event described in TIA ss. 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail all
reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA ss. 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company and the Guarantors shall pay to the Trustee from
time to time reasonable compensation for its acceptance of this Indenture and
services hereunder. The Trustee's compensation
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shall not be limited by any law on compensation of a trustee of an express
trust. The Company and the Guarantors shall reimburse the Trustee promptly upon
request for all reasonable disbursements, advances and expenses incurred or made
by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company and the Guarantors shall indemnify the Trustee
against any and all losses, liabilities or expenses incurred by it arising out
of or in connection with the acceptance or administration of its duties under
this Indenture, including the costs and expenses of enforcing this Indenture
against the Company and the Guarantors (including this Section 7.07) and
defending itself against any claim (whether asserted by the Company, any
Guarantor or any Holder or any other person) or liability in connection with the
exercise or performance of any of its powers or duties hereunder, except to the
extent any such loss, liability or expense may be solely attributable to its
negligence or bad faith. The Trustee shall notify the Company and the Guarantors
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Company and the Guarantors shall not relieve the Company and the
Guarantors of their obligations hereunder. The Company and the Guarantors shall
defend the claim and the Trustee shall cooperate in the defense. The Trustee may
have separate counsel and the Company and the Guarantors shall pay the
reasonable fees and expenses of such counsel. The Company and the Guarantors
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of the Company and the Guarantors under this
Section 7.07 shall survive the satisfaction and discharge of this Indenture.
To secure the Company's and the Guarantors' payment
obligations in this Section 7.07, the Trustee shall have a Lien prior to the
Notes on all money or property held or collected by the Trustee, except that
held in trust to pay principal and interest on particular Notes. Such Lien shall
survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss.
313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of Notes of a majority in principal amount of the then outstanding Notes
may remove the Trustee by so notifying the Trustee and the Company in writing.
The Company may remove the Trustee if:
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(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of Notes of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note
who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10 hereof, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's and the Guarantors' obligations under
Section 7.07 hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100.0 million as set forth in its most recent published annual report of
condition.
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This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company and each Guarantor shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be deemed to have been discharged from their obligations with respect to all
outstanding Notes and Note Guarantees on the date the conditions set forth below
are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal
Defeasance means that the Company and each Guarantor shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding Notes
and Note Guarantees, which shall thereafter be deemed to be "outstanding" only
for the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all of their other
obligations under such Notes and Note Guarantees and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following provisions which
shall survive until otherwise terminated or discharged hereunder: (a) the rights
of Holders of outstanding Notes to receive payments in respect of the principal
of and premium, interest and Liquidated Damages, if any, on the Notes when such
payments are due solely from the trust fund described in Section 8.04 hereof,
and as more fully set forth in such Section, (b) the Company's obligations with
respect to the Notes under Article 2 and Section 4.02 hereof, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and the Company's
and the Guarantors' obligations in connection therewith and (d) this Article 8.
Subject to compliance with this Article 8, the Company may exercise their option
under this Section 8.02 notwithstanding the prior exercise of its option under
Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company and each Guarantor shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be released from their obligations under the covenants contained in Sections
4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16 and 4.17 hereof with
respect to the outstanding Notes and Note Guarantees on and after the date the
conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant
Defeasance"), and the Notes and Note Guarantees shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of
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Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder
(it being understood that such Notes and Note Guarantees shall not be deemed
outstanding for accounting purposes). For this purpose, "Covenant Defeasance"
means that, with respect to the outstanding Notes and Note Guarantees, the
Company and Guarantors may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 6.01 hereof,
but, except as specified above, the remainder of this Indenture, such Notes and
Note Guarantees shall be unaffected thereby. In addition, upon the Company's
exercise under Section 8.01 hereof of the option applicable to this Section 8.03
hereof, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, Sections 6.01(d) through 6.01(f) hereof shall not constitute Events of
Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes and Note Guarantees:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in U. S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of and premium, interest and Liquidated
Damages, if any, on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (i) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (ii) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of
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funds to be applied to such deposit) or insofar as Sections 6.01(g) or 6.01(h)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or non-callable Government Securities held by
it as provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
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Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
interest and Liquidated Damages, if any, on any Note and remaining unclaimed for
two years after such principal, and premium, if any, or interest has become due
and payable shall be paid to the Company on its request or (if then held by the
Company) and shall be discharged from such trust; and the Holder of such Note
shall thereafter, as a secured creditor, look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in the New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such notification or publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U. S.
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and the Guarantors' obligations under this
Indenture, the Notes and the Note Guarantees shall be revived and reinstated as
though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until
such time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.02 or 8.03 hereof, as the case may be; provided,
however, that, if the Company makes any payment of principal of, premium, if
any, or interest on any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company, a
Guarantor (with respect to a Note Guarantee) and the Trustee may amend or
supplement this Indenture, the Notes or any Note Guarantee without the consent
of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Company's or any Guarantor's
obligations to the Holders of the Notes in the case of a merger or consolidation
pursuant to Article 5 hereof;
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(d) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights hereunder of any such Holder; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company and
the Guarantors in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture that affects its own rights, duties or immunities under this Indenture
or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company,
the Guarantors and the Trustee may amend or supplement this Indenture (including
Sections 3.09, 4.10 and 4.14 hereof), the Note Guarantees and the Notes with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and, subject
to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default or
compliance with any provision of this Indenture, the Note Guarantees or the
Notes may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes (including consents obtained in connection
with a tender offer or exchange offer for Notes).
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Company and the Guarantors in the
execution of such amended or supplemental Indenture unless such amended or
supplemental Indenture directly affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Notes then
outstanding may waive compliance in a particular instance by the Company or the
Guarantors with any provision of this Indenture, the Notes or the Note
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Guarantees. However, without the consent of each Holder affected, an amendment
or waiver under this Section 9.02 may not (with respect to any Notes or Note
Guarantees held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes, except with
respect to Sections 3.09, 4.10 and 4.14 hereof;
(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or Event of Default in the payment of principal of
or premium, interest or Liquidated Damages, if any, on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or premium, interest or Liquidated Damages, if any, on the
Notes;
(g) waive a redemption payment with respect to any Note (other than a
payment required by Section 3.09, 4.10, or 4.14 hereof);
(h) release any Guarantor from any of its obligations under its Note
Guarantee, except in accordance with the terms of this Indenture; or
(i) make any change in the foregoing amendment and waiver provisions.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture, the Notes or
the Note Guarantees shall be set forth in a amended or supplemental Indenture
that complies with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent Holder
of a Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
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The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company may issue and the Trustee shall, upon receipt of an Authentication
Order, authenticate new Notes in exchange for all Notes that reflect the
amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental Indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 12.04 hereof, an Officers' Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
ARTICLE 10.
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company and the Guarantors agree for themselves and their
respective successors, and each Holder by accepting a Note agrees, that the
Indebtedness evidenced by the Notes and the Note Guarantees is subordinated in
right of payment, to the extent and in the manner provided in this Article 10
and Section 11.02, to the prior payment in full in cash or Cash Equivalents of
all Senior Debt of the Company and the Guarantors, (in each case, whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed), as applicable, and that the subordination is for the benefit of the
holders of Senior Debt.
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company or any
Guarantor in a liquidation or dissolution of the Company or such Guarantor or in
a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or such Guarantor, or its property, in an assignment for
the benefit of creditors or any marshaling of the Company's or such Guarantor's
assets and liabilities:
(a) holders of Senior Debt of the Company or such Guarantor shall be
entitled to receive payment in full in cash or Cash Equivalents of all
Obligations due in respect of such Senior Debt (including Post-Petition
Interest) before the Holders of Notes shall be entitled to receive any payment
with respect to the Notes (except that Holders may receive (i) Permitted Junior
Securities and (ii) payments and other distributions made from any defeasance
trust created pursuant to Section 8.01 hereof); and
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(b) until all Obligations with respect to Senior Debt (as provided in
subsection (1) above) are paid in full in cash or Cash Equivalents, any
distribution to which the Holders of Notes would be entitled but for this
Article 10 shall be made to holders of Senior Debt (except that Holders of Notes
may receive (i) Permitted Junior Securities and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section 8.01
hereof), as their interests may appear.
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company and the Guarantors may not make any payment or
distribution to the Trustee or any Holder upon or in respect of the Notes or to
repurchase or to redeem any of the Notes (including pursuant to Section 3.07,
3.09, 4.10 or 4.14 hereof) (other than, in each case, (i) Permitted Junior
Securities and (ii) payments and other distributions made from any defeasance
trust created pursuant to Section 8.01 hereof) if:
(a) a default in the payment of the principal of or premium or
interest on any Designated Senior Debt occurs and is continuing beyond any
applicable period of grace; or
(b) any other default occurs and is continuing with respect to any
Designated Senior Debt that permits holders of the Designated Senior Debt as to
which such default relates to accelerate its maturity and the Trustee receives a
notice of default (a "Payment Blockage Notice") from the Company or the agent
under (in the case of the Credit Facility) or the holders of such Designated
Senior Debt. If the Trustee receives any such Payment Blockage Notice, no
subsequent Payment Blockage Notice shall be effective for purposes of this
Section unless and until 360 days shall have elapsed since the effectiveness of
the immediately prior Payment Blockage Notice. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been cured or waived for a period of at
least 30 days.
The Company and the Guarantors may and shall resume payments
on the Notes and the Note Guarantees:
(1) in the case of a payment default, upon the date on which
such default is cured or waived pursuant to the terms of such Designated Senior
Debt, and
(2) in the case of a nonpayment default, the earlier of the
date on which such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated,
if this Article 10 otherwise permits the payment.
SECTION 10.04. ACCELERATION OF SECURITIES.
If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER.
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In the event that the Trustee or any Holder receives any
payment of any Obligations with respect to the Notes or the Note Guarantees at a
time when the Trustee or such Holder, as applicable, has actual knowledge that
such payment is prohibited by Section 10.03 hereof, such payment shall be held
by the Trustee or such Holder, in trust for the benefit of, and, to the extent
such payment is in cash or Cash Equivalents shall, be paid forthwith over and
delivered, upon written request, to (otherwise to be held as cash collateral),
the holders of Senior Debt of the Company as their interests may appear or their
Representative under this Indenture or other agreement (if any) pursuant to
which such Senior Debt may have been issued, as their respective interests may
appear, for application to the payment of all Obligations with respect to such
Senior Debt remaining unpaid to the extent necessary to pay such Obligations in
full in accordance with their terms, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Debt.
With respect to the holders of Senior Debt of the Company and
the Guarantors, the Trustee undertakes to perform only such obligations on the
part of the Trustee as are specifically set forth in this Article 10, and no
implied covenants or obligations with respect to the holders of such Senior Debt
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of such Senior Debt, and shall
not be liable to any such holders if the Trustee shall pay over or distribute to
or on behalf of Holders or the Company or any other Person money or assets to
which any holders of such Senior Debt shall be entitled by virtue of this
Article 10, except if such payment is made as a result of the willful misconduct
or gross negligence of the Trustee.
SECTION 10.06. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to it that would cause a payment of any Obligations
with respect to the Notes to violate this Article 10, but failure to give such
notice shall not affect the subordination of the Notes to the Senior Debt of the
Company as provided in this Article 10.
SECTION 10.07. SUBROGATION.
After all Senior Debt of the Company and the Guarantors is
paid in full in cash or Cash Equivalents and until the Notes are paid in full,
Holders of Notes shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of such Senior
Debt to receive distributions applicable to such Senior Debt to the extent that
distributions otherwise payable to the Holders of Notes have been applied to the
payment of such Senior Debt. A distribution made under this Article 10 to
holders of Senior Debt of the Company that otherwise would have been made to
Holders of Notes is not, as between the Company and Holders, a payment by the
Company on the Notes.
SECTION 10.08. RELATIVE RIGHTS.
This Article 10 defines the relative rights of Holders of
Notes and holders of Senior Debt of the Company. Nothing in this Indenture
shall:
(1) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay principal
of and interest on the Notes in accordance with their terms;
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(2) affect the relative rights of Holders of Notes and
creditors of the Company other than their rights in relation to holders of
Senior Debt of the Company; or
(3) prevent the Trustee or any Holder of Notes from exercising
its available remedies upon a Default or Event of Default, subject to the rights
of holders and owners of Senior Debt of the Company to receive distributions and
payments otherwise payable to Holders of Notes.
If the Company fails because of this Article 10 to pay
principal of or interest on a Note on the due date, the failure is still a
Default or Event of Default.
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt of the Company or any
Guarantor to enforce the subordination of the Indebtedness evidenced by the
Notes shall be impaired by any act or failure to act by the Company, such
Guarantor or any Holder or by the failure of the Company, such Guarantor or any
Holder to comply with this Indenture.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to
holders of Senior Debt of the Company the distribution may be made and the
notice given to their Representative.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee and the Holders of Notes shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other Person making any distribution to the
Trustee or to the Holders of Notes for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior Debt of
the Company and other Indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article 10.
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Notes to violate this Article 10. Only the Company or a
Representative may give the notice. Nothing in this Article 10 shall impair the
claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold
Senior Debt of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights.
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
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Each Holder of Notes, by the Holder's acceptance thereof,
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination as provided
in this Article 10, and appoints the Trustee to act as such Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.09 hereof at least 30 days before the expiration of the
time to file such claim, a Representative of Designated Senior Debt is hereby
authorized to file an appropriate claim for and on behalf of the Holders of the
Notes.
SECTION 10.13. AMENDMENTS.
The provisions of this Article 10 shall not be amended or
modified without the written consent of the holders of all Senior Debt of the
Company. Notwithstanding the foregoing, any amendment to the provisions of this
Article 10 shall require the consent of the Holders of at least 75% in aggregate
principal amount of the Notes then outstanding if such amendment would adversely
affect the rights of Holders of Notes.
ARTICLE 11.
NOTE GUARANTEES
SECTION 11.01. GUARANTEE.
Subject to this Article 11, each of the Guarantors hereby,
jointly and severally, unconditionally guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, the Notes or the Obligations of the Company hereunder or
thereunder, that: (a) the principal of and premium, interest and Liquidated
Damages, if any, on the Notes will be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest on the overdue
principal of premium, interest (to the extent permitted by law) and Liquidated
Damages, if any, on the Notes, if any, if lawful, and all other Obligations of
the Company to the Holders or the Trustee hereunder or thereunder will be
promptly paid in full or performed, all in accordance with the terms hereof and
thereof; and (b) in case of any extension of time of payment or renewal of any
Notes or any of such other Obligations, the same will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. Failing payment when
due of any amount so guaranteed or any performance so guaranteed for whatever
reason, the Guarantors shall be jointly and severally obligated to pay the same
immediately. Each Guarantor agrees that this is a guarantee of payment and not a
guarantee of collection.
The Guarantors hereby agree that their Obligations hereunder
shall be unconditional, irrespective of the absence of any action to enforce the
Notes or this Indenture, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
Guarantor. Each Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demands whatsoever and covenant that this Note Guarantee
shall not be discharged except by complete performance of the Obligations
contained in the Notes and this Indenture.
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If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantors or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company or
the Guarantors, any amount paid by either to the Trustee or such Holder, this
Note Guarantee, to the extent theretofore discharged, shall be reinstated in
full force and effect.
Each Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the Holders in respect of any Obligations
guaranteed hereby until payment in full of all Obligations guaranteed hereby.
Each Guarantor further agrees that, as between the Guarantors, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
Obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of this Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such Obligations as provided in Article 6 hereof, such Obligations (whether or
not due and payable) shall forthwith become due and payable by the Guarantors
for the purpose of this Note Guarantee. The Guarantors shall have the right to
seek contribution from any non-paying Guarantor so long as the exercise of such
right does not impair the rights of the Holders under the Note Guarantee.
SECTION 11.02. SUBORDINATION OF NOTE GUARANTEE.
The Obligations of each Guarantor under its Note Guarantee
pursuant to this Article 11 shall be subordinated to the Senior Debt of such
Guarantor on the same basis as the Notes are subordinated to Senior Debt of the
Company. For the purposes of the foregoing sentence, the Trustee and the Holders
shall have the right to receive and/or retain payments by any of the Guarantors
only at such times as they may receive and/or retain payments in respect of the
Notes pursuant to this Indenture, including Article 10 hereof.
SECTION 11.03. LIMITATION ON GUARANTOR LIABILITY.
Each Guarantor, and by its acceptance of Notes, each Holder,
hereby confirms that it is the intention of all such parties that the Note
Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance
for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the
extent applicable to any Note Guarantee. To effectuate the foregoing intention,
the Trustee, the Holders and the Guarantors hereby irrevocably agree that the
obligations of such Guarantor under its Note Guarantee and this Article 11 shall
be limited to the maximum amount as will, after giving effect to such maximum
amount and all other contingent and fixed liabilities of such Guarantor that are
relevant under such laws, and after giving effect to any collections from,
rights to receive contribution from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other Guarantor under this
Article 11, result in the obligations of such Guarantor under its Note Guarantee
not constituting a fraudulent transfer or conveyance.
SECTION 11.04. EXECUTION AND DELIVERY OF NOTE GUARANTEE.
To evidence its Note Guarantee set forth in Section 11.01,
each Guarantor hereby agrees that a notation of such Note Guarantee
substantially in the form included in Exhibit E shall be endorsed by an Officer
of such Guarantor on each Note authenticated and delivered by the Trustee and
that this Indenture shall be executed on behalf of such Guarantor by an Officer
of such Guarantor.
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Each Guarantor hereby agrees that its Note Guarantee set forth
in Section 11.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Note Guarantee.
If an Officer whose signature is on this Indenture or on the
Note Guarantee no longer holds that office at the time the Trustee authenticates
the Note on which a Note Guarantee is endorsed, the Note Guarantee shall be
valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the Note
Guarantee set forth in this Indenture on behalf of the Guarantors.
In the event that the Company or any of its Domestic
Restricted Subsidiaries creates or acquires another Domestic Restricted
Subsidiary subsequent to the date of this Indenture or any Unrestricted
Subsidiary shall cease to be an Unrestricted Subsidiary and shall become a
Domestic Restricted Subsidiary, if required by Section 4.17 hereof, the Company
shall cause such Subsidiaries to execute supplemental indentures to this
Indenture and Note Guarantees in accordance with Section 4.17 hereof and this
Article 11, to the extent applicable.
SECTION 11.05. CONSOLIDATION, ETC. BY GUARANTORS.
In case of any consolidation, merger, sale or conveyance by
any Guarantor in accordance with Section 5.01 hereof and upon the assumption by
the successor Person, by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of the Note Guarantee endorsed
upon the Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Guarantor, such successor
Person shall succeed to and be substituted for the Guarantor with the same
effect as if it had been named herein as a Guarantor. Such successor Person
thereupon may cause to be signed any or all of the Note Guarantees to be
endorsed upon all of the Notes issuable hereunder which theretofore shall not
have been signed by the Company and delivered to the Trustee. All the Note
Guarantees so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Note Guarantees theretofore and thereafter issued in
accordance with the terms of this Indenture as though all of such Note
Guarantees had been issued at the date of the execution hereof.
SECTION 11.06. RELEASES FOLLOWING SALE OF ASSETS.
In the event of a sale or other disposition of all of the
assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale
or other disposition of all of the capital stock of any Guarantor (other than to
the Company or another Domestic Restricted Subsidiary), or in the case the
Company designates a Guarantor to be an Unrestricted Subsidiary in accordance
with this Indenture, then such Guarantor (in the event of a sale or other
disposition, by way of merger, consolidation or otherwise, of all of the capital
stock of such Guarantor) or the corporation acquiring the property (in the event
of a sale or other disposition of all or substantially all of the assets of such
Guarantor) shall be released and relieved of any obligations under its Note
Guarantee; provided that the Net Proceeds of such sale or other disposition are
applied in accordance with the applicable provisions of this Indenture,
including, without limitation, Section 4.10 hereof. Upon delivery by the Company
to the Trustee of an Officers' Certificate and an Opinion of Counsel to the
effect that such sale or other disposition was made by the Company in accordance
with the applicable provisions of this Indenture, including without
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limitation Section 4.10 hereof, the Trustee shall execute any documents
reasonably required in order to evidence the release of any Guarantor from its
obligations under its Note Guarantee.
Any Guarantor not released from its obligations under its Note
Guarantee shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of any Guarantor under this Indenture
as provided in this Article 10.
ARTICLE 12.
MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall
control.
SECTION 12.02. NOTICES.
Any notice or communication by the Company, any Guarantor or
the Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the others' address
If to the Company and/or any Guarantor:
Holmes Products Corp.
233 Fortune Boulevard
Milford, Massachusetts 01757
Telecopier No.: (508) 634-1211
Attention: Chief Financial Officer
With copies to:
Posternak, Blankstein & Lund, L.L.P.
100 Charles River Plaza
Boston, Massachusetts 02114
Telecopier No.: (617) 367-2315
Attention: Donald H. Siegel, P.C.
and
Hutchins, Wheeler & Dittmar, P.C.
101 Federal Street
Boston, Massachusetts 02110
Telecopier No.: (617) 951-1295
Attention: James Westra, Esq.
If to the Trustee:
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State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Telecopier No.: (617) 664-5150
Attention: Corporate Trust Department
The Company, any Guarantor, or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA ss. 313(c), to the extent required by the
TIA. Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA ss. 312(c).
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
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Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 12.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of
the Company or any Guarantor, as such, shall have any liability for any
obligations of the Company or such Guarantor under the Notes, the Note
Guarantees, or this Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
SECTION 12.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 12.10. SUCCESSORS.
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All agreements of the Company and the Guarantors in this
Indenture, the Notes and the Note Guarantees shall bind their successors. All
agreements of the Trustee in this Indenture shall bind its successors.
SECTION 12.11. SEVERABILITY.
In case any provision in this Indenture, the Notes or the Note
Guarantees shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 12.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
DATED AS OF NOVEMBER 26, 1997
HOLMES PRODUCTS CORP.
By: /s/ Jordan A. Kahn
--------------------------
Name: Jordan A. Kahn
Title: President
HOLMES MANUFACTURING CORP.
By: /s/ Jordan A. Kahn
--------------------------
Name: Jordan A. Kahn
Title: President
HOLMES AIR (TAIWAN) CORP.
By: /s/ Jordan A. Kahn
--------------------------
Name: Jordan A. Kahn
Title: President
STATE STREET BANK AND TRUST COMPANY,
as Trustee
BY: /s/ Andrew M. Sinasky
--------------------------------
Name: Andrew M. Sinasky
Title: Assistant Vice President
<PAGE>
EXHIBIT A-1
(Face of Global Note)
CUSIP/CINS 43641PAA7
9-7/8% Series A Senior Subordinated Notes due 2007
No. 1 $_______
HOLMES PRODUCTS CORP.
promise to pay to Cede & Co.
or registered assigns,
the principal sum of __________________________________________________________
Dollars on November 15, 2007.
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1
DATED: NOVEMBER 26, 1997
HOLMES PRODUCTS CORP.
BY: __________________________
Name:
Title:
BY: __________________________
Name:
Title:
This is one of the Global Notes referred to in the within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: ____________________________
A1-1
<PAGE>
(Back of Note)
9-7/8% Series A Senior Subordinated Notes due 2007
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S.
PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON
AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER
THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME
PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN
EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO THE COMPANY, (B) TO A PERSON WHOM THE HOLDER REASONABLY
BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS
NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF
TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE,
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN
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<PAGE>
THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT
THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE
IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Holmes Products Corp., a Massachusetts
corporation (the "Company"), promises to pay interest on the principal amount of
this Note at 9 7/8% per annum from November 26, 1997 until maturity and shall
pay the Liquidated Damages payable pursuant to Section 5 of the Registration
Rights Agreement referred to below. The Company will pay interest and Liquidated
Damages semi-annually on May 15 and November 15 of each year, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"). Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be May 15, 1998. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Notes (except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the May 1 or November 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. The Notes
will be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Company maintained for such purpose
within or without the City and State of New York, or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders; provided
that all payment of principal, premium, interest and Liquidated Damages, if any,
with respect to Notes the Holders of which have given wire transfer instructions
to the Trustee will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. Such payment
shall be in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank
and Trust Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may
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change any Paying Agent or Registrar without notice to any Holder. The Company
or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of November 26, 1997 (the "Indenture") among the Company, the
guarantors named on the signature pages thereto (the "Guarantors") and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbbb) (the "TIA"). The Notes are subject to
all such terms, and Holders are referred to the Indenture and the TIA for a
statement of such terms. To the extent any provision of this Note conflicts with
the express provisions of the Indenture, the provisions of the Indenture shall
govern and be controlling. The Notes are general, unsecured obligations of the
Company limited to $105.0 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph
5, the Notes shall not be redeemable at the Company's option prior to November
15, 2002. Thereafter, the Notes shall be subject to redemption at any time at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on November 15 of the years
indicated below:
Year Percentage
- ---- ----------
2002........................................................ 104.938%
2003........................................................ 103.292%
2004........................................................ 101.646%
2005 and thereafter......................................... 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, prior to November 15, 2002, the Company may redeem up to an
aggregate of $33.0 million in principal amount of Notes at a redemption price of
109.875% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net cash
proceeds of one or more offerings of Equity Interests (other than Disqualified
Stock) of the Company; provided that (i) at least $72.0 million in principal
amount of Notes originally issued under the Indenture remains outstanding
immediately after the occurrence of each such redemption and (ii) notice of such
redemption shall be given within 90 days of the date of the consummation of such
public offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall
not be required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, the Company
shall be obligated to make an offer (a "Change of Control Offer") to each Holder
of Notes to repurchase all or any part
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<PAGE>
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes at an
offer price in cash equal to 101% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase (the "Change of Control Payment"). Within 30 days following a Change of
Control, the Company shall mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the Indenture.
(b) If the Company or any of its Restricted Subsidiaries
consummates an Asset Sale, within five days of each date on which the aggregate
amount of Excess Proceeds exceeds $5 million, the Company shall commence an
offer to all Holders of Notes (an "Asset Sale Offer") pursuant to Section 3.09
of the Indenture to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed
by first class mail at least 30 days but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its registered
address. Notes in denominations larger than $1,000 may be redeemed in part but
only in whole multiples of $1,000, unless all of the Notes held by a Holder are
to be redeemed. On and after the redemption date interest ceases to accrue on
Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. SUBORDINATION. Each Holder by accepting a Note agrees that
the payment of principal of and premium, interest and Liquidated Damages, if
any, on each Note is subordinated in right of payment, to the extent and in the
manner provided in Article 10 of the Indenture, to the prior payment in full of
all Senior Debt of the Company (whether outstanding on the date of the Indenture
or thereafter incurred, assumed or guaranteed), and the subordination is for the
benefit of the holders of such Senior Debt.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may
be treated as its owner for all purposes.
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<PAGE>
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture, the Note Guarantees or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding, and any existing default or compliance
with any provision of the Indenture, the Notes or the Note Guarantees may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes. Without the consent of any Holder of Notes, the Company,
a Guarantor and the Trustee may amend or supplement the Indenture, the Notes or
any Note Guarantee to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's or any Guarantor's obligations to
Holders of the Notes in case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, or to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the TIA.
13. DEFAULTS AND REMEDIES. Events of Default include: (i)
default for 30 days in the payment when due of interest on, or Liquidated
Damages, if any, with respect to, the Notes (whether or not prohibited by
Article 10 of the Indenture); (ii) default in payment when due of principal of
or premium, if any, on the Notes (whether or not prohibited by Article 10 of the
Indenture); (iii) failure by the Company or any of its Restricted Subsidiaries
to comply with Section 4.07, 4.09, 4.10, 4.14 or 5.01 of the Indenture; (iv)
failure by the Company or any of its Restricted Subsidiaries for 60 days after
written notice by the Trustee or the Holders of at least 25% in principal amount
of the then outstanding Notes to comply with any of its other agreements in the
Indenture or the Notes; (v) default under certain other agreements relating to
Indebtedness of the Company which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness at final
maturity (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness under which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $5.0 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $5.0 million and either (a) any creditor
commences enforcement proceedings upon any such judgment or (b) such judgments
are not paid, discharged or stayed for a period of 60 days; (vii) except as
permitted by the Indenture, any guarantee of the Notes shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any reason
to be in full force and effect or any Guarantor, or any Person acting on behalf
of any Guarantor, shall deny or disaffirm its obligations under its Note
Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to
the Company, any of its Restricted Subsidiaries that constitutes a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary. If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare all the Notes to be due and payable
immediately; provided that so long as any Indebtedness permitted to be incurred
pursuant to the Credit Facility shall be outstanding, no such acceleration shall
be effective until the earlier of (A) acceleration of any Indebtedness under the
Credit Facility or (ii) five business days after the giving of written notice of
such acceleration to the Company. Notwithstanding the foregoing, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that
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<PAGE>
withholding notice is in their interest. The Holders of a majority in aggregate
principal amount of the Notes then outstanding by notice to the Trustee may on
behalf of the Holders of all of the Notes waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Company is required, upon becoming aware
of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
15. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder of the Company or any Guarantor, as such, shall not
have any liability for any obligations of the Company or such Guarantor under
the Notes, the Indenture, the Note Guarantees or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
16. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
17. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
18. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES
AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders
of Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of November 26, 1997, among the Company, the Guarantors and
the parties named on the signature pages thereof (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Holmes Products Corp.
233 Fortune Boulevard
Milford, Massachusetts 01757
Attention: Chief Financial Officer
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<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date: ______________________
Your Signature: ________________________________________________________
(Sign exactly as your name appears on the Note)
Signature Guarantee.
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.14
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state
the amount you elect to have purchased: $________
Date: ______________________
Your Signature: ________________________________________________________
(Sign exactly as your name appears on the Note)
Tax Identification No: _________________________________________________
Signature Guarantee.
A1-9
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Amount of decrease in Amount of increase in Principal Amount of Signature of
Principal Amount Principal Amount this Global Note authorized officer
of this Global of following such of Trustee or Note
Date of Exchange Note this Global Note decrease (or increase) Custodian
---------------- ------------------------ ---------------- ---------------------- ---------
<S> <C> <C> <C> <C>
</TABLE>
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<PAGE>
EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
CUSIP/CINS U38273AA3
9-7/8% Series A Senior Subordinated Notes due 2007
No. ___________ $_____________
HOLMES PRODUCTS CORP.
promise to pay to Cede & Co.
or registered assigns,
the principal sum of ___________________________________________________________
Dollars on November 15, 2007.
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1
DATED: NOVEMBER 26, 1997
HOLMES PRODUCTS CORP.
BY: _______________________________
Name:
Title:
BY: _______________________________
Name:
Title:
This is one of the Global Notes referred to
in the within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: _____________________________
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<PAGE>
(Back of Regulation S Temporary Global Note)
9-7/8% Series A Senior Subordinated Notes due 2007
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S.
PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON
AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER
THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT WILL NOT, WITHIN THE TIME
PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE
144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN
EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO THE COMPANY, (B) TO A PERSON WHOM THE HOLDER REASONABLY
BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED
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<PAGE>
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR
TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS
NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF
TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE,
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO
ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE
TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER
THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Holmes Products Corp., a Massachusetts
corporation (the "Company"), promises to pay interest on the principal amount of
this Note at 9 7/8% per annum from November 26, 1997 until maturity and shall
pay the Liquidated Damages payable pursuant to Section 5 of the Registration
Rights Agreement referred to below. The Company will pay interest and Liquidated
Damages semi-annually on May 15 and November 15 of each year, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"). Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be May 15, 1998. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged for
one or more Regulation S Permanent Global Notes, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Notes under the Indenture.
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<PAGE>
2. METHOD OF PAYMENT. The Company will pay interest on the
Notes (except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the May 1 or November 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. The Notes
will be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Company maintained for such purpose
within or without the City and State of New York, or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders; provided
that all payment of principal, premium, interest and Liquidated Damages, if any,
with respect to Notes the Holders of which have given wire transfer instructions
to the Trustee will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. Such payment
shall be in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank
and Trust Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of November 26, 1997 (the "Indenture") among the Company, the
guarantors named on the signature pages thereto (the "Guarantors") and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbbb) (the "TIA"). The Notes are subject to
all such terms, and Holders are referred to the Indenture and the TIA for a
statement of such terms. To the extent any provision of this Note conflicts with
the express provisions of the Indenture, the provisions of the Indenture shall
govern and be controlling. The Notes are general, unsecured obligations of the
Company limited to $105.0 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph
5, the Notes shall not be redeemable at the Company's option prior to November
15, 2002. Thereafter, the Notes shall be subject to redemption at any time at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on November 15 of the years
indicated below:
Year Percentage
- ---- ----------
2002........................................................ 104.938%
2003........................................................ 103.292%
2004........................................................ 101.646%
2005 and thereafter......................................... 100.000%
A2-4
<PAGE>
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, prior to November 15, 2002, the Company may redeem up to an
aggregate of $33.0 million in principal amount of Notes at a redemption price of
109.875% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net cash
proceeds of one or more offerings of Equity Interests (other than Disqualified
Stock) of the Company; provided that (i) at least $72.0 million in principal
amount of Notes originally issued under the Indenture remains outstanding
immediately after the occurrence of each such redemption and (ii) notice of such
redemption shall be given within 90 days of the date of the consummation of such
public offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall
not be required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, the Company
shall be obligated to make an offer (a "Change of Control Offer") to each Holder
of Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Notes at an offer price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following a Change of Control, the Company shall mail
a notice to each Holder setting forth the procedures governing the Change of
Control Offer as required by the Indenture.
(b) If the Company or any of its Restricted Subsidiaries
consummates an Asset Sale, within five days of each date on which the aggregate
amount of Excess Proceeds exceeds $5 million, the Company shall commence an
offer to all Holders of Notes (an "Asset Sale Offer") pursuant to Section 3.09
of the Indenture to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed
by first class mail at least 30 days but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its registered
address. Notes in denominations larger than $1,000 may be redeemed in part but
only in whole multiples of $1,000, unless all of the Notes held by a Holder are
to be redeemed. On and after the redemption date interest ceases to accrue on
Notes or portions thereof called for redemption.
A2-5
<PAGE>
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in
whole or in part for one or more Global Notes only (i) on or after the
termination of the 40-day restricted period (as defined in Regulation S) and
(ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if
applicable) required by Article 2 of the Indenture. Upon exchange of this
Regulation S Temporary Global Note for one or more Global Notes, the Trustee
shall cancel this Regulation S Temporary Global Note.
10. SUBORDINATION. Each Holder by accepting a Note agrees that
the payment of principal of and premium, interest and Liquidated Damages, if
any, on each Note is subordinated in right of payment, to the extent and in the
manner provided in Article 10 of the Indenture, to the prior payment in full of
all Senior Debt of the Company (whether outstanding on the date of the Indenture
or thereafter incurred, assumed or guaranteed), and the subordination is for the
benefit of the holders of such Senior Debt.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may
be treated as its owner for all purposes.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture, the Note Guarantees or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding, and any existing default or compliance
with any provision of the Indenture, the Notes or the Note Guarantees may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes. Without the consent of any Holder of Notes, the Company,
a Guarantor and the Trustee may amend or supplement the Indenture, the Notes or
any Note Guarantee to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's or any Guarantor's obligations to
Holders of the Notes in case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, or to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the TIA.
13. DEFAULTS AND REMEDIES. Events of Default include: (i)
default for 30 days in the payment when due of interest on, or Liquidated
Damages, if any, with respect to, the Notes (whether or not prohibited by
Article 10 of the Indenture); (ii) default in payment when due of principal of
or premium, if any, on the Notes (whether or not prohibited by Article 10 of the
Indenture); (iii) failure by the Company or any of its Restricted Subsidiaries
to comply with Section 4.07, 4.09, 4.10, 4.14 or 5.01 of the Indenture; (iv)
failure by the Company or any of its Restricted Subsidiaries for 60
A2-6
<PAGE>
days after written notice by the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes to comply with any of its other
agreements in the Indenture or the Notes; (v) default under certain other
agreements relating to Indebtedness of the Company which default (a) is caused
by a failure to pay principal of or premium, if any, or interest on such
Indebtedness at final maturity (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $5.0 million and
either (a) any creditor commences enforcement proceedings upon any such judgment
or (b) such judgments are not paid, discharged or stayed for a period of 60
days; (vii) except as permitted by the Indenture, any guarantee of the Notes
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Note Guarantee; and (viii) certain events of bankruptcy or
insolvency with respect to the Company, any of its Restricted Subsidiaries that
constitutes a Significant Subsidiary or any group of Restricted Subsidiaries
that, taken together, would constitute a Significant Subsidiary. If any Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately; provided that so long as any Indebtedness permitted
to be incurred pursuant to the Credit Facility shall be outstanding, no such
acceleration shall be effective until the earlier of (A) acceleration of any
Indebtedness under the Credit Facility or (ii) five business days after the
giving of written notice of such acceleration to the Company. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes. The Company is required
to deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required, upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.
14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
15. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder of the Company or any Guarantor, as such, shall not
have any liability for any obligations of the Company or such Guarantor under
the Notes, the Indenture, the Note Guarantees or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
A2-7
<PAGE>
16. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
17. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
18. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES
AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders
of Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of November 26, 1997, among the Company, the Guarantors and
the parties named on the signature pages thereof (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Holmes Products Corp.
233 Fortune Boulevard
Milford, Massachusetts 01757
Attention: Chief Financial Officer
A2-8
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date: ______________________
Your Signature: ________________________________________________________
(Sign exactly as your name appears on the Note)
Signature Guarantee.
A2-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.14
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state
the amount you elect to have purchased: $________
Date: ______________________
Your Signature: ________________________________________________________
(Sign exactly as your name appears on the Note)
Tax Identification No: _________________________________________________
Signature Guarantee.
A2-10
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S
Temporary Global Note for an interest in another Global Note, or of other
Restricted Global Notes for an interest in this Regulation S Temporary Global
Note, have been made:
<TABLE>
<CAPTION>
Amount of Principal Amount
decrease in Amount of increase in of this Signature of
Principal Amount Principal Amount Global Note authorized officer
of of following such of Trustee or
Date of Exchange this Global Note this Global Note decrease (or increase) Custodian
---------------- ------------------------ ----------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
A2-11
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Holmes Products Corp.
233 Fortune Boulevard
Boston, Massachusetts 02116
State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Re: 9-7/8% Senior Subordinated Notes due 2007
Reference is hereby made to the Indenture, dated as of
November 26, 1997 (the "Indenture"), among Holmes Products Corp. (the
"Company"), the Guarantors party thereto and State Street Bank and Trust
Company, as trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to
transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in
the principal amount of $___________ in such Note[s] or interests (the
"Transfer"), to __________ (the "Transferee"), as further specified in Annex A
hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [hand] Check if Transferee will take delivery of a beneficial interest in the
144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
2. [hand] Check if Transferee will take delivery of a beneficial interest in the
Temporary Regulation S Global Note, the Regulation S Global Note or a Definitive
Note pursuant to Regulation S. The Transfer is being effected pursuant to and in
accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly,
the Transferor hereby further certifies that (i) the Transfer is not being made
to a person in the United States and (x) at the time the buy order was
originated, the Transferee was outside the United States or such Transferor and
any Person acting on its behalf reasonably believed and believes that the
Transferee was outside the United States or (y) the transaction was executed in,
on or through the facilities of a designated offshore securities market and
neither such
B-1
<PAGE>
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act, (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made prior to the
expiration of the Restricted Period, the transfer is not being made to a U.S.
Person or for the account or benefit of a U.S. Person (other than an Initial
Purchaser). Upon consummation of the proposed transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on Transfer enumerated in the Private
Placement Legend printed on the Regulation S Global Note, the Temporary
Regulation S Global Note and/or the Definitive Note and in the Indenture and the
Securities Act.
3. [hand] Check and complete if Transferee will take delivery of a beneficial
interest in the IAI Global Note or a Definitive Note pursuant to any provision
of the Securities Act other than Rule 144A or Regulation S. The Transfer is
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) [hand] such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) [hand] such Transfer is being effected to the Company;
or
(c) [hand] such Transfer is being effected pursuant to an
effective registration statement under the Securities Act and in compliance with
the prospectus delivery requirements of the Securities Act;
or
(d) [hand] such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities Act
and the Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or Restricted Definitive Notes
and the requirements of the exemption claimed, which certification is supported
by (1) a certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) if such Transfer is in respect of a principal amount of Notes
at the time of transfer of less than $250,000, an Opinion of Counsel provided by
the Transferor or the Transferee (a copy of which the Transferor has attached to
this certification), to the effect that such Transfer is in compliance with the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the IAI Global Note and/or the Definitive Notes and
in the Indenture and the Securities Act.
B-2
<PAGE>
4. [hand] Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) [hand] Check if Transfer is pursuant to Rule 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) [hand] Check if Transfer is Pursuant to Regulation S. (i)
The Transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and in compliance with the transfer
restrictions contained in the Indenture and any applicable blue sky securities
laws of any state of the United States and (ii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) [hand] Check if Transfer is Pursuant to Other Exemption.
(i) The Transfer is being effected pursuant to and in compliance with an
exemption from the registration requirements of the Securities Act other than
Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
State of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will not be subject to the restrictions
on transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
---------------------------------------
[Insert Name of Transferor]
By: ___________________________________
Name:
Title:
Dated: ___________, ____
B-3
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [hand] a beneficial interest in the:
(i) [hand] 144A Global Note (CUSIP _____), or
(ii) [hand] Regulation S Global Note (CUSIP _____), or
(iii) [hand] IAI Global Note (CUSIP _____); or
(b) [hand] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [hand] a beneficial interest in the:
(i) [hand] 144A Global Note (CUSIP _____), or
(ii) [hand] Regulation S Global Note (CUSIP _____), or
(iii) [hand] IAI Global Note (CUSIP _____); or
(iv) [hand] Unrestricted Global Note (CUSIP _____); or
(b) [hand] a Restricted Definitive Note; or
(c) [hand] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-4
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
(CUSIP______________)
Holmes Products Corp.
233 Fortune Boulevard
Boston, Massachusetts 02116
State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Re: ___% Senior Subordinated Notes due 2007
Reference is hereby made to the Indenture, dated as of
November 26, 1997 (the "Indenture"), among Holmes Products Corp. (the
"Company"), the Guarantors party thereto and State Street Bank and Trust
Company, as trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.
____________, (the "Owner") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial Interests
in an Unrestricted Global Note
(a) [hand] Check if Exchange is from beneficial interest in a
Restricted Global Note to beneficial interest in an Unrestricted Global Note. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the United States Securities
Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest in an Unrestricted Global Note is being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.
(b) [hand] Check if Exchange is from beneficial interest in a
Restricted Global Note to Unrestricted Definitive Note. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Definitive Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
C-1
<PAGE>
(c) [hand] Check if Exchange is from Restricted Definitive
Note to beneficial interest in an Unrestricted Global Note. In connection with
the Owner's Exchange of a Restricted Definitive Note for a beneficial interest
in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) [hand] Check if Exchange is from Restricted Definitive
Note to Unrestricted Definitive Note. In connection with the Owner's Exchange of
a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner
hereby certifies (i) the Unrestricted Definitive Note is being acquired for the
Owner's own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to Restricted Definitive
Notes and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Unrestricted Definitive Note is being acquired in compliance with
any applicable blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in Restricted
Global Notes for Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes
(a) [hand] Check if Exchange is from beneficial interest in a
Restricted Global Note to Restricted Definitive Note. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Definitive Note and in
the Indenture and the Securities Act.
(b) [hand] Check if Exchange is from Restricted Definitive
Note to beneficial interest in a Restricted Global Note. In connection with the
Exchange of the Owner's Restricted Definitive Note for a beneficial interest in
the [CHECK ONE] .. 144A Global Note, .. Regulation S Global Note, ..
IAI Global Note with an equal principal amount, the Owner hereby certifies (i)
the beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any applicable
blue sky securities laws of any state of the United States. Upon consummation of
the proposed Exchange in accordance with the terms of the Indenture, the
beneficial interest issued will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the relevant Restricted
Global Note and in the Indenture and the Securities Act.
C-2
<PAGE>
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
-----------------------------------
[Insert Name of Owner]
By: _______________________________
Name:
Title:
Dated: ________________, ____
C-3
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Holmes Products Corp.
233 Fortune Boulevard
Boston, Massachusetts 02116
State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Re: 9-7/8% Senior Subordinated Notes due 2007
Reference is hereby made to the Indenture, dated as
of November 26, 1997 (the "Indenture"), among Holmes Products Corp. (the
"Company"), the Guarantors party thereto and State Street Bank and Trust
Company, as trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture.
In connection with our proposed purchase of
$____________ aggregate principal amount of:
(a) [hand] a beneficial interest in a Global Note, or
(b) [hand] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the
Notes or any interest therein is subject to certain restrictions and conditions
set forth in the Indenture and the undersigned agrees to be bound by, and not to
resell, pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes
have not been registered under the Securities Act, and that the Notes and any
interest therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell the Notes or any
interest therein, we will do so only (A) to the Company or any Restricted
Subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to
a "qualified institutional buyer" (as defined therein), (c) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter and, if such
transfer is in respect of a principal amount of Notes, at the time of transfer
of less than $250,000, an Opinion of Counsel in form reasonably acceptable to
the Company to the effect that such transfer is in compliance with the
Securities Act, (D) outside the United States in accordance with Rule 904 of
Regulation S under the Securities Act, (E) pursuant to the provisions of
D-1
<PAGE>
Rule 144(k) under the Securities Act or (F) pursuant to an effective
registration statement under the Securities Act, and we further agree to provide
to any person purchasing the Definitive Note or beneficial interest in a Global
Note from us in a transaction meeting the requirements of clauses (A) through
(E) of this paragraph a notice advising such purchaser that resales thereof are
restricted as stated herein.
3. We understand that, on any proposed resale of the
Notes or beneficial interest therein, we will be required to furnish to you and
the Company such certifications, legal opinions and other information as you and
the Company may reasonably require to confirm that the proposed sale complies
with the foregoing restrictions. We further understand that the Notes purchased
by us will bear a legend to the foregoing effect. We further understand that any
subsequent transfer by us of the Notes or beneficial interest therein acquired
by us must be effected through one of the Placement Agents.
4. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of our investment in the Notes,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interest
therein purchased by us for our own account or for one or more accounts (each of
which is an institutional "accredited investor") as to each of which we exercise
sole investment discretion.
You and the Company are entitled to rely upon this
letter and are irrevocably authorized to produce this letter or a copy hereof to
any interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby.
------------------------------------------
[Insert Name of Accredited Investor]
By: _______________________________
Name:
Title:
Dated: __________________, ____
D-2
<PAGE>
EXHIBIT E
FORM OF NOTATION OF GUARANTEE
For value received, each Guarantor (which term includes any
successor Person under the Indenture) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture dated as of November 26, 1997 (the
"Indenture") among Holmes Products Corp. (the "Company"), Holmes Manufacturing
Corp., Holmes Air (Taiwan) Corp. (together, the "Guarantors") and State Street
Bank and Trust Company, as trustee (the "Trustee"), that (a) the principal of
and premium, interest and Liquidated Damages, if any, on the Notes will be
promptly paid in full when due, whether at maturity, by acceleration, redemption
or otherwise, and interest on the overdue principal of premium, interest (to the
extent permitted by law) and Liquidated Damages, if any, on the Notes, if any,
if lawful, and all other Obligations of the Company to the Holders or the
Trustee hereunder or thereunder will be promptly paid in full or performed, all
in accordance with the terms hereof and thereof; and (b) in case of any
extension of time of payment or renewal of any Notes or any of such other
Obligations, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. The Obligations of the Guarantors to the
Holders of Notes and to the Trustee pursuant to the Note Guarantee and the
Indenture are expressly set forth in Article 11 of the Indenture and reference
is hereby made to the Indenture for the precise terms of the Note Guarantee.
Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound
by such provisions, (b) authorizes and directs the Trustee, on behalf of such
Holder, to take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (c) appoints the Trustee
attorney-in-fact of such Holder for such purpose; provided, however, that the
Indebtedness evidenced by this Note Guarantee shall cease to be so subordinated
and subject in right of payment upon any defeasance of this Note in accordance
with the provisions of the Indenture.
HOLMES MANUFACTURING CORP.
BY: ______________________________
Name:
Title:
HOLMES AIR (TAIWAN) CORP.
BY: ______________________________
Name:
Title:
E-1
<PAGE>
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated
as of ________________, among __________________ (the "Guaranteeing Restricted
Subsidiary"), a Domestic Restricted Subsidiary of Holmes Products Corp. (or its
permitted successor), a Massachusetts corporation (the "Company"), the other
Guarantors (as defined in the Indenture referred to herein) and State Street
Bank and Trust Company, as trustee under the indenture referred to below (the
"Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to
the Trustee an indenture (the "Indenture"), dated as of November 26, 1997
providing for the issuance of an aggregate principal amount of up to $105.0
million of 9 7/8% Senior Subordinated Notes due 2007 (the "Notes");
WHEREAS, the Indenture provides that under certain
circumstances the Guaranteeing Restricted Subsidiary shall execute and deliver
to the Trustee a supplemental indenture pursuant to which the Guaranteeing
Restricted Subsidiary shall unconditionally guarantee all of the Company's
Obligations under the Notes and the Indenture on the terms and conditions set
forth herein (the "Note Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the
Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Guaranteeing Restricted Subsidiary and the Trustee mutually covenant and
agree for the equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Restricted
Subsidiary hereby agrees as follows:
(a) Along with all the Guarantors named in the Indenture,
to jointly and severally Guarantee to each Holder of
a Note authenticated and delivered by the Trustee and
to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of
the Indenture, the Notes or the obligations of the
Company hereunder or thereunder, that:
(i) the principal of and premium, interest and
Liquidated Damages, if any, on the Notes
will be promptly paid in full when due,
whether at maturity, by acceleration,
redemption or otherwise, and interest on the
overdue principal of, premium, interest and
Liquidated Damages, if any, on the Notes, if
any, if lawful, and all other obligations of
the
F-1
<PAGE>
Company to the Holders or the Trustee
hereunder or thereunder will be promptly
paid in full or performed, all in accordance
with the terms hereof and thereof; and
(ii) in case of any extension of time of payment
or renewal of any Notes or any of such other
Obligations, the same will be promptly paid
in full when due or performed in accordance
with the terms of the extension or renewal,
whether at stated maturity, by acceleration
or otherwise. Failing payment when due of
any amount so guaranteed or any performance
so guaranteed for whatever reason, the
Guarantors shall be jointly and severally
obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional,
irrespective of the validity, regularity or
enforceability of the Notes or the Indenture, the
absence of any action to enforce the same, any waiver
or consent by any Holder of the Notes with respect to
any provisions hereof or thereof, the recovery of any
judgment against the Company, any action to enforce
the same or any other circumstance which might
otherwise constitute a legal or equitable discharge
or defense of a Guarantor.
(c) The following is hereby waived: diligence,
presentment, demand of payment, filing of claims with
a court in the event of insolvency or bankruptcy of
the Company, any right to require a proceeding first
against the Company, protest, notice and all demands
whatsoever.
(d) This Note Guarantee shall not be discharged except by
complete performance of the Obligations contained in
the Notes and the Indenture.
(e) If any Holder or the Trustee is required by any court
or otherwise to return to the Company, the
Guarantors, or any custodian, trustee, liquidator or
other similar official acting in relation to either
the Company or the Guarantors, any amount paid by
either to the Trustee or such Holder, this Note
Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect.
(f) The Guaranteeing Restricted Subsidiary shall not be
entitled to any right of subrogation in relation to
the Holders in respect of any obligations guaranteed
hereby until payment in full of all Obligations
guaranteed hereby.
(g) As between the Guarantors, on the one hand, and the
Holders and the Trustee, on the other hand, (x) the
maturity of the Obligations guaranteed hereby may be
accelerated as provided in Article 6 of the Indenture
for the purposes of this Note Guarantee,
notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect
of the Obligations guaranteed hereby, and (y) in the
event of any declaration of acceleration of such
Obligations as provided in Article 6 of the
Indenture, such Obligations (whether or not due and
payable) shall forthwith become due and payable by
the Guarantors for the purpose of this Note
Guarantee.
F-2
<PAGE>
(h) The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as
the exercise of such right does not impair the rights
of the Holders under the Note Guarantee.
(i) Pursuant to Section 11.03 of the Indenture, after
giving effect to any maximum amount and any other
contingent and fixed liabilities that are relevant
under any applicable Bankruptcy or fraudulent
conveyance laws, and after giving effect to any
collections from, rights to receive contribution from
or payments made by or on behalf of any other
Guarantor in respect of the Obligations of such other
Guarantor under Article 11 of the Indenture the
Obligations of the Guarantors shall be limited to the
maximum amount as shall result in the Obligations of
such Guarantor under its Note Guarantee not
constituting a fraudulent transfer or conveyance.
3. EXECUTION AND DELIVERY. Each Guaranteeing Restricted
Subsidiary agrees that the Note Guarantees shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such Note
Guarantee.
4. GUARANTEEING RESTRICTED SUBSIDIARY MAY CONSOLIDATE, ETC.
ON CERTAIN TERMS.
(a) The Guaranteeing Restricted Subsidiary may not consolidate
with or merge with or into (whether or not such Guarantor is
the surviving Person) another corporation, Person or entity
whether or not affiliated with such Guarantor unless:
(i) subject to Section 11.05 of the Indenture, the Person
formed by or surviving any such consolidation or
merger (if other than a Guarantor or the Company)
unconditionally assumes all the obligations of such
Guarantor, pursuant to a supplemental indenture in
form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and the Note
Guarantee on the terms set forth herein or therein;
and
(ii) immediately after giving effect to such transaction,
no Default or Event of Default exists.
(b) In case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee
and satisfactory in form to the Trustee, of the Note Guarantee
endorsed upon the Notes and the due and punctual performance
of all of the covenants and conditions of the Indenture to be
performed by the Guarantor, such successor corporation shall
succeed to and be substituted for the Guarantor with the same
effect as if it had been named herein as a Guarantor. Such
successor corporation thereupon may cause to be signed any or
all of the Note Guarantees to be endorsed upon all of the
Notes issuable hereunder which theretofore shall not have been
signed by the Company and delivered to the Trustee. All the
Note Guarantees so issued shall in all respects have the same
legal rank and benefit under the Indenture as the Note
Guarantees theretofore and thereafter issued in accordance
with the terms of the Indenture as though all of such Note
Guarantees had been issued at the date of the execution
hereof.
F-3
<PAGE>
(c) Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (a) and (b) above, nothing contained
in the Indenture or in any of the Notes shall prevent any
consolidation or merger of a Guarantor with or into the
Company or another Guarantor, or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or
substantially as an entirety to the Company or another
Guarantor.
5. RELEASES.
(a) In the event of a sale or other disposition of all of the
assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the
capital stock of any Guarantor (other than to the Company or
another Domestic Restricted Subsidiary), or in the case the
Company designates a Guarantor to be an Unrestricted
Subsidiary in accordance with the Indenture, then such
Guarantor (in the event of a sale or other disposition, by way
of merger, consolidation or otherwise, of all of the capital
stock of such Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all
or substantially all of the assets of such Guarantor) shall be
released and relieved of any obligations under its Note
Guarantee; provided that the Net Proceeds of such sale or
other disposition are applied in accordance with the
applicable provisions of the Indenture, including, without
limitation, Section 4.10 of the Indenture. Upon delivery by
the Company to the Trustee of an Officers' Certificate and an
Opinion of Counsel to the effect that such sale or other
disposition was made by the Company in accordance with the
provisions of the Indenture, including without limitation
Section 4.10 of the Indenture, the Trustee shall execute any
documents reasonably required in order to evidence the release
of any Guarantor from its obligations under its Note
Guarantee.
(b) Any Guarantor not released from its obligations under its Note
Guarantee shall remain liable for the full amount of principal
of and interest on the Notes and for the other obligations of
any Guarantor under the Indenture as provided in Article 10 of
the Indenture.
6. NO RECOURSE AGAINST OTHERS. No past, present or future
director, officer, employee, incorporator, stockholder or agent of the
Guaranteeing Restricted Subsidiary, as such, shall have any liability for any
obligations of the Company or any Guarantor under the Notes, any Note
Guarantees, the Indenture or this Supplemental Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of the Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the SEC that such a waiver is against
public policy.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF
NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT
THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
F-4
<PAGE>
8. COUNTERPARTS The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
9. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
10 .THE TRUSTEE. The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by the Guaranteeing Restricted Subsidiary
and the Company.
F-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
Dated: _______________, ____
[Guaranteeing Restricted Subsidiary]
By: _________________________________
Name:
Title:
HOLMES PRODUCTS CORP.
By: _________________________________
Name:
Title:
[EXISTING GUARANTORS]
By: ______________________________
Name:
Title
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: ______________________________
Name:
Title:
F-6
POSTERNAK, BLANKSTEIN & LUND, L.L.P.
ATTORNEYS AT LAW
---------------------
100 CHARLES RIVER PLAZA
BOSTON, MASSACHUSETTS 02114-2723
TEL 617-973-6100
FAX 617-367-2315
E-MAIL [email protected]
January 15, 1998
Holmes Products Corp.
233 Fortune Boulevard
Milford, Massachusetts 01757
Re: Registration Statement on Form S-4
Gentlemen:
This opinion is rendered to you in connection with the preparation of
the registration statement (the "Registration Statement") on Form S-4 under the
Securities Act of 1933, as amended (the "Act"), with respect to the offering by
Holmes Products Corp., a Massachusetts corporation (the "Company"), of up to
$105,000,000 aggregate principal amount of 9-7/8% Senior Subordinated Notes due
2007, Series B (the "Notes") and the related guarantees of the Notes (the
"Guarantees") by certain subsidiaries of the Company (the "Subsidiary
Guarantors"). The Notes and the Guarantees will be issued under an indenture
(the "Indenture") entered into among the Company, the Subsidiary Guarantors and
State Street Bank and Trust Company, as Trustee, in exchange for the Company's
9-7/8% Senior Subordinated Notes due 2007 pursuant to the exchange offer
described in the Registration Statement (the "Exchange Offer").
We have acted as counsel to the Company and the Subsidiary Guarantors
in connection with the preparation of the Registration Statement and the
proposed issuance and sale of the Notes. For purposes of this opinion we have
reviewed the Company's Articles of Organization and By-laws and the Articles of
Organization and By-laws of each of the Subsidiary Guarantors, in each case as
amended to date. We have also examined such records of corporate proceedings of
the Company and the Subsidiary Guarantors and such other documents as we have
deemed necessary to enable us to render this opinion.
<PAGE>
In rendering this opinion, we have assumed that (i) the Board of
Directors of each of the Subsidiary Guarantors has determined that the
Guarantees are necessary or convenient to the conduct, promotion or attainment
of the business of the Subsidiary Guarantors, and (ii) at the time the
Subsidiary Guarantors incur the Guarantees; none of the Subsidiary Guarantors
(i) will be insolvent or rendered insolvent by reason of such incurrence, (ii)
will be engaged in a business or transaction for which the assets remaining with
any such Subsidiary Guarantor constitute unreasonably small capital or (iii)
intends to incur, or believes that it will incur, debts beyond its ability to
pay such debts as they mature; and each of the Subsidiary Guarantors will
receive reasonably equivalent value or fair consideration.
We are attorneys admitted to practice in the Commonwealth of
Massachusetts. We express no opinion concerning the laws of any jurisdiction
other than the laws of the United States of America and the Commonwealth of
Massachusetts.
Based upon and subject to the foregoing, and having regard for such
legal considerations as we have deemed relevant, it is our opinion that the
Notes and the Guarantees have been duly authorized for issuance by all necessary
corporate action on the part of the Company and the Subsidiary Guarantors and,
upon execution and authentication of the Notes as provided in the Indenture and
issuance of the Notes in accordance with the terms of the Exchange Offer
(subject to the effectiveness of the Registration Statement), the Notes will be
the legal, valid and binding obligations of the Company and the Guarantees will
be the legal, valid and binding obligations of the Subsidiary Guarantors, in
each case entitled to the benefits of the Indenture, except that (i) enforcement
of the rights and remedies created thereby may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws affecting
creditors' rights generally and by equitable principles which may limit the
right to obtain the remedy of specific performance or other injunctive relief
and (ii) we express no opinion as to the legality, validity or binding nature of
any choice of law provision.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus contained in the Registration Statement.
Very truly yours,
POSTERNAK, BLANKSTEIN & LUND, L.L.P.
By: /s/ Donald H. Siegel
--------------------------------
A partner thereof
REVOLVING CREDIT AGREEMENT
dated as of November 26, 1997
among
HOLMES PRODUCTS CORP.
HOLMES PRODUCTS (FAR EAST) LIMITED, ESTEEM INDUSTRIES LIMITED,
RAIDER MOTOR CORPORATION,
BANKBOSTON, N.A.
and the other lending institutions set forth on Schedule 1 attached hereto,
BANKBOSTON, N.A.
as Administrative and Syndication Agent
and
LEHMAN COMMERCIAL PAPER INC.
as Documentation Agent
with
BANCBOSTON SECURITIES INC.
having acted as Arranger
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS AND RULES OF INTERPRETATION. ....................................................... 1
1.1. Definitions. ........................................................................ 1
1.2. Rules of Interpretation. ............................................................26
2. THE REVOLVING CREDIT FACILITY. .................................................................27
2.1. Commitment to Lend. .................................................................27
2.1.1. Revolving Credit Loans to Company. .......................................27
2.1.2. Multicurrency Loans to Subsidiary Borrowers. .............................27
2.2. Commitment Fee. .....................................................................28
2.3. Reduction of Total Commitment. ......................................................29
2.4. The Revolving Credit Notes; Loan Accounts. ..........................................29
2.5. Interest on Revolving Credit Loans. .................................................30
2.6. Requests for Revolving Credit Loans. ................................................30
2.7. Conversion Options. .................................................................31
2.7.1. Conversion to Different Type of Revolving Credit Loan. ...................31
2.7.2. Continuation of Type of Revolving Credit Loan. ...........................31
2.7.3. Eurocurrency Rate Loans. .................................................32
2.8. Funds for Revolving Credit Loan. ....................................................32
2.8.1. Funding Procedures for Revolving Credit Loans to Company. ................32
2.8.2. Advances by Agent for Revolving Credit Loans to Company. .................33
2.8.3. Funding Procedures for Revolving Credit Loans Denominated in Dollars to
Subsidiary Borrowers. ............................................................33
2.8.4. Advances by Agent for Revolving Credit Loans Denominated in Dollars to
Subsidiary Borrowers. ............................................................34
2.8.5. Funding Procedures for Revolving Credit Loans Denominated in an Optional
Currency to Subsidiary Borrowers. ................................................34
2.8.6. Advances by Agent for Revolving Credit Loans denominated in Optional Currency
to Subsidiary Borrowers. .........................................................35
2.9. Optional Currencies. ................................................................35
2.9.1. Request for Optional Currency..............................................35
2.9.2. Exchange Rate. ...........................................................36
2.9.3. Multiple Denominations. ..................................................36
2.9.4. Repayment. ...............................................................37
2.9.5. Funding. .................................................................37
2.10. Fronting Provisions. ...............................................................37
2.10.1. Application of Interest Payments for Multicurrency Loans..................37
2.10.2. Currency Conversions and Contingent Funding Agreement. ..................38
2.10.3. Resignation of Fronting Bank..............................................40
3. REPAYMENT OF THE REVOLVING CREDIT LOANS. .......................................................41
3.1. Maturity. ...........................................................................41
<PAGE>
-ii-
3.2. Mandatory Repayments of Revolving Credit Loans. .....................................41
3.3. Optional Repayments of Revolving Credit Loans. ......................................42
4. LETTERS OF CREDIT. .............................................................................43
4.1. Letter of Credit Commitments..........................................................43
4.1.1. Commitment to Issue Letters of Credit. ...................................43
4.1.2. Letter of Credit Applications. ...........................................43
4.1.3. Terms of Letters of Credit. ..............................................44
4.1.4. Reimbursement Obligations of Banks. ......................................44
4.1.5. Participations of Banks. .................................................44
4.2. Reimbursement Obligation of the Borrowers. ..........................................44
4.3. Letter of Credit Payments. ..........................................................45
4.4. Obligations Absolute. ...............................................................46
4.5. Reliance by Issuer. .................................................................46
4.6. Letter of Credit Fee. ...............................................................47
5. CERTAIN GENERAL PROVISIONS. ....................................................................47
5.1. Closing Fees. .......................................................................47
5.2. Agent's Fee. ........................................................................47
5.3. Funds for Payments. .................................................................47
5.3.1. Payments to Agent. .......................................................47
5.3.2. No Offset, etc. ..........................................................48
5.3.3. Currency Matters...........................................................48
5.3.3.1. Currency of Account. ..........................................48
5.3.3.2. Currency Fluctuations. ........................................49
5.4. Computations. .......................................................................50
5.5. Inability to Determine Eurocurrency Rate. ...........................................51
5.6. Illegality. .........................................................................51
5.7. Additional Costs, etc. ..............................................................52
5.8. Capital Adequacy. ...................................................................53
5.9. Certificate. ........................................................................53
5.10. Indemnity. .........................................................................54
5.11. Interest After Default. ............................................................54
5.11.1. Overdue Amounts. ........................................................54
5.11.2. Amounts Not Overdue. ....................................................54
6. COLLATERAL SECURITY AND GUARANTIES. ............................................................54
6.1. Security of Borrowers. ..............................................................54
6.2. Guaranties and Security of Subsidiaries. ............................................55
6.3. Guaranty by the Company of the Obligations.............................................55
6.3.1. Guaranty. ................................................................55
6.3.2. Guaranty Absolute. .......................................................55
6.3.3. Effectiveness; Enforcement. ..............................................57
6.3.4. Waiver. ..................................................................57
6.3.5. Subordination; Subrogation. ..............................................58
6.3.6. Payments. ................................................................58
6.3.7. Receipt of Information. ..................................................59
7. REPRESENTATIONS AND WARRANTIES. ................................................................59
7.1. Corporate Authority. ................................................................59
7.1.1. Incorporation; Good Standing. ............................................59
<PAGE>
-iii-
7.1.2. Authorization. ...........................................................59
7.1.3. Enforceability. ..........................................................60
7.2. Governmental Approvals. .............................................................60
7.3. Title to Properties; Leases. ........................................................60
7.4. Financial Statements and Projections. ...............................................61
7.4.1. Fiscal Year. .............................................................61
7.4.2. Financial Statements. ....................................................61
7.4.3. Projections. .............................................................61
7.4.4. Solvency. ................................................................61
7.5. No Material Changes, etc. ...........................................................62
7.6. Franchises, Patents, Copyrights, etc. ...............................................62
7.7. Litigation. .........................................................................62
7.8. No Materially Adverse Contracts, etc. ...............................................62
7.9. Compliance with Other Instruments, Laws, etc. .......................................62
7.10. Tax Status. ........................................................................63
7.11. No Event of Default. ...............................................................63
7.12. Holding Company and Investment Company Acts. .......................................63
7.13. Absence of Financing Statements, etc. ..............................................63
7.14. Perfection of Security Interest. ...................................................63
7.15. Certain Transactions. ..............................................................64
7.16. Employee Benefit Plans. ............................................................64
7.16.1. In General. .............................................................64
7.16.2. Terminability of Welfare Plans. .........................................64
7.16.3. Guaranteed Pension Plans. ...............................................65
7.16.4. Multiemployer Plans. ....................................................65
7.17. Use of Proceeds. ...................................................................65
7.17.1. General. ................................................................65
7.17.2. Regulations U and X. ....................................................66
7.17.3. Ineligible Securities. ..................................................66
7.18. Environmental Compliance. ..........................................................66
7.19. Subsidiaries, etc. .................................................................68
7.20. Bank Accounts. .....................................................................68
7.21. Disclosure. ........................................................................68
7.22. Status of Loans as Senior Debt. ....................................................68
7.23. Subordinated Debt Documents and Transaction Documents. .............................69
7.24. No Other Senior Debt. ..............................................................69
7.25. No Withholding. ....................................................................69
7.26. No Filings Required. ...............................................................69
7.27. Chief Executive Office. ............................................................69
7.28. Delivery of Certain Documents. .....................................................70
7.29. Insurance. .........................................................................70
8. AFFIRMATIVE COVENANTS OF THE BORROWERS. ........................................................70
8.1. Punctual Payment. ...................................................................70
8.2. Maintenance of Office. ..............................................................70
8.3. Records and Accounts. ...............................................................71
8.4. Financial Statements, Certificates and Information. .................................71
8.5. Notices. ............................................................................73
<PAGE>
-iv-
8.5.1. Defaults. ................................................................73
8.5.2. Environmental Events. ....................................................73
8.5.3. Notification of Claim against Collateral. ................................73
8.5.4. Notice of Litigation and Judgments. ......................................74
8.6. Corporate Existence; Maintenance of Properties. .....................................74
8.7. Insurance. ..........................................................................74
8.8. Taxes. ..............................................................................75
8.9. Inspection of Properties and Books, etc. ............................................75
8.9.1. General. .................................................................75
8.9.2. Appraisals. ..............................................................75
8.10. Compliance with Laws, Contracts, Licenses, and Permits. ............................75
8.11. Employee Benefit Plans. ............................................................76
8.12. Use of Proceeds. ...................................................................76
8.13. Additional Mortgaged Property. .....................................................76
8.14. Fair Labor Standards Act. ..........................................................77
8.15. Guarantors. ........................................................................77
8.16. Subordinated Guarantees. ...........................................................77
8.17. Status of Loans as Senior Debt. ....................................................77
8.18. Further Assurances. ................................................................78
8.19. Additional Subsidiaries. ...........................................................78
8.20. Landlord Consents. .................................................................78
9. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS. ...................................................78
9.1. Restrictions on Indebtedness. .......................................................78
9.2. Restrictions on Liens. ..............................................................80
9.3. Restrictions on Investments. ........................................................81
9.4. Distributions and Restricted Payments. ..............................................82
9.5. Merger, Consolidation and Disposition of Assets. ....................................83
9.5.1. Mergers and Acquisitions. ................................................83
9.5.2. Disposition of Assets. ...................................................86
9.6. Sale and Leaseback. .................................................................87
9.7. Compliance with Environmental Laws. .................................................87
9.8. Subordinated Debt. ..................................................................87
9.9. Employee Benefit Plans. .............................................................87
9.10. Business Activities. ...............................................................88
9.11. Fiscal Year. .......................................................................88
9.12. Transactions with Affiliates. ......................................................88
9.13. Modification of Documents and Charter. .............................................89
9.14. Upstream Limitations. ..............................................................89
9.15. Inconsistent Agreements. ...........................................................89
9.16. Senior Debt. .......................................................................89
9.17. Limitations on Foreign Exchange Arrangements. ......................................89
10. FINANCIAL COVENANTS OF THE BORROWERS. .........................................................90
10.1. Leverage Ratio. ....................................................................90
10.2. Interest Coverage Ratio. ...........................................................90
10.3. Fixed Charge Coverage Ratio. .......................................................90
10.4. Capital Expenditures. ..............................................................90
11. CLOSING CONDITIONS. ...........................................................................91
<PAGE>
-v-
11.1. Loan Documents, etc.. ..............................................................91
11.1.1. Loan Documents. .........................................................91
11.1.2. Subordination Documents. ................................................91
11.1.3. Transaction Documents. ..................................................91
11.2. Certified Copies of Charter Documents. .............................................91
11.3. Corporate Action. ..................................................................92
11.4. Incumbency Certificate. ............................................................92
11.5. Validity of Liens. .................................................................92
11.6. Perfection Certificates and UCC Search Results. ....................................92
11.7. Landlord Consents. .................................................................92
11.8. Certificates of Insurance. .........................................................93
11.9. Hazardous Waste Assessments. .......................................................93
11.10. Solvency Opinion. .................................................................93
11.11. Opinion of Counsel. ...............................................................93
11.12. Payment of Fees. ..................................................................93
11.13. Payoff Letter. ....................................................................93
11.14. Disbursement Instructions. ........................................................93
11.15. Completion of Transaction. ........................................................94
11.16. Capitalization. ...................................................................94
11.17. Consents and Approvals. ...........................................................94
11.18. Closing Date EBITDA. ..............................................................94
11.19. Availability. .....................................................................94
11.20. Designation of Senior Debt. .......................................................94
11.21. Conditions to Funding to Subsidiary Borrowers. ....................................94
12. CONDITIONS TO ALL BORROWINGS. .................................................................95
12.1. Representations True; No Event of Default. .........................................95
12.2. No Legal Impediment. ...............................................................95
12.3. Governmental Regulation. ...........................................................96
12.4. Proceedings and Documents. .........................................................96
12.5. Exchange Limitations. ..............................................................96
13. EVENTS OF DEFAULT; ACCELERATION; ETC. .........................................................96
13.1. Events of Default and Acceleration. ................................................96
13.2. Termination of Commitments. ........................................................100
13.3. Remedies. ..........................................................................100
13.4. Exchange Rate. .....................................................................101
13.5. Distribution of Collateral Proceeds. ...............................................101
14. SETOFF. .......................................................................................102
15. THE AGENT. ....................................................................................103
15.1. Authorization. .....................................................................103
15.2. Employees and Agents. ..............................................................104
15.3. No Liability. ......................................................................104
15.4. No Representations. ................................................................104
15.4.1. General. ................................................................104
15.4.2. Closing Documentation, etc. .............................................105
15.5. Payments. ..........................................................................105
15.5.1. Payments to Agent. ......................................................105
15.5.2. Distribution by Agent. ..................................................105
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-vi-
15.5.3. Delinquent Banks. .......................................................106
15.6. Holders of Revolving Credit Notes. .................................................106
15.7. Indemnity. .........................................................................106
15.8. Agent as Bank. .....................................................................107
15.9. Resignation. .......................................................................107
15.10. Notification of Defaults and Events of Default. ...................................107
15.11. Duties in the Case of Enforcement. ................................................107
15.12. Duties of Documentation Agent. ....................................................108
16. EXPENSES AND INDEMNIFICATION. .................................................................108
16.1. Expenses. ..........................................................................108
16.2. Indemnification. ...................................................................109
16.3. Survival. ..........................................................................109
17. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION. ................................................109
17.1. Sharing of Information with Section 20 Subsidiary. .................................109
17.2. Confidentiality. ...................................................................110
17.3. Prior Notification. ................................................................110
17.4. Other. .............................................................................110
18. SURVIVAL OF COVENANTS, ETC. ...................................................................111
19. ASSIGNMENT AND PARTICIPATION. .................................................................111
19.1. Conditions to Assignment by Banks. .................................................111
19.2. Certain Representations and Warranties; Limitations; Covenants. ....................112
19.3. Register. ..........................................................................113
19.4. New Revolving Credit Notes. ........................................................113
19.5. Participations. ....................................................................114
19.6. Disclosure. ........................................................................114
19.7. Assignee or Participant Affiliated with any Borrower. ..............................114
19.8. Miscellaneous Assignment Provisions. ...............................................115
19.9. Assignment by Borrowers. ...........................................................115
20. NOTICES, ETC. .................................................................................115
21. GOVERNING LAW. ................................................................................116
22. HEADINGS. .....................................................................................116
23. COUNTERPARTS. .................................................................................116
24. ENTIRE AGREEMENT, ETC. ........................................................................117
25. WAIVER OF JURY TRIAL. .........................................................................117
26. CONSENTS, AMENDMENTS, WAIVERS, ETC. ...........................................................117
27. SEVERABILITY. .................................................................................118
</TABLE>
<PAGE>
REVOLVING CREDIT AGREEMENT
This REVOLVING CREDIT AGREEMENT is made as of November 26, 1997, by and
among (a) HOLMES PRODUCTS CORP. (the "Company"), a Massachusetts corporation
having its principal place of business at 233 Fortune Boulevard, Milford,
Massachusetts 01757, (b) HOLMES PRODUCTS (FAR EAST) LIMITED ("Holmes Far East"),
a Bahamas corporation having its principal place of business at 9th Floor, 9
Wing Hong Street, Cheung Sha Wan, Kowloon Hong Kong, (c) ESTEEM INDUSTRIES
LIMITED ("Esteem"), a corporation organized under the laws of Hong Kong and
having its principal place of business at 9th Floor, 9 Wing Hong Street, Cheung
Sha Wan, Kowloon, Hong Kong, (d) RAIDER MOTOR CORPORATION ("Raider", and
collectively with Holmes Far East and Esteem, the "Subsidiary Borrowers", and
together with the Company the "Borrowers" and each individually a "Borrower"), a
Bahamas corporation having its principal place of business at 9th Floor, 9 Wing
Hong Street, Cheung Sha Wan, Kowloon, Hong Kong, (e) BANKBOSTON, N.A., a
national banking association and the other lending institutions listed on
Schedule 1, (f) BANKBOSTON, N.A. as syndication and administrative agent for
itself and such other lending institutions, (g) LEHMAN COMMERCIAL PAPER INC. as
documentation agent for such lending institutions and (h) BANKBOSTON, N.A.,
acting through its Hong Kong branch as fronting bank for the Banks.
1. DEFINITIONS AND RULES OF INTERPRETATION.
1.1. Definitions. The following terms shall have the meanings set forth
in this ss.1 or elsewhere in the provisions of this Credit Agreement referred to
below:
Adjustment Date. The first day of the month immediately following the
month in which a Compliance Certificate is to be delivered by the Company
pursuant to ss.8.4(d) hereof.
Affiliate. Any Person that would be considered to be an affiliate of
the Company under Rule 144(a) of the Rules and Regulations of the Securities and
Exchange Commission, as in effect on the date hereof, if the Company were
issuing securities.
Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
Agent. BankBoston, N.A. acting as administrative and syndication agent
for the Banks.
Agent's Special Counsel. Bingham Dana LLP or such other counsel as may
be approved by the Agent.
<PAGE>
-2-
Applicable Margin. For each period commencing on an Adjustment Date
through the date immediately preceding the next Adjustment Date (each a "Rate
Adjustment Period"), the Applicable Margin shall be the applicable margin set
forth below with respect to the Leverage Ratio, as determined for the period
ending on the fiscal quarter ended immediately preceding the applicable Rate
Adjustment Period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
BASE
RATE EUROCURRENCY LETTER OF COMMITMENT FEE
LEVEL LEVERAGE RATIO LOANS RATE LOANS CREDIT FEES RATE
======================================================================================================
<S> <C> <C> <C> <C> <C>
I Greater than or equal to
4.75:1.00 0.75% 2.25% 2.25% 0.50%
======================================================================================================
II Less than 4.75:1.00 but greater
than or equal to 4.25:1.00 0.50% 2.00% 2.00% 0.50%
======================================================================================================
III Less than 4.25:1.00 but greater
than or equal to 3.75:1.00 0.25% 1.75% 1.75% 0.375%
======================================================================================================
IV Less than 3.75:1.00 but greater
than or equal to 3.25:1.00 0.00% 1.50% 1.50% 0.375%
======================================================================================================
V Less than 3.25:1.00 0.00% 1.25% 1.25% 0.375%
======================================================================================================
</TABLE>
Notwithstanding the foregoing, (a) for Revolving Credit Loans
outstanding, the Letter of Credit Fees and the commitment fees payable during
the period commencing on the Closing Date through the date immediately preceding
the first Adjustment Date to occur after June 30, 1998, the Applicable Margin
shall be Level II set forth above, provided, however, notwithstanding the
foregoing, to the extent that the Compliance Certificate demonstrates the
Leverage Ratio is greater than or equal to 4.75:1.00 and the EBITDA is less than
$30,000,000 for any period of four consecutive fiscal quarters (treated as a
single accounting period) ending between the Closing Date and the fiscal quarter
ending June 30, 1998, the Applicable Margin shall be Level I above for each Rate
Adjustment Period in which such criteria are met, and (b) if the Company fails
to deliver any Compliance Certificate pursuant to ss.8.4(d) hereof then, for the
period commencing on the next Adjustment Date to occur subsequent to such
failure through the date immediately following the date on which such Compliance
Certificate is delivered, the Applicable Margin shall be the highest Applicable
Margin set forth above.
Asco. Asco Investments Ltd., a Bahamas corporation.
Asco Letters of Credit. Those certain letters of credit issued prior to
the Closing Date for the account of certain of the Subsidiary Borrowers and more
fully described on Schedule 1.1(a) hereto.
Asset Sale. Any one or series of related transactions in which any
applicable Person conveys, sells, transfers or otherwise disposes of, directly
or indirectly, any
<PAGE>
-3-
of its properties, businesses or assets (including the sale or issuance of
capital stock of a Subsidiary), whether owned on the Closing Date or thereafter
acquired.
Assignment and Acceptance. See ss.19.1.
Balance Sheet Date. September 30, 1997.
Banks. BKB and the other lending institutions listed on Schedule 1
hereto and any other Person who becomes an assignee of any rights and
obligations of a Bank pursuant to ss.19 and, unless the context otherwise
requires, the Fronting Bank.
Base Rate. The higher of (a) the annual rate of interest announced from
time to time by BKB at its head office in Boston, Massachusetts, as its "base
rate" and (b) one-half of one percent (1/2%) above the Federal Funds Effective
Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall
mean for any day, the rate per annum equal to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three (3) funds brokers of recognized
standing selected by the Agent.
Base Rate Loans. Revolving Credit Loans denominated in Dollars bearing
interest calculated by reference to the Base Rate.
Berkshire Fund IV. Berkshire Fund IV, L.P., a Massachusetts limited
partnership.
Berkshire Fund IV Investment Corp. Berkshire Fund IV Investment Corp.,
a Massachusetts corporation.
Berkshire Investors LLC. Berkshire Investors LLC, a Massachusetts
limited liability company.
Berkshire Partners. Berkshire Partners LLC, a Massachusetts limited
liability company.
BKB. BankBoston, N.A. (f/k/a The First National Bank of Boston), a
national banking association, in its individual capacity.
Borrowers. As defined in the preamble hereto.
Business Day. Any day on which banking institutions in Boston,
Massachusetts, are open for the transaction of banking business and, in
addition, (a) if Eurocurrency Rate Loans denominated in Dollars are involved, a
day which is also a day in which commercial banks are open for international
business (including dealings in Dollar deposits) in London or such other
eurodollar interbank market as
<PAGE>
-4-
may be selected by the Agent in its sole discretion acting in good faith; and
(b) if Eurocurrency Rate Loans denominated in an Optional Currency are involved,
a day on which dealings and exchange in Dollars and the relevant Optional
Currency can be carried on in the relevant Eurocurrency Interbank Market and
Dollar settlements of such dealings may be effected in New York, New York and
London, and also a day on which dealings and exchange in Dollars and in the
relevant Optional Currency can be carried on in the principal financial center
of the country in which such currency is legal tender and in London, England.
Capital Assets. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery, equipment and all other assets which are treated as capital
assets in accordance with generally accepted accounting principles) and
intangible (such as patents, copyrights, trademarks, franchises and good will);
provided that Capital Assets shall not include any item customarily charged
directly to expense or depreciated over a useful life of twelve (12) months or
less in accordance with generally accepted accounting principles.
Capital Expenditures. Amounts paid or Indebtedness incurred by the
Company or any of its Subsidiaries in connection with (a) the purchase or lease
by the Company or any of its Subsidiaries of Capital Assets that would be
required to be capitalized and shown on the balance sheet of such Person in
accordance with generally accepted accounting principles or (b) the lease of any
assets by the Company or any of its Subsidiaries as lessee under any synthetic
lease referred to in clause (f) of the definition of the term "Indebtedness" to
the extent that such assets would have been Capital Assets had the synthetic
lease been treated for accounting purposes as a Capitalized Lease.
Capitalization Documents. Collectively, the Stockholders Agreement and
the articles of organization or comparable charter documents, as the case may
be, of the Company and its Subsidiaries.
Capitalized Leases. Leases under which the Company or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
CERCLA. See ss.7.18(a).
Charges Over Shares. Collectively, (a) the Charge Over Shares, dated or
to be dated on or prior to the Closing Date, between Holmes Far East and the
Agent and (b) the Charge Over Shares, dated or to be dated on or prior to the
Closing Date, between Raider and the Agent, and each to be in form and substance
satisfactory to the Banks and the Agent.
Closing Date. The first date on which the conditions set forth in ss.11
have been satisfied and any Revolving Credit Loans are to be made or any Letter
of Credit is to be issued hereunder.
<PAGE>
-5-
Code. The Internal Revenue Code of 1986, as amended.
Collateral. All of the property, rights and interests of the Company
and its Subsidiaries that are or are intended to be subject to the security
interests and mortgages created by the Security Documents.
Commitment. With respect to each Bank, the amount set forth on Schedule
1 hereto as the amount of such Bank's commitment to make Revolving Credit Loans
to the Company and to purchase a risk participation from the Fronting Bank for
Multicurrency Loans made to the Subsidiary Borrowers by the Fronting Bank
pursuant to ss.2.10 hereof, and to participate in the issuance, extension and
renewal of Letters of Credit for the account of, the Borrowers, as the same may
be reduced from time to time; or if such commitment is terminated pursuant to
the provisions hereof, zero.
Commitment Fee Rate. The applicable rate per annum set forth in the
chart contained in the definition of Applicable Margin under the heading
"Commitment Fee Rate".
Commitment Percentage. With respect to each Bank, the percentage set
forth on Schedule 1 hereto as such Bank's percentage of the aggregate
Commitments of all of the Banks.
Company. As defined in the preamble hereto.
Compliance Certificate. See ss.8.4(d).
Consolidated or consolidated. With reference to any term defined
herein, shall mean that term as applied to the accounts of the Company and its
Subsidiaries, consolidated in accordance with generally accepted accounting
principles.
Consolidated Net Income (or Deficit). The consolidated net income (or
loss) of the Company and its Subsidiaries, determined in accordance with
generally accepted accounting principles and before any reduction in respect of
preferred stock dividends, excluding, however, (a) any gain (but not loss),
together with any related provision for taxes on such gain (but not loss)
realized in connection with (i) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or (ii) the
disposition of any securities by the Company or any of its Subsidiaries or the
extinguishment of any Indebtedness of the Company or any of its Subsidiaries and
(b) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss); provided that (1) the Consolidated Net Income (but not loss) of any
Subsidiary that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the Company or another Subsidiary thereof; (2) the net income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary of that net income is not
at the date of determination permitted without any prior governmental
<PAGE>
-6-
approval (that has not been obtained) or, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such Subsidiary or
its stockholders; (3) the net income of any Person acquired in a pooling of
interest transaction for any period prior to the date of such acquisition shall
be excluded; and (4) the cumulative effect of a change in accounting principles
shall be excluded; provided, however, solely for purposes of determining the
Leverage Ratio for purposes of the Applicable Margin, Consolidated Net Income
shall exclude any effect of the PRC Reserve up to an aggregate amount of
$600,000 in any fiscal year.
Consolidated Total Interest Expense. For any period, the aggregate
amount of interest required to be paid or accrued by the Company and its
Subsidiaries during such period on all Indebtedness of the Company and its
Subsidiaries outstanding during all or any part of such period, whether such
interest was or is required to be reflected as an item of expense or
capitalized, including payments consisting of interest in respect of any
Capitalized Lease, or any synthetic lease referred to in clause (f) of the
definition of the term "Indebtedness," and including commitment fees, agency
fees, facility fees, balance deficiency fees and similar fees or expenses in
connection with the borrowing of money.
Continuing Directors. As of any date of determination, any member of
the Board of Directors of the Company who (a) was a member of such Board of
Directors on the Closing Date or (b) was nominated for election or elected to
such Board of Directors with the approval of the majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
Conversion Request. A notice given by the applicable Borrower to the
Agent of such Borrower's election to convert or continue a Revolving Credit Loan
in accordance with ss.2.7.
Credit Agreement. This Revolving Credit Agreement, including the
Schedules and Exhibits hereto.
Debentures. Collectively, (a) the Debenture, dated or to be dated on or
prior to the Closing Date, between Far East and the Agent, (b) the Debenture,
dated or to be dated on or prior to the Closing Date, between Esteem and the
Agent, and (c) the Debenture, dated or to be dated on or prior to the Closing
Date, between Raider and the Agent and each in form and substance satisfactory
to the Banks and the Agent.
Deeds of Charge. Collectively, (a) the Deed of Charge, dated or to be
dated on or prior to the Closing Date, between Holmes Far East and the Agent and
(b) the Deed of Charge, dated or to be dated on or prior to the Closing Date,
between Raider and the Agent, and each to be in form and substance satisfactory
to the Banks and the Agent.
Default. See ss.13.1.
Delinquent Bank. See ss.15.5.3.
<PAGE>
-7-
Delivered Pro Forma Results. As defined in the definition of
"Historical Pro Forma Results".
Distribution. The declaration or payment of any dividend on or in
respect of any shares of any class of capital stock of the Company, other than
dividends payable solely in shares of common stock of the Company; the purchase,
redemption, or other retirement of any shares of any class of capital stock of
the Company, directly or indirectly through a Subsidiary of the Company or
otherwise; the return of capital by the Company to its shareholders as such; or
any other distribution on or in respect of any shares of any class of capital
stock of the Company.
Documentation Agent. Lehman Commercial Paper Inc., in its capacity as
documentation agent for the Banks.
Dollar Equivalent. On any particular date, with respect to any amount
denominated in Dollars, such amount of Dollars, and with respect to any amount
denominated in a currency other than Dollars, the amount (as conclusively
ascertained by the Agent absent manifest error) of Dollars which could be
purchased by the Agent (in accordance with its normal banking practices) in the
London foreign currency deposit markets with such amount of such currency at the
spot rate of exchange prevailing at or about 11:00 a.m. (London time) on such
date.
Dollars or $. Dollars in lawful currency of the United States of
America.
Domestic Lending Office. Initially, the office of each Bank designated
as such in Schedule 1 hereto; thereafter, such other office of such Bank, if
any, located within the United States that will be making or maintaining Base
Rate Loans.
Domestic Subsidiary. Any Subsidiary which is not a Foreign Subsidiary.
Drawdown Date. The date on which any Revolving Credit Loan is made or
is to be made, and the date on which any Revolving Credit Loan is converted or
continued in accordance with ss.2.7.
EBITDA. With respect to the Company and its Subsidiaries and any fiscal
period, an amount equal to Consolidated Net Income for such period, plus, to the
extent deducted in the calculation of Consolidated Net Income and without
duplication, (a) depreciation and amortization for such period, plus (b) other
noncash charges for such period, plus (c) income tax expense for such period,
plus (d) Consolidated Total Interest Expense paid or accrued during such period,
all as determined on a Pro Forma Basis and in accordance with generally accepted
accounting principles.
Eligible Assignee. Any of (a) a commercial bank, insurance company or
commercial finance company or other financial institution organized under the
laws of the United States, or any State thereof or the District of Columbia, and
having total assets in excess of $1,000,000,000; (b) a savings and loan
association or savings
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bank organized under the laws of the United States, or any State thereof or the
District of Columbia, and having a net worth of at least $100,000,000,
calculated in accordance with generally accepted accounting principles; (c) a
commercial bank organized under the laws of any other country which is a member
of the Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having total assets in excess of
$1,000,000,000, provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is also
a member of the OECD; (d) the central bank of any country which is a member of
the OECD; and (e) if, but only if, any Event of Default has occurred and is
continuing, any other bank, insurance company, commercial finance company or
other financial institution or other Person approved by the Agent, such approval
not to be unreasonably withheld.
Employee Benefit Plan. Any employee benefit plan within the meaning of
ss.3(3) of ERISA maintained or contributed to by any Borrower or any Subsidiary
of any Borrower, other than a Guaranteed Pension Plan or a Multiemployer Plan.
Environmental Laws. See ss.7.18(a).
EPA. See ss.7.18(b).
Equity Issuance. The sale or issuance by the Company or any of its
Subsidiaries of any of its capital stock or equity interests or any warrants,
rights or options to acquire its capital stock or equity interests.
ERISA. The Employee Retirement Income Security Act of 1974.
ERISA Affiliate. Subsidiaries of the Borrowers and, other than for
purposes of ss.7.16, clause (i) of ss.8.11 and ss.9.9(e), any Person which is
treated as a single employer with any Borrower under ss.414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of ss.4043 of ERISA and the regulations
promulgated thereunder.
Esteem. As defined in the preamble hereto.
"Euro" or "Euro" Currency. The use of the term "Euro" in this Credit
Agreement relates to the establishment of the "Euro" as a single currency
pursuant to the Treaty Establishing the European Economic Community, as amended
by the Treaty on the European Union (the Maastrict Treaty), and the conversion
(pursuant to the requirements of such Treaty) of any Obligations under the Loan
Documents from an Optional Currency of a country that is a member of the
European Union into Euro. As of the date that any such Optional Currency is no
longer the lawful currency of its respective country, all payment Obligations
under the Loan Documents that would otherwise be in such Optional Currency shall
thereafter be satisfied in the "Euro" Currency. For the avoidance of doubt, the
parties hereto
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affirm and agree that neither the fixing of a conversion rate of any such
Optional Currency against the Euro, nor the mandatory conversion of such
Obligations into Euro, in each case pursuant to such Treaty, shall require the
early termination of this Credit Agreement or the prepayment of any amount due
under the Loan Documents or create any liability of one party to another party
for any direct or consequential loss otherwise arising from any of such events
to the extent required by such Treaty.
Eurocurrency Interbank Market. Any lawful recognized market in which
deposits of Dollars and the relevant Optional Currencies are offered by
international banking units of United States banking institutions and by foreign
banking institutions to each other and in which foreign currency and exchange
operations or eurocurrency funding operations are customarily conducted.
Eurocurrency Lending Office. Initially, the office of each Bank
designated as such in Schedule 1 hereto; thereafter, such other office of such
Bank, if any, that shall be making or maintaining Eurocurrency Rate Loans.
Eurocurrency Offered Rate. With respect to the Interest Period for any
Eurocurrency Rate Loan denominated in an Optional Currency, the rate per annum
(rounded upwards to the nearest 1/16 of one percent) equal to the rate at which
the Reference Bank is offered deposits in Dollars or the relevant Optional
Currency, as the case may be, two (2) Business Days prior to the beginning of
such Interest Period in the Eurocurrency Interbank Market where the foreign
currency and exchange operations or eurocurrency funding operations of the Agent
are customarily conducted at or about 10:00 a.m. (London time) for delivery on
the first day of such Interest Period and for the number of days comprised
therein and in an amount equal (as nearly as may be) to the Reference Bank's
Commitment Percentage of such Eurocurrency Rate Loan to which such Interest
Period applies.
Eurocurrency Rate. With respect to amounts denominated in Dollars, the
Eurodollar Rate, and with respect to amounts denominated in any Optional
Currency, the International Eurocurrency Rate.
Eurocurrency Rate Loans. Revolving Credit Loans bearing interest
calculated by reference to a Eurocurrency Rate.
Eurocurrency Reserve Rate. For any day with respect to a Eurocurrency
Rate Loan, the maximum rate (expressed as a decimal) at which any lender subject
thereto would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against "Eurocurrency
Liabilities" (as that term is used in Regulation D), if such liabilities were
outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurocurrency Reserve Rate.
Eurodollar Rate. For any Interest Period with respect to a Eurocurrency
Rate Loan denominated in Dollars, the rate of interest equal to (a) the rate per
annum
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(rounded upwards to the nearest 1/16 of one percent) at which the Reference
Bank's Eurocurrency Lending Office is offered Dollar deposits two (2) Business
Days prior to the beginning of such Interest Period in the interbank eurodollar
market where the eurodollar and foreign currency and exchange operations of such
Eurocurrency Lending Office are customarily conducted, for delivery on the first
day of such Interest Period for the number of days comprised therein and in an
amount comparable to the amount of the Eurocurrency Rate Loan denominated in
Dollars of the Reference Bank to which such Interest Period applies, divided by
(b) a number equal to 1.00 minus the Eurocurrency Reserve Rate, if applicable.
Event of Default. See ss.13.1.
Exchange Offer. The offer by the Company and those certain Domestic
Subsidiaries of the Company party to the Subordinated Guarantee to exchange the
Subordinated Notes issued on the Closing Date pursuant to the Offering for a new
issue of Subordinated Notes (with terms substantially identical to those of the
Subordinated Notes issued on the Closing Date) pursuant to a registration
statement to be filed with the Securities and Exchange Commission within sixty
(60) days after the Closing Date (the "Registration Statement").
Fee Letter. The fee letter, dated on or prior to the Closing Date,
between the Company and the Agent, as the same may be amended, modified or
supplemented from time to time.
Fixed Charge Coverage Ratio. As at any date of determination, the ratio
of (a) EBITDA for the Reference Period most recently ended on such date (or, if
such date is not a fiscal quarter end date, the period of four consecutive
fiscal quarters most recently ended) less the aggregate amount of all Capital
Expenditures made in such period, less the aggregate amount of taxes paid in
cash in such period to (b) the Fixed Charges of the Company and its Subsidiaries
for such Reference Period.
Fixed Charges. For any period, all scheduled mandatory payments of
principal on Indebtedness of the Company and its Subsidiaries made or required
to be made in such period, plus the Consolidated Total Interest Expense of the
Company and its Subsidiaries for such period, less non-cash interest expense and
amortization in such period or write-off of fees and expenses in such period
relating to financing activities.
Foreign Guarantees. Collectively (a) the Guarantee and Indemnities
Agreement and (b) those certain guarantee agreements, each dated as of the date
hereof, from each of Holmes Far East and Raider, and each in form and substance
satisfactory to the Banks and the Agent.
Foreign Security Documents. Collectively, each of the Foreign
Guarantees, the Debentures, the Deeds of Charge, the Share Security Deeds and
the Charges Over Shares.
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Foreign Subsidiary. Any Subsidiary which conducts substantially all of
its business in countries other than the United States of America and that is
organized under the laws of a jurisdiction other than the United States of
America and the States (or the District of Columbia) thereof.
Fronted Loans. That portion of the Revolving Credit Loans which is
funded by the Fronting Bank and is not funded by another Bank.
Fronting Bank. BankBoston, N.A., acting through its Hong Kong branch,
as fronting bank and any other Person who replaces BankBoston, N.A. as Fronting
Bank pursuant to the provisions of ss.2.10.3 hereof, provided, for purposes of
this Credit Agreement, in the event the Fronting Bank is also a Bank, such
Person's funding requirements in its capacity as Fronting Bank shall not include
its independent requirement in its individual capacity to fund as a Bank.
Fronting Loan Event. A Fronting Loan Event shall be deemed to occur if
at any time it should become illegal or would violate any law, order, regulation
or policy (including without limitation any internal banking or other lending
policy of the Fronting Bank) or would otherwise not be practicable for the
Fronting Bank to hold the Fronted Loans.
generally accepted accounting principles. (a) When used in ss.10,
whether directly or indirectly through reference to a capitalized term used
therein, means (i) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors, in effect for the fiscal year ended on December 31, 1996, and (ii)
to the extent consistent with such principles, the accounting practice of the
Company reflected in its financial statements for the fiscal quarter ended on
September 30, 1997, and (b) when used in general, other than as provided above,
means principles that are (i) consistent with the principles promulgated or
adopted by the Financial Accounting Standards Board and its predecessors, as in
effect from time to time, and (ii) consistently applied with past financial
statements of the Company adopting the same principles, provided that in each
case referred to in this definition of "generally accepted accounting
principles" a certified public accountant would (but for the absence of
footnotes and year-end adjustments for interim financial statements), insofar as
the use of such accounting principles is pertinent, be in a position to deliver
an unqualified opinion (other than a qualification regarding changes in
generally accepted accounting principles) as to financial statements in which
such principles have been properly applied.
Guaranteed Obligations. See ss.6.3.1 hereof.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of ss.3(2) of ERISA maintained or contributed to by any Borrower or any
Subsidiary of any Borrower or (except for purposes of ss.7.16, clause (i) of
ss.8.11 and ss.9.9(e)) any ERISA Affiliate, the benefits of which are guaranteed
on termination in
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full or in part by the PBGC pursuant to Title IV of ERISA, other than a
Multiemployer Plan.
Guarantee and Indemnities Agreement. The Guarantee and Indemnities,
dated or to be dated on or prior to the Closing Date, made by Esteem in favor of
the Banks and the Agent pursuant to which Esteem guaranties to the Banks and the
Agent the payment and performance of the other Subsidiary Borrowers' Obligations
and in form and substance satisfactory to the Banks and the Agent.
Guarantors. Each Domestic Subsidiary of the Company existing on the
Closing Date and each other Persons which are required to be or become
guarantors from time to time pursuant to ss.8.15 hereof.
Guaranty. The Guaranty, dated or to be dated on or prior to the Closing
Date, made by each Domestic Subsidiary of the Company in favor of the Banks and
the Agent pursuant to which each Domestic Subsidiary of the Company guaranties
to the Banks and the Agent the payment and performance of the Obligations and in
form and substance satisfactory to the Banks and the Agent.
Hazardous Substances. See ss.7.18(b).
Historical Pro Forma Results. The pro forma historical financial
results of the Company and its Subsidiaries on a consolidated basis for the
three consecutive fiscal quarters ended September 30, 1997 delivered to the
Agent on or prior to the Closing Date (the "Delivered Pro Forma Results")
together with the pro forma historical financial results of the Company and its
Subsidiaries for the fiscal quarter ending December 31, 1997, which are prepared
in a manner consistent with the Delivered Pro Forma Results (but excluding fees,
management bonuses and expenses relating to the Transaction) and which are
otherwise reasonably satisfactory to the Agent.
Holmes Acquisition. Holmes Acquisition LLC, a Delaware limited
liability company.
Holmes Far East. As defined in the preamble hereto.
Indebtedness. As to any Person and whether recourse is secured by or is
otherwise available against all or only a portion of the assets of such Person
and whether or not contingent, but without duplication:
(a) every obligation of such Person for money borrowed,
(b) every obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or
businesses,
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(c) every reimbursement obligation of such Person with respect
to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person,
(d) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (including securities
repurchase agreements but excluding (i) trade accounts payable or
accrued liabilities arising to third parties in the ordinary course of
business and (ii) intercompany accounts payable of the Company or any
of its Subsidiaries to the Company or any of its Subsidiaries, as the
case may be, arising in the ordinary course of business, priced
consistent with past practices and provided that (1) such Subsidiary
agrees on terms acceptable to the Agent that, if any Default or Event
of Default shall have occurred and be continuing, no payment shall be
made or received on such account payable prior to performance and
payment in full, in cash, of all Obligations to the Banks and the
Agent; and (2) the transaction giving rise to such account payable was
either conducted on an arms-length basis for fair market value or is on
terms favorable to the Company or any Guarantor (the "Intercompany
Accounts"),
(e) every obligation of such Person under any Capitalized
Lease,
(f) every obligation of such Person under any lease (a
"synthetic lease") treated as an operating lease under generally
accepted accounting principles and as a loan or financing for U.S.
income tax purposes,
(g) all sales by such Person of (i) accounts or general
intangibles for money due or to become due, (ii) chattel paper,
instruments or documents creating or evidencing a right to payment of
money or (iii) other receivables (collectively "receivables"), whether
pursuant to a purchase facility or otherwise, other than in connection
with the disposition of the business operations of such Person relating
thereto or a disposition of doubtful, bad, overdue or defaulted
receivables for collection or sale and not as a financing arrangement,
and together with any obligation of such Person to pay any discount,
interest, fees, indemnities, penalties, recourse, expenses or other
amounts in connection therewith,
(h) every obligation of such Person (an "equity related
purchase obligation") to purchase, redeem, retire or otherwise acquire
for value any shares of capital stock of any class issued by such
Person, any warrants, options or other rights to acquire any such
shares, or any rights measured by the value of such shares, warrants,
options or other rights other than equity related purchase obligations
which by their terms are not payable until such time as all Obligations
have been indefeasibly repaid in full in cash,
(i) every obligation of such Person under any forward
contract, futures contract, swap, option or other financing agreement
or arrangement (including, without limitation, caps, floors, collars
and similar agreements),
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the value of which is dependent upon interest rates, currency exchange
rates, commodities or other indices,
(j) every obligation in respect of Indebtedness of any other
entity (including any partnership in which such Person is a general
partner) to the extent that such Person is liable therefor as a result
of such Person's ownership interest in or other relationship with such
entity, except to the extent that the terms of such Indebtedness
provide that such Person is not liable therefor and such terms are
enforceable under applicable law,
(k) every obligation, contingent or otherwise, of such Person
guaranteeing, or having the economic effect of guarantying or otherwise
acting as surety for, any obligation of a type described in any of
clauses (a) through (j) (the "primary obligation") of another Person
(the "primary obligor"), in any manner, whether directly or indirectly,
and including, without limitation, any obligation of such Person (i) to
purchase or pay (or advance or supply funds for the purchase of) any
security for the payment of such primary obligation, (ii) to purchase
property, securities or services for the purpose of assuring the
payment of such primary obligation, or (iii) to maintain working
capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to
pay such primary obligation.
The "amount" or "principal amount" of any Indebtedness at any time of
determination represented by (u) any Indebtedness, issued at a price that is
less than the principal amount at maturity thereof, shall be the amount of the
liability in respect thereof determined in accordance with generally accepted
accounting principles, (v) any Capitalized Lease shall be the principal
component of the aggregate of the rentals obligation under such Capitalized
Lease payable over the term thereof that is not subject to termination by the
lessee, (w) any interest rate or exchange rate protection arrangements shall be
the net liability of such Person under such arrangement at such time, calculated
on a basis satisfactory to the Agent in accordance with accepted practices, (x)
any sale of receivables shall be the amount of unrecovered capital or principal
investment of the purchaser (other than the Company or any of its wholly-owned
Subsidiaries) thereof, excluding amounts representative of yield or interest
earned on such investment, (y) any synthetic lease shall be the stipulated loss
value, termination value or other equivalent amount and (z) any equity related
purchase obligation shall be the maximum fixed redemption or purchase price
thereof inclusive of any accrued and unpaid dividends to be comprised in such
redemption or purchase price.
Indenture Trustee. State Street Bank and Trust Company.
Ineligible Securities. Securities which may not be underwritten or
dealt in by member banks of the Federal Reserve System under Section 16 of the
Banking Act of 1993 (12 U.S.C. ss.24, Seventh), as amended.
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Initial Public Offering. The initial underwritten public offering of
the common stock of the Company registered under the Securities Act of 1933.
Instrument of Adherence. See ss.9.5.1.
Intercompany Accounts. As defined in the definition of "Indebtedness".
Interest Coverage Ratio. As at any date of determination, the ratio of
(a) the EBITDA of the Company and its Subsidiaries for the Reference Period
ending on such date (or, if such date is not a fiscal quarter end date, the
period of four consecutive fiscal quarters most recently ended) to (b)
Consolidated Total Interest Expense for such Reference Period less non-cash
interest expense and amortization for such Reference Period or write-off of fees
and expenses in such Reference Period relating to financing activities.
Interest Payment Date. (a) As to any Base Rate Loan, the last day of
the calendar quarter with respect to interest accrued during such calendar
quarter, including, without limitation, the calendar quarter which includes the
Drawdown Date of such Base Rate Loan; and (b) as to any Eurocurrency Rate Loan
in respect of which the Interest Period is (i) three (3) months or less, the
last day of such Interest Period and (ii) more than three (3) months, the date
that is three (3) months from the first day of such Interest Period and, in
addition, the last day of such Interest Period.
Interest Period. With respect to each Revolving Credit Loan, (a)
initially, the period commencing on the Drawdown Date of such Revolving Credit
Loan and ending on the last day of one of the periods set forth below, as
selected by the applicable Borrower in a Loan Request or as otherwise required
by the terms of this Credit Agreement (i) for any Base Rate Loan, the last day
of the calendar quarter; and (ii) for any Eurocurrency Rate Loan, 1, 2, 3, or 6
months; and (b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Revolving Credit Loan and ending on
the last day of one of the periods set forth above, as selected by the
applicable Borrower in a Conversion Request; provided that all of the foregoing
provisions relating to Interest Periods are subject to the following:
(a) if any Interest Period with respect to a Eurocurrency Rate
Loan would otherwise end on a day that is not a Business Day, that
Interest Period shall be extended to the next succeeding Business Day
unless the result of such extension would be to carry such Interest
Period into another calendar month, in which event such Interest Period
shall end on the immediately preceding Business Day;
(b) if any Interest Period with respect to a Base Rate Loan
would end on a day that is not a Business Day, that Interest Period
shall end on the next succeeding Business Day;
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(c) if the applicable Borrower shall fail to give notice as
provided in ss.2.7, (i) for Eurocurrency Rate Loans denominated in
Dollars, the applicable Borrower shall be deemed to have requested a
conversion of the affected Eurocurrency Rate Loan to a Base Rate Loan
and the continuance of all Base Rate Loans as Base Rate Loans on the
last day of the then current Interest Period with respect thereto and
(ii) for Eurocurrency Rate Loans denominated in an Optional Currency,
the relevant Borrower shall repay such Eurocurrency Rate Loan on the
last day of the then current Interest Period with respect thereto;
(d) any Interest Period relating to any Eurocurrency Rate Loan
that begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last
Business Day of a calendar month; and
(e) any Interest Period that would otherwise extend beyond the
Revolving Credit Loan Maturity Date shall end on the Revolving Credit
Loan Maturity Date.
International Eurocurrency Rate. With respect to all Eurocurrency Rate
Loans denominated in an Optional Currency for any Interest Period, the annual
rate of interest, rounded to the nearest 1/16th of one percent (1%), determined
by the Agent for such Interest Period in accordance with the following formula:
Eurocurrency Offered Rate
-------------------------
International Eurocurrency Rate = 1 - Eurocurrency Reserve Rate
Investments. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person; provided, however, Intercompany
Accounts shall not be considered Investments. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (d) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
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Kahn Permitted Transferee. Each Person to whom Jordan A. Kahn may
transfer shares of the common stock of the Company pursuant to Section 4.1 of
the Kahn Stock Purchase Agreement.
Kahn Stock Purchase Agreement. That certain Stock Purchase Agreement
dated as of October 27, 1997 between Jordan A. Kahn and Holmes Acquisition.
Letter of Credit. See ss.4.1.1.
Letter of Credit Application. See ss.4.6.
Letter of Credit Fee. See ss.4.1.1.
Letter of Credit Participation. See ss.4.1.4.
Leverage Ratio. As at any date of determination, the ratio of (a) Total
Funded Indebtedness of the Company and its Subsidiaries outstanding on such date
to (b) EBITDA of the Company and its Subsidiaries for the Reference Period ended
on such date (or, if such date is not a fiscal quarter end date the period of
four consecutive fiscal quarters most recently ended), to be calculated on a Pro
Forma Basis.
Loan Account Record. See ss.2.4.
Loan Documents. This Credit Agreement, the Revolving Credit Notes, the
Letter of Credit Applications, the Letters of Credit, the Fee Letter and the
Security Documents.
Loan Request. See ss.2.6.
Majority Banks. As of any date, the Banks having Total Percentages
aggregating to at least fifty-one percent (51%) on such date.
Management Agreement. That Management Agreement dated as of November
26, 1997 between Berkshire Partners and the Company, in the form delivered to
the Banks and the Agent on or prior to the Closing Date.
Material Adverse Effect. A material adverse effect on (a) the business,
condition (financial or otherwise), operations, performance or properties of the
Company and the Guarantors, taken as a whole, or the Company and its
Subsidiaries taken as a whole, or the Collateral, (b) the rights and remedies of
the Agent or any Bank under any Loan Document or (c) the ability of the
Borrowers or any of their Subsidiaries to perform their obligations under the
Loan Documents.
Maximum Drawing Amount. The maximum aggregate amount that the
beneficiaries may at any time draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
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Multicurrency Loans. Revolving Credit Loans made or to be made by the
Fronting Bank to the Subsidiary Borrowers pursuant to ss.2.1 hereof.
Multiemployer Plan. Any multiemployer plan within the meaning of
ss.3(37) of ERISA maintained or contributed to by any Borrower or any Subsidiary
of any Borrower, or (except for ss.7.16) any ERISA Affiliate.
Net Cash Proceeds. With respect to any Equity Issuance, the excess of
the gross cash proceeds received by such Person from such Equity Issuance after
deduction of reasonable and customary transaction expenses (including without
limitation, underwriting discounts and commissions) actually incurred in
connection with the Equity Issuance.
Net Cash Sale Proceeds. The net cash proceeds received by the Company
and its Subsidiaries in respect of any Asset Sale, less the sum of (a) all
reasonable out-of-pocket fees, commissions and other expenses incurred in
connection with such Asset Sale, including the amount (estimated in good faith
by such Person) of income, franchise, sales and other applicable taxes required
to be paid by such Person in connection with such Asset Sale and (b) the
aggregate amount of cash so received by such Person which is used to retire (in
whole or in part) any Indebtedness (other than under the Loan Documents) of such
Person permitted by this Credit Agreement that was secured by a lien or security
interest (if any) permitted by this Credit Agreement having priority over the
liens and security interests (if any) of the Agent (for the benefit of the
Banks) with respect to such assets transferred, and which is required to be
repaid in whole or in part (which repayment, in the case of any other revolving
credit arrangements or multiple advance arrangements, reduces the commitment
thereunder) in connection with such Asset Sale.
Obligations. All indebtedness, obligations and liabilities of any of
the Borrowers and their respective Subsidiaries to any of the Banks and the
Agent, individually or collectively, existing on the date of this Credit
Agreement or arising thereafter, direct or indirect, joint or several, absolute
or contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising or
incurred under this Credit Agreement or any of the other Loan Documents or in
respect of any of the Revolving Credit Loans made or Reimbursement Obligations
incurred or any of the Revolving Credit Notes, Letter of Credit Applications or
Letters of Credit, or arising or incurred in connection with any interest rate,
foreign exchange and/or currency risk protection arrangements entered into with
any of the Banks, or any documents, agreements or instruments executed in
connection therewith, or other instruments at any time evidencing any thereof.
OC Notice. See ss.2.9.
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Offering. The offering by the Company to certain accredited investors
and qualified institutional buyers of the Subordinated Notes pursuant to the
offering circular dated November 19, 1997.
Offering Documents. Collectively, the Subordinated Notes, the
Subordinated Indenture, the Company's articles of organization and all
documents, instruments and agreements executed in connection with any of the
foregoing (including, without limitation, all documents, instruments and
agreements executed in connection with the exchange of all documents entered
into in connection with the Offering for those to be entered into in connection
with the Exchange Offer).
Optional Currency. Hong Kong Dollars and the "Euro", so long as such
currency is freely convertible into Dollars and which is traded on any
recognized Eurocurrency Interbank Market selected by the Agent in good faith.
outstanding. With respect to the Revolving Credit Loans, the aggregate
unpaid principal thereof as of any date of determination.
Overnight Rate. For any day, (a) as to Revolving Credit Loans
denominated in Dollars, the weighted average interest rate paid by the Agent for
federal funds acquired by the Agent, and (b) as to Revolving Credit Loans
denominated in an Optional Currency, the rate of interest per annum at which
overnight deposits in the applicable Optional Currency, in an amount
approximately equal to the amount with respect to which such rate is being
determined, would be offered for such day by the Agent to major banks in the
London interbank market.
Patent Assignment. The Patent Assignment, dated or to be dated on or
prior to the Closing Date, made by the Company in favor of the Agent and in form
and substance satisfactory to the Banks and the Agent.
PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of
ERISA and any successor entity or entities having similar responsibilities.
Perfection Certificates. The Perfection Certificates as defined in the
Security Agreements.
Permitted Acquisition. As defined in ss.9.5.1 (b) hereto, and any other
stock or asset acquisition consented to in writing by the Majority Banks.
Permitted Liens. Liens, security interests and other encumbrances
permitted by ss.9.2.
Person. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
PRC Reserve. The amount of the reserve imposed by the appropriate
governmental or other regulatory authority of the People's Republic of China
which
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any Subsidiary organized under the laws of the People's Republic of China is
required to take to protect against repatriation of funds from the People's
Republic of China.
Principal Affiliate. Any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with a specified
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling", "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such Person, whether through the ownership of voting securities,
by agreement or otherwise; provided that beneficial ownership of ten percent
(10%) or more of the Voting Stock of a Person shall be deemed to be control.
Principals. Collectively, Berkshire Partners, Berkshire Fund IV,
Berkshire Fund IV Investment Corp., Berkshire Investors LLC and any of their
respective Principal Affiliates, Jordan A. Kahn and his Principal Affiliates,
Stanley Rosenzweig and Gregory F. White; provided, however, for purposes of this
Credit Agreement, any shares of the capital stock of the Company owned by a Kahn
Permitted Transferee on the Closing Date, and any shares of capital stock of the
Company owned by Jordan A. Kahn on the Closing Date but that subsequently are
transferred to a Kahn Permitted Transferee, will in each case be deemed to be
owned by Jordan A. Kahn.
Pro Forma Basis. In connection with any proposed Permitted Acquisition
after the Closing Date, the calculation of compliance with the financial
covenants described in ss.9.5.1 hereof by the Company and its Subsidiaries
(including the Person to be acquired) with reference to either (a) the audited
historical financial results of the Person so acquired together with any interim
financial results of such Person prepared since the date of the last audited
financial statements and prepared in a manner consistent with past practices or
(b) to the extent such Person to be acquired has no audited historical financial
results, the management prepared financial results of such Person, with such
results to be in form and substance reasonably acceptable to the Agent, and the
Company and its Subsidiaries for the applicable Test Period after giving effect
on a pro forma basis to such Permitted Acquisition in the manner described in
(i), (ii) and (iii) below; and, following a Permitted Acquisition, the
calculation of compliance with the financial covenants contained in ss.10 for
the fiscal quarter in which such Permitted Acquisition occurred and each of the
three fiscal quarters immediately following such Permitted Acquisition with
reference to either (a) the audited historical financial results of the Person
so acquired together with any interim financial results of such Person prepared
since the date of the last audited financial statements and prepared in a manner
consistent with past practices or (b) to the extent such Person to be acquired
has no audited historical financial results, the management prepared financial
results of such Person, with such results to be in form and substance reasonably
acceptable to the Agent and the Company and its Subsidiaries for the applicable
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Test Period after giving effect on a pro forma basis to such Permitted
Acquisition in the manner described in (i), (ii) and (iii) below, provided,
however, that, in each case, in the event that no historical financial results
are available with respect to the Person or assets to be acquired, such
calculations shall be made with reference to reasonable estimates of such past
performance made by the Company based on existing data and other available
information, such estimates to be acceptable to the Agent:
(i) all Indebtedness (whether under this Credit Agreement or
otherwise) and any other balance sheet adjustments incurred or made in
connection with the Permitted Acquisition shall be deemed to have been
incurred or made on the first day of the Test Period, and all
Indebtedness of the Person acquired or to be acquired in such Permitted
Acquisition which was or will have been repaid in connection with the
consummation of the Permitted Acquisition shall be deemed to have been
repaid concurrently with the deemed incurrence of the Indebtedness
incurred in connection with the Permitted Acquisition;
(ii) all Indebtedness assumed to have been incurred pursuant
to the preceding clause (i) shall be deemed to have borne interest at
the sum of (a) the arithmetic mean of (x) the Eurodollar Rate for
Eurocurrency Rate Loans denominated in Dollars having an Interest
Period of one month in effect on the first day of the Test Period and
(y) the Eurodollar Rate for Eurocurrency Rate Loans denominated in
Dollars having an Interest Period of one month in effect on the last
day of the Test Period plus (b) the Applicable Margin for Revolving
Credit Loans then in effect (after giving effect to the Permitted
Acquisition on a Pro Forma Basis); and
(iii) other reasonable cost savings, expenses and other income
statement or operating statement adjustments which are attributable to
the change in ownership and/or management resulting from such Permitted
Acquisition as may be approved by the Agent in writing (which approval
shall not be unreasonably withheld) shall be deemed to have been
realized on the first day of the Test Period; provided, however,
adequately documented reductions in management compensation and rental
expenses which will be effective upon the consummation of such
Permitted Acquisition shall not require the approval of the Agent.
Raider. As defined in the preamble hereto.
Rate Adjustment Period. See the definition of Applicable Margin
RCRA. See ss.7.18(a).
Real Estate. All real property at any time owned or leased (as lessee
or sublessee) by the Company or any of its Subsidiaries.
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Record. The grid attached to a Revolving Credit Note, or the
continuation of such grid, or any other similar record, including computer
records, maintained by any Bank with respect to any Revolving Credit Loan
referred to in such Revolving Credit Note.
Reference Bank. BankBoston, N.A..
Reference Period. The period of (a) the four (4) consecutive fiscal
quarters of the Company ending on the relevant date (or, if such date is not a
fiscal quarter end date, the period of four (4) consecutive fiscal quarters most
recently ended) or (b) if the relevant date occurs prior to the end of the
fiscal quarter ending December 31, 1998, the Reference Period for any
calculations made as of (i) December 31, 1997 shall be for the period of the
four (4) consecutive fiscal quarters ending on such date based on the Historical
Pro Forma Results for such four quarters; (ii) March 31, 1998 shall be the
actual financial results for the fiscal quarter ending March 31, 1998 plus the
immediately prior three fiscal quarters, with such results being based on the
Historical Pro Forma Results; (iii) June 30, 1998 shall be the actual financial
results for the two consecutive fiscal quarters ending June 30, 1998 plus the
financial results of the two consecutive fiscal quarters ended December 31, 1997
based on the Historical Pro Forma Results; and (iv) September 30, 1998 shall be
the actual financial results for the three consecutive fiscal quarters ending
September 30, 1998 plus the financial results of the fiscal quarter ended
December 31, 1997 based on the Historical Pro Forma Results.
Register. See ss.19.3.
Registration Rights Agreement. That certain Registration Rights
Agreement dated as of November 26, 1997 by and among the Company, certain
Domestic Subsidiaries of the Company party to the Subordinated Guarantee,
BancBoston Securities Inc. and Lehman Commercial Paper Inc., as initial
purchasers, and in the form delivered to the Agent and the Banks on or prior to
the Closing Date.
Reimbursement Obligation. The applicable Borrower's obligation to
reimburse the Agent and the Banks on account of any drawing under any Letter of
Credit as provided in ss.4.2.
Representation Agreement. That certain Representation Agreement dated
as of June 20, 1983 between Jordan Kahn Co., Inc. and the Company, and in the
form delivered to the Agent and the Banks on or prior to the Closing Date.
Restricted Payment. In relation to the Company and its Subsidiaries,
any (a) Distribution; (b) payment by the Company or any of its Subsidiaries to
(i) Holmes Acquisition or (ii) to any other Affiliate of the Company or Holmes
Acquisition other than payments to Affiliates (other than Holmes Acquisition)
for goods and services in the ordinary course of business on terms equivalent to
those obtainable in arms length transactions.
Revolving Credit Loan Maturity Date. January 2, 2003.
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Revolving Credit Loans. Revolving credit loans made or to be made by
the Banks to the Borrowers pursuant to ss.2 hereof (including, without
limitation, all Multicurrency Loans).
Revolving Credit Notes. See ss.2.4.
SARA. See ss.7.18(a).
Same Day Funds. With respect to disbursements and payments in (a)
Dollars, immediately available funds, and (b) an Optional Currency, same day or
other funds as may be determined by the Agent to be customary in the place of
disbursement or payment for the settlement of international banking transactions
in the relevant Optional Currency.
Section 20 Subsidiary. A Subsidiary of the bank holding company
controlling any Bank, which Subsidiary has been granted authority by the Federal
Reserve Board to underwrite and deal in certain Ineligible Securities.
Security Agreements. The several Security Agreements, dated or to be
dated on or prior to the Closing Date, between the Company and certain of its
Subsidiaries and the Agent and in form and substance satisfactory to the Banks
and the Agent.
Security Documents. The Guaranty, the Security Agreements, the
Debentures, the Deeds of Charge, the Patent Assignment, the Trademark
Assignment, the Share Security Deeds, the Charges Over Shares, the Foreign
Guarantees, the Stock Pledge Agreement and all other instruments and documents,
including without limitation Uniform Commercial Code financing statements,
required to be executed or delivered pursuant to any Security Document.
Share Security Deeds. Collectively, (a) the Share Security Deed, dated
or to be dated on or prior to the Closing Date, between Far East and the Agent
and (b) the Share Security Deed, dated or to be dated on or prior to the Closing
Date, between Esteem and the Agent, and each in form and substance satisfactory
to the Banks and the Agent.
Stockholders Agreement. The Stockholders Agreement dated as of November
26, 1997 among the Company and certain stockholders party thereto and in the
form delivered to the Agent on or prior to the Closing Date.
Stock Option Plan. The 1997 Stock Option Plan, a copy of which has been
delivered to the Agent on or prior to the Closing Date.
Stock Pledge Agreement. The Stock Pledge Agreement, dated or to be
dated on or prior to the Closing Date, between the Company and the Agent and in
form and substance satisfactory to the Banks and the Agent.
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Stock Purchase Agreement. The Stock Purchase and Redemption Agreement
dated as of October 27, 1997 by and among Asco Investments Ltd., Jordan A. Kahn,
the Company, Holmes Products (Far East) Ltd. and Holmes Acquisition.
Subordinated Debt. Unsecured Indebtedness of the Company or any of its
Subsidiaries that is expressly subordinated and made junior to the payment and
performance in full of the Obligations on terms satisfactory to the Agent and
the Banks and evidenced as such by the Subordinated Debt Documents.
Subordinated Debt Documents. The Subordinated Purchase Agreement, the
Subordinated Indenture, the Subordinated Guarantees, the Registration Rights
Agreement and the Subordinated Notes.
Subordinated Guarantees. The guarantees to be entered into by certain
of the Company's Domestic Subsidiaries pursuant to the Subordinated Indenture,
which shall be in form and substance satisfactory to the Agent and the Banks.
Subordinated Indenture. The Indenture dated as of November 26, 1997
between the Company and the Indenture Trustee and any such documents,
instruments or agreements issued in exchange pursuant to the Exchange Offer, and
each in the form delivered to the Agent on or prior to the Closing Date.
Subordinated Notes. The 9 7/8% Senior Subordinated Notes due 2007
issued by the Company in the aggregate principal amount of $105,000,000 pursuant
to the Subordinated Indenture and any such documents, instruments or agreements
issued in exchange therefor pursuant to the Exchange Offer.
Subordinated Purchase Agreement. The Purchase Agreement, dated as of a
date on or prior to the Closing Date, among the Company, BancBoston Securities
Inc. and Lehman Commercial Paper Inc., as initial purchasers, relating to the
issuance and sale by the Company of the Subordinated Notes, which shall be in
form and substance satisfactory to the Agent and the Banks.
Subsidiary. Any corporation, association, trust, limited liability
company, partnership or other business entity of which the designated parent
shall at any time own directly or indirectly through a Subsidiary or
Subsidiaries at least a majority (by number of votes) of the outstanding Voting
Stock.
Subsidiary Borrowers. As defined in the preamble hereto.
Test Period. The period of all fiscal quarters (and any portion of a
fiscal quarter) included in any covenant calculation and occurring prior to the
date of such Permitted Acquisition as set forth in the definition of Pro Forma
Basis.
Total Commitment. The sum of the Commitments of the Banks, as in effect
from time to time.
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Total Funded Indebtedness. All Indebtedness of the Company and its
Subsidiaries for borrowed money (including, without limitation, all guarantees
by such Person of Indebtedness of others for borrowed money), purchase money
Indebtedness, with respect to Capitalized Leases and synthetic leases,
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided, however, for purposes of calculating the
Leverage Ratio, Total Funded Indebtedness shall not include (a) the Maximum
Drawing Amount of any issued, outstanding but undrawn documentary Letters of
Credit and (b) the maximum aggregate amount that the beneficiaries may at any
time draw under the Asco Letters of Credit, as such aggregate amount may be
reduced from time to time pursuant to the terms of such Asco Letters of Credit.
Total Percentage. With respect to each Bank, the Commitment (or, if the
Commitment is terminated, Revolving Credit Loans, Letter of Credit
Participations in Unpaid Reimbursement Obligations and participating interests
in the risk relating to outstanding Letters of Credit and Fronted Loans) held by
such Bank as a percentage of the Total Commitment.
Trademark Assignment. The Trademark Assignment, dated or to be dated on
or prior to the Closing Date, made by the Company in favor of the Agent and in
form and substance satisfactory to the Banks and the Agent.
Transaction. The series of related transactions occurring on or prior
to the Closing Date in which (a) Asco and Jordan A. Kahn shall, pursuant to the
terms of the Stock Purchase Agreement, contribute 100% of the capital stock of
Holmes Far East owned by each such Person to the Company (at which time Holmes
Far East shall become a wholly-owned Subsidiary of the Company); (b) Holmes
Acquisition and its assignees shall, pursuant to the terms of the Stock Purchase
Agreement, purchase approximately $16,900,000 of the capital stock of the
Company from the Company and, pursuant to the terms of the Kahn Stock Purchase
Agreement, purchase approximately $9,300,000 of the capital stock of the Company
from Jordan A. Kahn; and (c) the Company shall, pursuant to the terms of the
Stock Purchase Agreement, redeem an amount of its capital stock such that Asco
Investments Ltd.
shall hold approximately 5.1% of such capital stock after giving effect thereto.
Transaction Documents. All documents, instruments and agreements which
are to be executed in connection with the Transaction (including, but not
limited to, the Stock Purchase Agreement and the Kahn Stock Purchase Agreement),
all in form and substance satisfactory to the Agent and the Banks.
Type. As to any Revolving Credit Loan, its nature as a Base Rate Loan
or a Eurocurrency Rate Loan.
Uniform Customs. With respect to any Letter of Credit, the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 or any successor version thereto adopted
by the Agent in the ordinary course of its business as a letter of credit issuer
and in effect at the time of issuance of such Letter of Credit.
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Unpaid Reimbursement Obligation. Any Reimbursement Obligation for which
the applicable Borrower does not reimburse the Agent and the Banks on the date
specified in, and in accordance with, ss.4.2.
Voting Stock. Stock or similar interests, of any class or classes
(however designated), the holders of which are at the time entitled, as such
holders, to vote for the election of a majority of the directors (or persons
performing similar functions) of the corporation, association, limited liability
company, partnership, trust or other business entity involved, whether or not
the right so to vote exists by reason of the happening of a contingency.
1.2. Rules of Interpretation.
(a) A reference to any document or agreement shall include
such document or agreement as amended, modified or supplemented from
time to time in accordance with its terms and the terms of this Credit
Agreement.
(b) The singular includes the plural and the plural includes
the singular.
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted
successors and permitted assigns.
(e) Accounting terms not otherwise defined herein have the
meanings assigned to them by generally accepted accounting principles
applied on a consistent basis by the accounting entity to which they
refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, have
the meanings assigned to them therein, with the term "instrument" being
that defined under Article 9 of the Uniform Commercial Code.
(h) Reference to a particular "ss." refers to that section of
this Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of
like import shall refer to this Credit Agreement as a whole and not to
any particular section or subdivision of this Credit Agreement.
(j) Unless otherwise expressly indicated, in the computation
of periods of time from a specified date to a later specified date, the
word
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"from" means "from and including," the words "to" and "until" each
mean "to but excluding," and the word "through" means "to and
including."
(k) This Credit Agreement and the other Loan Documents may use
several different limitations, tests or measurements to regulate the
same or similar matters. All such limitations, tests and measurements
are, however, cumulative and are to be performed in accordance with the
terms thereof.
(l) This Credit Agreement and the other Loan Documents are the
result of negotiation among, and have been reviewed by counsel to,
among others, the Agent and the Borrower and are the product of
discussions and negotiations among all parties. Accordingly, this
Credit Agreement and the other Loan Documents are not intended to be
construed against the Agent or any of the Banks merely on account of
the Agent's or any Bank's involvement in the preparation of such
documents.
2. THE REVOLVING CREDIT FACILITY.
2.1. Commitment to Lend.
2.1.1. Revolving Credit Loans to Company. Subject to the terms
and conditions set forth in this Credit Agreement, each of the Banks
severally agrees to lend to the Company and the Company may borrow,
repay, and reborrow from time to time from the Closing Date up to but
not including the Revolving Credit Loan Maturity Date upon notice by
the Company to the Agent given in accordance with ss.2.6, such sums in
Dollars as are requested by the Company up to a maximum aggregate
amount outstanding (after giving effect to all amounts requested by any
Borrower) at any one time equal to such Bank's Commitment minus such
Bank's Commitment Percentage of the sum of the Maximum Drawing Amount
and all Unpaid Reimbursement Obligations, provided that the sum of the
outstanding amount of the Revolving Credit Loans (after giving effect
to all amounts requested), plus the Maximum Drawing Amount and all
Unpaid Reimbursement Obligations shall not at any time exceed the Total
Commitment. The Revolving Credit Loans shall be made pro rata in
accordance with each Bank's Commitment Percentage. Each request for a
Revolving Credit Loan hereunder shall constitute a representation and
warranty by the Company that the conditions set forth in ss.11 (other
than ss.11.21) and ss.12, in the case of the initial Revolving Credit
Loans to be made on the Closing Date, and ss.12, in the case of all
other Revolving Credit Loans, have been satisfied on the date of such
request. Each Base Rate Loan shall be denominated in Dollars. Each
Eurocurrency Rate Loan to the Company shall be denominated in Dollars.
2.1.2. Multicurrency Loans to Subsidiary Borrowers. Subject to
the terms and conditions set forth in this Credit Agreement, each of
the Banks severally agrees to lend to the Subsidiary Borrowers and the
Subsidiary Borrowers may borrow, repay, and reborrow from time to time
from the
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Closing Date up to but not including the Revolving Credit Loan Maturity
Date upon notice by the applicable Subsidiary Borrower to the Agent
given in accordance with ss.2.6, such sums in Dollars and/or at the
applicable Subsidiary Borrower's option from time to time, subject to
ss.2.9 hereof, in an Optional Currency, as are requested by the
applicable Subsidiary Borrower up to a maximum aggregate amount
outstanding (after giving effect to all amounts requested) at any one
time equal to such Bank's Commitment minus such Bank's Commitment
Percentage of the sum of the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations, provided that the sum of the outstanding
amount of the Revolving Credit Loans (after giving effect to all
amounts requested) plus the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations shall not at any time exceed the Total
Commitment, and, provided further, that (a) the sum of the outstanding
amount of all Revolving Credit Loans (after giving effect to all
amounts requested) advanced to the Subsidiary Borrowers shall not at
any time exceed $15,000,000, and (b) the sum of the outstanding amount
of all Revolving Credit Loans (after giving effect to all amounts
requested) advanced to the Subsidiary Borrowers plus the Maximum
Drawing Amount and all Unpaid Reimbursement Obligations shall not at
any time exceed $20,000,000. The Revolving Credit Loans shall be made
pro rata in accordance with each Bank's Commitment Percentage,
provided, however, that notwithstanding anything to the contrary
contained herein, with respect to any Revolving Credit Loan denominated
in an Optional Currency, the Commitment Percentage of each Bank shall
be fronted by the Fronting Bank (with each Bank hereby agreeing to
participate in the risk associated with such Multicurrency Loan in
accordance with ss.2.10 hereof), with each Bank having no obligation or
commitment to fund in any Optional Currency. Each request for a
Revolving Credit Loan hereunder shall constitute a representation and
warranty by the requesting Subsidiary Borrower that the conditions set
forth in ss.11 and ss.12, in the case of the initial Revolving Credit
Loans to be made on the Closing Date, and ss.12, in the case of all
other Revolving Credit Loans, have been satisfied on the date of such
request. Each Eurocurrency Rate Loan to the Subsidiary Borrowers shall
be denominated in Dollars, or, subject to ss.2.9 hereof, in an Optional
Currency.
2.2. Commitment Fee. The Company agrees to pay to the Agent for the
accounts of the Banks in accordance with their respective Commitment Percentages
a commitment fee calculated at the rate of the Commitment Fee Rate per annum on
the average daily amount during each calendar quarter or portion thereof from
the Closing Date to the Revolving Credit Loan Maturity Date by which the Total
Commitment minus the sum of the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations exceeds the outstanding amount of Revolving Credit
Loans during such calendar quarter. The commitment fee shall be payable
quarterly in arrears on the first day of each calendar quarter for the
immediately preceding calendar quarter commencing on the first such date
following the date hereof, with a final payment on the Revolving Credit Maturity
Date or any earlier date on which the Commitments shall terminate.
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2.3. Reduction of Total Commitment. The Company shall have the right at
any time and from time to time upon seven (7) Business Days prior written notice
to the Agent to reduce by $5,000,000 or an integral multiple of $1,000,000 in
excess thereof or terminate entirely the Total Commitment, whereupon the
Commitments of the Banks shall be reduced pro rata in accordance with their
respective Commitment Percentages of the amount specified in such notice or, as
the case may be, terminated. Promptly after receiving any notice of the Company
delivered pursuant to this ss.2.3, the Agent will notify the Banks of the
substance thereof. Upon the effective date of any such reduction or termination,
the Borrower shall pay to the Agent for the respective accounts of the Banks the
full amount of any commitment fee then accrued on the amount of the reduction.
No reduction or termination of the Commitments may be reinstated.
2.4. The Revolving Credit Notes; Loan Accounts. The Revolving Credit
Loans shall be evidenced by separate promissory notes of the Company in
substantially the form of Exhibit A hereto (each a "Revolving Credit Note"),
dated as of the Closing Date and completed with appropriate insertions. The
obligations of each of the Subsidiary Borrowers to repay all amounts borrowed by
it as Revolving Credit Loans, all interest thereon and all other amounts payable
by it in respect thereof shall be evidenced by this Credit Agreement, it being
the intention of the parties hereto that each Subsidiary Borrower's obligations
with respect to the Revolving Credit Loans owed by it is evidenced only as
stated herein and not by separate promissory notes or other instruments. One
Revolving Credit Note shall be payable to the order of each Bank in a principal
amount equal to such Bank's Commitment or, if less, the outstanding amount of
all Revolving Credit Loans made by such Bank, plus interest accrued thereon, as
set forth below. Each of the Borrowers irrevocably authorizes each Bank to make
or cause to be made, at or about the time of the Drawdown Date of any Revolving
Credit Loan or at the time of receipt of any payment of principal on such Bank's
Revolving Credit Note or loan account, as the case may be, an appropriate
notation on such Bank's Record or record pertaining to the loan account (the
"Loan Account Record"), as the case may be, reflecting the making of such
Revolving Credit Loan or (as the case may be) the receipt of such payment. The
outstanding amount of the Revolving Credit Loans set forth on such Bank's Record
and Loan Account Record shall be prima facie evidence of the principal amount
thereof owing and unpaid to such Bank, but the failure to record, or any error
in so recording, any such amount on such Bank's Record or Loan Account Record,
as the case may be, shall not limit or otherwise affect the obligations of the
Borrowers hereunder or under any Revolving Credit Note to make payments of
principal of or interest on any Revolving Credit Note or loan account when due.
2.5. Interest on Revolving Credit Loans. Except as otherwise provided
in ss.5.11,
(a) Each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at the rate per annum equal to
the
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Base Rate plus the Applicable Margin with respect to Base Rate Loans
as in effect from time to time.
(b) Each Eurocurrency Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the last
day of the Interest Period with respect thereto at the rate per annum
equal to the Eurodollar Rate determined for such Interest Period plus
the Applicable Margin with respect to Eurocurrency Rate Loans as in
effect from time to time.
(c) Each Borrower promises to pay interest on each Revolving
Credit Loan requested by such Borrower in arrears on each Interest
Payment Date with respect thereto.
2.6. Requests for Revolving Credit Loans.
The applicable Borrower shall give to the Agent written notice
in the form of Exhibit B hereto (or telephonic notice confirmed in a
writing in the form of Exhibit B hereto) of each Revolving Credit Loan
requested hereunder (a "Loan Request") no less than (a) one (1)
Business Day prior to the proposed Drawdown Date of any Base Rate Loan
and (b) three (3) Business Days prior to the proposed Drawdown Date of
any Eurocurrency Rate Loan, provided that any such notice requesting a
Revolving Credit Loan denominated in an Optional Currency must comply
with the requirements of this ss.2.6 and the requirements of an OC
Notice pursuant to ss.2.9(a). Each such notice shall specify (i) the
principal amount of the Revolving Credit Loan requested, stated either
in Dollars or, subject to ss.2.9 hereof, in an Optional Currency, (ii)
the proposed Drawdown Date of such Revolving Credit Loan, (iii) the
Interest Period for such Revolving Credit Loan and (iv) the Type of
such Revolving Credit Loan. Promptly upon receipt of any such notice
(but in any event on the day the Agent receives a request for a
Revolving Credit Loan by the Company and by the day following the date
the Agent receives a request for a Revolving Credit Loan by a
Subsidiary Borrower), the Agent shall notify each of the Banks thereof.
Each Loan Request shall be irrevocable and binding on the Borrowers and
shall obligate the requesting Borrower to accept the Revolving Credit
Loan requested from the Banks on the proposed Drawdown Date. Each Loan
Request shall be in a minimum aggregate amount of $500,000 or an
integral multiple of $100,000 in excess thereof.
2.7. Conversion Options.
2.7.1. Conversion to Different Type of Revolving Credit Loan.
The Borrowers may elect from time to time to convert any outstanding
Revolving Credit Loan denominated in Dollars to a Revolving Credit Loan
of another Type denominated in Dollars, provided that (a) with respect
to any such conversion of a Revolving Credit Loan to a Base Rate Loan,
the applicable
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Borrower shall give the Agent at least one (1) Business Day prior
written notice of such election; (b) with respect to any such
conversion of a Base Rate Loan to a Eurocurrency Rate Loan, the
applicable Borrower shall give the Agent at least three (3) Business
Days prior written notice of such election; (c) with respect to any
such conversion of a Eurocurrency Rate Loan into a Revolving Credit
Loan of another Type, such conversion shall only be made on the last
day of the Interest Period with respect thereto and (d) no Revolving
Credit Loan may be converted into a Eurocurrency Rate Loan when any
Default or Event of Default has occurred and is continuing. The Agent
shall promptly notify the Banks of such election (but in any event on
the day the Agent receives an election by the Company and by the day
following the date the Agent receives an election by any Subsidiary
Borrower). On the date on which such conversion is being made each Bank
shall take such action as is necessary to transfer its Commitment
Percentage of such Revolving Credit Loans to its Domestic Lending
Office or its Eurocurrency Lending Office, as the case may be. All or
any part of outstanding Revolving Credit Loans denominated in Dollars
of any Type may be converted into a Revolving Credit Loan of another
Type as provided herein, provided that any partial conversion shall be
in an aggregate principal amount of $500,000 or an integral multiple of
$100,000 in excess thereof. Each Conversion Request relating to the
conversion of a Revolving Credit Loan to a Eurocurrency Rate Loan shall
be irrevocable by the applicable Borrower.
2.7.2. Continuation of Type of Revolving Credit Loan. Any
Revolving Credit Loan of any Type may be continued as a Revolving
Credit Loan of the same Type upon the expiration of an Interest Period
with respect thereto by compliance by the applicable Borrower with the
notice provisions contained in ss.2.7.1; provided that (a) as to any
Eurocurrency Rate Loans denominated in Dollars, no such Eurocurrency
Rate Loan may be continued as such when any Default or Event of Default
has occurred and is continuing, but shall be automatically converted to
a Base Rate Loan on the last day of the first Interest Period relating
thereto ending during the continuance of any Default or Event of
Default of which officers of the Agent active upon the Company's
account have actual knowledge; and (b) as to any Eurocurrency Rate Loan
denominated in an Optional Currency, no such Eurocurrency Rate Loan may
be continued as such when a Default or Event of Default has occurred or
is continuing or the provisions of ss.2.9 hereof have not or cannot be
met at the time of such continuation, but shall be repaid by the
relevant Subsidiary Borrower on the last day of the Interest Period
relating thereto. In the event that the applicable Borrower fails to
provide any such notice with respect to the continuation of any
Eurocurrency Rate Loan as such, then (a) such Eurocurrency Rate Loan
denominated in Dollars shall be automatically converted to a Base Rate
Loan on the last day of the first Interest Period relating thereto; and
(b) as to any Eurocurrency Rate Loan denominated in an Optional
Currency, shall be repaid on the last day of the Interest Period
relating thereto. The Agent shall notify the Banks
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promptly when any such automatic conversion contemplated by this ss.2.7
is scheduled to occur.
2.7.3. Eurocurrency Rate Loans. Any conversion to or from
Eurocurrency Rate Loans shall be in such amounts and be made pursuant
to such elections so that, after giving effect thereto, the aggregate
principal amount of all Eurocurrency Rate Loans having the same
Interest Period shall not be less than $500,000 or a whole multiple of
$100,000 (or, in the case of a Eurocurrency Rate Loan denominated in an
Optional Currency, that whole number which is nearest to the Dollar
Equivalent of $500,000, rounded to the nearest one thousandth) in
excess thereof.
2.8. Funds for Revolving Credit Loan.
2.8.1. Funding Procedures for Revolving Credit Loans to
Company. Not later than 1:00 p.m. (Boston time) on the proposed
Drawdown Date of any Revolving Credit Loans to be made to the Company,
each of the Banks will make available to the Agent to credit to the
Company's account in Same Day Funds, the amount of such Bank's
Commitment Percentage of the amount of the requested Revolving Credit
Loans at the Agent's Head Office. Upon receipt from each Bank of such
amount, and upon receipt of the documents required by ss.11 and ss.12
and the satisfaction of the other conditions set forth therein, to the
extent applicable, the Agent will make available to the Company the
aggregate amount of such Revolving Credit Loans made available to the
Agent by the Banks. The failure or refusal of any Bank to make
available to the Agent at the aforesaid time and place on any Drawdown
Date the amount of its Commitment Percentage of the requested Revolving
Credit Loans shall not relieve any other Bank from its several
obligation hereunder to make available to the Agent the amount of such
other Bank's Commitment Percentage of any requested Revolving Credit
Loans.
2.8.2. Advances by Agent for Revolving Credit Loans to
Company. The Agent may, unless notified to the contrary by any Bank
prior to a Drawdown Date, assume that such Bank has made available to
the Agent on such Drawdown Date the amount of such Bank's Commitment
Percentage of the Revolving Credit Loans to be made on such Drawdown
Date, and the Agent may (but it shall not be required to), in reliance
upon such assumption, make available to the Company a corresponding
amount. If any Bank makes available to the Agent such amount on a date
after such Drawdown Date, such Bank shall pay to the Agent on demand an
amount equal to the product of (a) the average computed for the period
referred to in clause (c) below, of the Overnight Rate for each day
included in such period, times (b) the amount of such Bank's Commitment
Percentage of such Revolving Credit Loans, times (c) a fraction, the
numerator of which is the number of days that elapse from and including
such Drawdown Date to the date on which the amount of such Bank's
Commitment Percentage of such
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Revolving Credit Loans shall become immediately available to the Agent,
and the denominator of which is 365. A statement of the Agent submitted
to such Bank with respect to any amounts owing under this paragraph
shall be prima facie evidence of the amount due and owing to the Agent
by such Bank. If the amount of such Bank's Commitment Percentage of
such Revolving Credit Loans is not made available to the Agent by such
Bank within three (3) Business Days following such Drawdown Date, the
Agent shall be entitled to recover such amount from the Company on
demand, with interest thereon at the rate per annum applicable to the
Revolving Credit Loans made on such Drawdown Date.
2.8.3. Funding Procedures for Revolving Credit Loans
Denominated in Dollars to Subsidiary Borrowers. Not later than 11:00
a.m. (Hong Kong time) on the proposed Drawdown Date of any Revolving
Credit Loans requested by the applicable Subsidiary Borrower and which
is denominated in Dollars, each of the Banks will make available to the
Agent to credit to the applicable Subsidiary Borrower's account in Same
Day Funds, the amount of such Bank's Commitment Percentage of the
amount of the requested Revolving Credit Loans at the Agent's local
branch located at Jardine House, Suites 801-809, One Connaught Place,
Central Hong Kong. Upon receipt from each Bank of such amount, and upon
receipt of the documents required by ss.11 and ss.12 and the
satisfaction of the other conditions set forth therein, to the extent
applicable, the Agent will make available to the applicable Subsidiary
Borrower the aggregate amount of such Revolving Credit Loans made
available to the Agent by the Banks. The failure or refusal of any Bank
to make available to the Agent at the aforesaid time and place on any
Drawdown Date the amount of its Commitment Percentage of the requested
Revolving Credit Loans shall not relieve any other Bank from its
several obligation hereunder to make available to the Agent the amount
of such other Bank's Commitment Percentage of any requested Revolving
Credit Loans.
2.8.4. Advances by Agent for Revolving Credit Loans
Denominated in Dollars to Subsidiary Borrowers. The Agent may, unless
notified to the contrary by any Bank prior to a Drawdown Date, assume
that such Bank has made available to the Agent on such Drawdown Date
the amount of such Bank's Commitment Percentage of the Revolving Credit
Loans to be made in Dollars to the applicable Subsidiary Borrower on
such Drawdown Date, and the Agent may (but it shall not be required
to), in reliance upon such assumption, make available to the applicable
Subsidiary Borrower a corresponding amount. If any Bank makes available
to the Agent such amount on a date after such Drawdown Date, such Bank
shall pay to the Agent on demand an amount equal to the product of (a)
the average computed for the period referred to in clause (c) below, of
the Overnight Rate for each day included in such period, times (b) the
amount of such Bank's Commitment Percentage of such Revolving Credit
Loans, times (c) a fraction, the numerator of which is the number of
days that elapse from and
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including such Drawdown Date to the date on which the amount of such
Bank's Commitment Percentage of such Revolving Credit Loans shall
become immediately available to the Agent, and the denominator of which
is 365. A statement of the Agent submitted to such Bank with respect to
any amounts owing under this paragraph shall be prima facie evidence of
the amount due and owing to the Agent by such Bank. If the amount of
such Bank's Commitment Percentage of such Revolving Credit Loans is not
made available to the Agent by such Bank within three (3) Business Days
following such Drawdown Date, the Agent shall be entitled to recover
such amount from the applicable Subsidiary Borrower on demand, with
interest thereon at the rate per annum applicable to the Revolving
Credit Loans made on such Drawdown Date.
2.8.5. Funding Procedures for Revolving Credit Loans
Denominated in an Optional Currency to Subsidiary Borrowers. Not later
than 11:00 a.m. (Hong Kong time) on the proposed Drawdown Date of any
Revolving Credit Loans which is denominated in an Optional Currency to
any Subsidiary Borrower, the Fronting Bank shall make available to the
Agent at its local office at Jardine House, Suites 801-809, One
Connaught Place, Central Hong Kong the amount of such Revolving Credit
Loans made or to be made on such date corresponding to the aggregate
Commitment Percentages of the Banks. Upon receipt from the Fronting
Bank of such amount, and upon receipt of the documents required by
ss.11 and ss.12 and the satisfaction of the other conditions set forth
therein, to the extent applicable, the Agent will make available to the
applicable Subsidiary Borrower the aggregate amount of such Revolving
Credit Loans made available to the Agent by the Fronting Bank.
2.8.6. Advances by Agent for Revolving Credit Loans
denominated in Optional Currency to Subsidiary Borrowers. The Agent
may, unless notified to the contrary by the Fronting Bank prior to a
Drawdown Date, assume that the Fronting Bank has made available to the
Agent on such Drawdown Date the amount of the aggregate Commitment
Percentages of the Banks of such Revolving Credit Loans to be made on
such Drawdown Date, and the Agent may (but it shall not be required
to), in reliance upon such assumption, make available to the applicable
Subsidiary Borrower a corresponding amount. If the Fronting Bank makes
available to the Agent such amount on a date after such Drawdown Date,
the Fronting Bank shall pay to the Agent on demand an amount equal to
the product of (a) the average computed for the period referred to in
clause (c) below, of the Overnight Rate for each day included in such
period, times (b) the aggregate Commitment Percentages of the Banks of
such Revolving Credit Loans, times (c) a fraction, the numerator of
which is the number of days that elapse from and including such
Drawdown Date to the date on which the amount of the aggregate
Commitment Percentages of all the Banks of such Revolving Credit Loans
shall become immediately available to the Agent, and the denominator of
which is 365. A statement of the Agent submitted to the
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Fronting Bank with respect to any amounts owing under this paragraph
shall be prima facie evidence of the amount due and owing to the Agent
by such Bank. If the amount of the aggregate Commitment Percentages of
all Banks of such Revolving Credit Loans is not made available to the
Agent by the Fronting Bank within three (3) Business Days following
such Drawdown Date, the Agent shall be entitled to recover such amount
from the applicable Subsidiary Borrower on demand, with interest
thereon at the rate per annum applicable to the Revolving Credit Loans
made on such Drawdown Date.
2.9. Optional Currencies.
2.9.1. Request for Optional Currency. Subject to the
limitations set forth in ss.2.1., any Subsidiary Borrower may, upon at
least three (3) Business Days' notice to the Agent (an "OC Notice"),
request that one or more Revolving Credit Loans be made in an Optional
Currency, provided that any Revolving Credit Loan proposed to be made
under this ss.2.9.1 shall be in an amount not less than $250,000, or a
greater amount which is an integral multiple of $100,000, or the Dollar
Equivalent in an Optional Currency. Each OC Notice requesting a
Revolving Credit Loan in an Optional Currency shall be by written
notice (or telephonic notice confirmed in writing by the applicable
Subsidiary Borrower), specifying (a) the Revolving Credit Loan to be
made, (b) the requested Drawdown Date of the proposed borrowing of such
Revolving Credit, (c) the requested Optional Currency in which the
Revolving Credit Loan is to be made, and (d) the initial Interest
Period for the Revolving Credit Loan to be borrowed. If any Bank, on or
prior to any Drawdown Date, determines (which determination shall be
conclusive) that the requested Optional Currency is not freely
transferable and convertible into Dollars or that it will be
impracticable for such Bank to fund the Revolving Credit Loan in such
Optional Currency, then such Bank shall immediately so notify the
Agent, which notification shall be given immediately by the Agent to
the applicable Subsidiary Borrower, and such Bank's portion of the
requested Revolving Credit Loan shall instead be denominated in
Dollars. In the event that the applicable Subsidiary Borrower repays
such portion of a Revolving Credit Loan denominated in Dollars in
accordance with ss.3 hereof and such repayment, and the fluctuation of
currency exchange rates, results in Revolving Credit Loans being then
outstanding that are not in Dollar Equivalent amounts held pro rata in
accordance with the Commitment Percentages, then all subsequent
principal repayments denominated in the Optional Currency which the
applicable Bank did not advance shall be made by the applicable
Subsidiary Borrower to the Agent for the respective accounts of the
Banks other than such Bank on a pro rata basis until such time as the
Revolving Credit Loans are outstanding on a pro rata basis. Subject to
the foregoing and to the satisfaction of the terms and conditions of
ss.11 (in the case of such Revolving Credit Loans to be made on the
Closing Date) and ss.12, each Revolving Credit Loan requested to be
made in an Optional Currency will be made on the Drawdown Date
specified therefor in the OC Notice, in the currency
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requested in the OC Notice and, upon being so made, will have the
Interest Period requested in the OC Notice.
2.9.2. Exchange Rate. For purposes of this Credit Agreement
the amount in one Optional Currency which shall be equivalent on any
particular date to a specified amount in another Optional Currency
shall be that amount (as conclusively ascertained by the Agent by its
normal banking practices, absent manifest error) in the first Optional
Currency which is or could be purchased by the Agent (in accordance
with normal banking practices) with such specified amount in the second
Optional Currency in any recognized Eurocurrency Interbank Market
selected by the Agent in good faith for delivery on such date at the
spot rate of exchange prevailing at 10:00 a.m. (London time) (or as
soon thereafter as practicable) on such date.
2.9.3. Multiple Denominations. In the event that any portion
of the funds available under the terms of this Credit Agreement is
denominated in one or more Optional Currencies, the Dollar Equivalent
of such portion of the funds shall be calculated pursuant to the
definition of "Dollar Equivalent". The amount so determined shall then
be added to the amount already outstanding in Dollars for the purpose
of determining the remaining availability of funds under ss.2.1 and
ss.2.9.1 hereof and any required repayments under the following
ss.2.9.4.
2.9.4. Repayment. If at any time prior to the Revolving Credit
Loan Maturity Date, the Dollar Equivalent of the aggregate principal
amount outstanding of all Revolving Credit Loans hereunder shall exceed
the Total Commitment as a result of fluctuations in respective currency
conversion rates for three (3) or more consecutive Business Days, the
applicable Subsidiary Borrower shall pay or cause to be paid
immediately, upon demand made by the Agent, such amounts as are
sufficient to eliminate such excess and to reduce the aggregate
principal amount outstanding to the Dollar Equivalent in the applicable
currencies of the Total Commitment. In the event there are any
Revolving Credit Loans outstanding which are denominated in an Optional
Currency, the Agent shall provide the Banks and Subsidiary Borrowers
with calculations on the last day of each calendar month in which such
Revolving Credit Loans in Optional Currencies are outstanding as to the
amount in Dollar Equivalents of such Revolving Credit Loans.
2.9.5. Funding. The Fronting Bank (or, after a Bank has
purchased its interest in any Fronted Loan, such Bank) may make any
Revolving Credit Loan denominated in an Optional Currency by causing
its Eurocurrency Lending Office or any of its foreign branches or
foreign affiliate to make such Revolving Credit Loan (whether or not
such lending office, branch or affiliate is named as a lending office
on the signature pages hereof); provided that in such event the
obligation of the applicable Subsidiary Borrower to repay such
Revolving Credit Loan shall nevertheless be to such Bank and
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shall, for all purposes of this Credit Agreement (including without
limitation for purposes of the definition of the term "Majority Banks")
be deemed made by such Bank to the extent of such Revolving Credit
Loan, for the account of such applicable lending office, branch or
affiliate.
2.10. Fronting Provisions.
2.10.1. Application of Interest Payments for Multicurrency
Loans.(a) As promptly as is practicable following each date upon which
the Agent receives a payment of interest under this Credit Agreement on
account of any Revolving Credit Loans denominated in Dollars made to
any Subsidiary Borrower, the Agent shall distribute such amount to the
Banks in accordance with their respective Commitment Percentages.
(b) As promptly as is practicable following each date upon
which the Agent receives a payment of interest under this Credit
Agreement on account of any Multicurrency Loans denominated in an
Optional Currency, the Agent shall distribute to the Fronting Bank such
amount. Promptly upon receipt of such amount, the Fronting Bank shall
convert into Dollars (based upon the actual exchange rate then
applicable to the Fronting Bank) the amount equal to the portion of
such interest payment which constitutes the Applicable Margin thereof
(or, with respect to each Bank which funded the purchase of a
participating interest in such Multicurrency Loan pursuant to
ss.2.11.3, such Bank's Commitment Percentage of the full amount of such
interest payment applicable to the period commencing upon such
funding). In consideration of the agreement of the Banks to purchase
participating interests in the Revolving Credit Loans denominated in an
Optional Currency, the Fronting Bank hereby agrees to pay to the Agent,
for the ratable accounts of each Bank, a risk participation fee in an
amount equal to the proceeds received by the Fronting Bank from such
conversion to Dollars (other than any such proceeds payable for the
account of any Delinquent Bank, which proceeds shall be retained by the
Fronting Bank for its own account); provided, however, that with
respect to each Bank which has funded the purchase of participating
interests in the extensions of credit on account of which such interest
was paid pursuant to ss.2.11.3, the Fronting Bank shall instead pay to
the Agent, for the account of such Bank which has so funded such
purchase, the amount equal to such Bank's Commitment Percentage of the
proceeds received by the Fronting Bank from such conversion. Such
amount shall be payable to the Agent in Dollars on the date upon which
the Fronting Bank receives the proceeds of such conversion.
2.10.2. Currency Conversions and Contingent Funding Agreement.
(a) Each of the Banks hereby unconditionally and irrevocably agrees to
purchase (in Dollars) an undivided participating interest in its
ratable share, determined by reference to its Commitment Percentage, of
all Revolving Credit Loans denominated in an Optional Currency made by
the Fronting Bank as the Agent may at any time request, provided that:
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(i) the Agent and the Fronting Bank hereby agree
that, unless an Event of Default has occurred and is continuing or a
Fronting Loan Event has occurred, such Persons will not request any
such purchase of participating interests; and
(ii) in the event that any Event of Default specified
in ss.ss.13.1(g) or (h) shall have occurred with respect to Borrowers,
each Bank shall be deemed to have purchased, automatically and without
request, such participating interest in the Revolving Credit Loans
denominated in an Optional Currency made by the Fronting Bank to the
applicable Subsidiary Borrower.
Any such request shall be made in writing to each Bank and
shall specify the amount of Dollars (based upon the actual exchange
rate at which the Agent anticipates being able to obtain the relevant
Optional Currency on the relevant date, with any excess payment being
refunded to the Banks and any deficiency remaining payable by the
Banks) required from such Bank in order to effect the purchase by such
Bank of a participating interest in the amount equal to its Commitment
Percentage times the aggregate then outstanding principal amount (in
the applicable Optional Currency) of the Revolving Credit Loans
denominated in an Optional Currency which have been fronted by the
Fronting Bank. Promptly upon receipt of such request, each Bank shall
deliver to the Agent (in immediately available funds) the amount so
specified by the Agent. The Agent shall convert such amounts into the
relevant Optional Currency and shall promptly deliver the proceeds of
such conversion to the Fronting Bank in immediately available funds.
Promptly following receipt thereof, the Fronting Bank will deliver to
each Bank (through the Agent) a certificate setting forth the amount of
the Revolving Credit Loans purchased by such Bank, dated the date of
receipt of such funds and in such amount. From and after such purchase,
(i) all outstanding Revolving Credit Loans (whether denominated in
Dollars or the relevant Optional Currency and including those Revolving
Credit Loans advanced by the Fronting Bank) shall be deemed to have
been converted into Base Rate Loans denominated in Dollars (with such
conversion constituting, for purposes of ss.5.10, a conversion of a
Revolving Credit Loan of one Type into a Revolving Credit Loan of
another Type prior to the expiration of the relevant Interest Period),
(ii) any further Revolving Credit Loans to be made to the Subsidiary
Borrowers shall be made in Dollars by each Bank in accordance with each
such Bank's Commitment Percentage, (iii) all amounts from time to time
accruing, and all amounts from time to time payable, on account of such
Revolving Credit Loans (including any interest and other amounts which
were accrued but unpaid on the date of such purchase) shall be payable
in Dollars as if such Revolving Credit Loans had originally been made
in Dollars and shall be distributed by the Agent to the Banks, on
account of such participating interests. Notwithstanding anything to
the contrary contained in this ss.2.11, the failure of any Bank to
purchase its participating interest in any Revolving Credit Loans shall
not relieve any
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other Bank of its obligations hereunder to purchase its participating
interest in a timely manner, but no Bank shall be responsible for the
failure of any other Bank to purchase the participating interest to be
purchased by such other Banks on any date.
(b) If any amount required to be paid by any Bank pursuant to
ss.2.11.3(a) is not paid to the Agent within one (1) Business Day
following the date upon which such Bank receives a request from the
Agent that such Bank fund its participating interest relating to such
Revolving Credit Loan, such Bank shall pay to the Agent on demand an
amount equal to the product of (i) such amount, times (ii) the daily
average federal funds rate, as quoted by the Agent, during the period
from and including the date such payment is required to be made to the
date on which such payment is immediately available to the Agent, times
(iii) a fraction the numerator of which is the number of days that
elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any Bank pursuant to ss.2.11.3(a) is
not in fact made available to the Agent within three (3) Business Days
following the date upon which such Bank receives a request from the
Agent that such Bank fund its participating interest relating to such
Revolving Credit Loan, the Agent shall be entitled to recover from the
applicable Subsidiary Borrower, on demand, such amount with interest
thereon calculated from such due date at the rate per annum applicable
to Revolving Credit Loans which are Base Rate Loans. A certificate from
the Agent submitted to any Bank with respect to any amounts owing under
this ss.2.11.3(b) shall be conclusive in the absence of manifest error.
Amounts payable by any Bank pursuant to this ss.2.11.3(b) shall be paid
to the Agent, for the account of the Fronting Bank; provided that, if
the Agent (in its sole discretion) has elected to fund on behalf of
such Bank the amounts owing to the Fronting Bank, then the amounts
shall be paid to the Agent, for its own account.
(c) Whenever, at any time after the Fronting Bank has received
from any Bank such Bank's participating interest in a Revolving Credit
Loan pursuant to ss.2.11.3(b) above, the Fronting Bank receives any
payment on account thereof, such Fronting Bank will distribute to the
Agent, for the account of such Bank, such Bank's participating interest
in such amount (appropriately adjusted, in the case of interest
payments, to reflect the period of time during which such Bank's
participating interest was outstanding and funded) in like funds
received; provided, however, that in the event that any such payment
received by the Fronting Bank is required to be returned, such Bank
will return to the Fronting Bank any portion thereof previously
distributed by the Fronting Bank to the Bank in like funds as such
payment is required to be returned by the Fronting Bank.
(d) Each Bank's obligation to purchase participating interests
pursuant to this ss.2.11 shall be absolute and unconditional and shall
not be affected by any circumstance, including (i) any set-off,
counterclaim,
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recoupment, defense or other right which such Bank may have against the
Fronting Bank, any Borrower or any other Person for any reason
whatsoever; (ii) the occurrence and continuation of any Default or
Event of Default; (iii) any adverse change in the condition (financial
or otherwise) of any Person party hereto; (iv) any breach of any of the
Loan Documents by any Person; or (v) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing.
2.10.3. Resignation of Fronting Bank.The Fronting Bank may
resign at any time by giving sixty (60) days prior written notice
thereof to the Banks and the Company. Upon any such resignation, the
Majority Banks shall have the right to appoint a successor Fronting
Bank. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Fronting Bank shall be reasonably acceptable
to the Borrowers. If no successor Fronting Bank shall have been so
appointed by the Majority Banks and shall have accepted such
appointment within thirty (30) days after the retiring Fronting Bank's
giving of notice of resignation, then the retiring Fronting Bank may,
on behalf of the Banks, appoint a successor Fronting Bank, which shall
be a financial institution having a rating of not less than A or its
equivalent by Standard & Poor's Ratings Group. Upon the acceptance of
any appointment as Fronting Bank hereunder by a successor Fronting
Bank, such successor Fronting Bank shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
retiring Fronting Bank, and the retiring Fronting Bank shall be
discharged from its duties and obligations hereunder. After any
retiring Fronting Bank's resignation, the provisions of this Credit
Agreement and the other Loan Documents shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it
while it was acting as Fronting Bank.
3. REPAYMENT OF THE REVOLVING CREDIT LOANS.
3.1. Maturity. Each Borrower promises to pay on the Revolving Credit
Loan Maturity Date, and there shall become absolutely due and payable on the
Revolving Credit Loan Maturity Date, all of the Revolving Credit Loans
outstanding on such date to such Borrower, together with any and all accrued and
unpaid interest thereon.
3.2. Mandatory Repayments of Revolving Credit Loans. If at any time the
sum of the outstanding amount of the Revolving Credit Loans, the Maximum Drawing
Amount and all Unpaid Reimbursement Obligations exceeds the Total Commitment,
then each of the Borrowers shall immediately pay its pro rata share (based upon
the outstanding principal amount of the Revolving Credit Loans made to each such
Borrower) of the amount of such excess to the Agent for the respective accounts
of the Banks and the Fronting Bank for application: first, to any Unpaid
Reimbursement Obligations; second, to the Revolving Credit Loans; and third, to
provide to the Agent cash collateral for Reimbursement Obligations as
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contemplated by ss.4.2(b) and (c). Each payment of any Unpaid Reimbursement
Obligations or prepayment of Revolving Credit Loans shall be allocated among the
Banks, in proportion, as nearly as practicable, to each Reimbursement Obligation
or (as the case may be) the respective unpaid principal amount of each Bank's
Revolving Credit Note or loan account, as the case may be, with adjustments to
the extent practicable to equalize any prior payments or repayments not exactly
in proportion. In addition, in the event the Company or any of its Subsidiaries
receives any (a) Net Cash Sale Proceeds from the sale or other disposition of
assets permitted by ss.9.5, which Net Cash Sale Proceeds are required by ss.9.5
to be repaid to the Agent hereunder; (b) proceeds of insurance claims which have
not been either (i) reinvested by the Company or such Subsidiary in replacement
assets or to repair the asset so damaged, as the case may be, within 360 days of
receipt by such Person of such proceeds or (ii) subject to a commitment by the
Company or such Subsidiary pursuant to any contract to be used to make such a
reinvestment, subject only to customary conditions (other than obtaining
financing), on or prior to the 270th day following the Company's or such
Subsidiary's receipt of the claimed amount and the claimed amounts contractually
committed are so applied within 360 days following receipt of such amounts or
(c) Net Cash Proceeds from any Equity Issuances by the Company or its
Subsidiaries after the Closing Date (except for Net Cash Proceeds received by
the Company from Equity Issuances by the Company (i) made in connection with its
Stock Option Plan or to members of the Company's management (other than in
connection with the sale of Equity Issuances to such members of management in
the Initial Public Offering), (ii) received from any Principal of the Company or
other shareholders of the Company existing on the Closing Date (the "Additional
Investors") so long as no Event of Default has occurred and is continuing and
provided such Net Cash Proceeds are not received in connection with the sale of
Equity Issuances to the Principals or such Additional Investors in the Initial
Public Offering, or (iii) received from any other Person so long as no Event of
Default has occurred and is continuing, such Net Cash Proceeds are not received
in connection with the sale of Equity Issuances to such Persons in the Initial
Public Offering and provided the aggregate amount of such Net Cash Proceeds are
used to finance all or any portion of a Permitted Acquisition), the Company
shall, within thirty (30) days of receipt thereof, repay the outstanding
Revolving Credit Loans in an amount equal to 100% of such Net Cash Sale Proceeds
or Net Cash Proceeds, as the case may be, provided, however, that
notwithstanding the foregoing, in the event the Company receives any Net Cash
Proceeds from its Initial Public Offering or any subsequent public offering of
its capital stock, the Company shall only be required to pay 50% of the Net Cash
Proceeds of such Equity Issuance, and the Total Commitment shall be
automatically reduced by the amount of such Net Cash Proceeds or Net Cash Sale
Proceeds, as the case may be.
3.3. Optional Repayments of Revolving Credit Loans. Each Borrower shall
have the right, at its election, to repay the outstanding amount of its
Revolving Credit Loans, as a whole or in part, at any time without penalty or
premium (but subject to ss.5.10). The applicable Borrower shall give the Agent,
no later than 10:00 a.m., Boston time, at least one (1) Business Days prior
written notice of any proposed prepayment pursuant to this ss.3.3 of Base Rate
Loans, and three (3)
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Business Days notice of any proposed prepayment pursuant to this ss.3.3 of
Eurocurrency Rate Loans, in each case specifying the proposed date of prepayment
of Revolving Credit Loans and the principal amount to be prepaid. Each such
partial prepayment of the Revolving Credit Loans shall be in an integral
multiple of $500,000 (or the Dollar Equivalent), shall be accompanied by the
payment of accrued interest on the principal prepaid to the date of prepayment
and shall be applied, in the absence of instruction by the applicable Borrower,
first to the principal of Base Rate Loans and then to the principal of
Eurocurrency Rate Loans. Each partial prepayment shall be allocated among the
Banks and the Fronting Bank, in proportion, as nearly as practicable, to the
respective unpaid principal amount of each Bank's Revolving Credit Note or loan
account, as the case may be, with adjustments to the extent practicable to
equalize any prior repayments not exactly in proportion.
4. LETTERS OF CREDIT.
4.1. Letter of Credit Commitments.
4.1.1. Commitment to Issue Letters of Credit. Subject to the
terms and conditions hereof and the execution and delivery by any
Borrower of a letter of credit application on the Agent's customary
form (a "Letter of Credit Application"), the Agent on behalf of the
Banks and in reliance upon the agreement of the Banks set forth in
ss.4.1.4 and upon the representations and warranties of such Borrower
contained herein, agrees, in its individual capacity, to issue, extend
and renew for the account of such Borrower one or more standby or
documentary letters of credit (individually, a "Letter of Credit"),
denominated in Dollars or any Optional Currency in such form as may be
requested from time to time by such Borrower and agreed to by the
Agent; provided, however, that, after giving effect to such request,
(a) the sum of the aggregate Maximum Drawing Amount and all Unpaid
Reimbursement Obligations shall not exceed $20,000,000 (or the Dollar
Equivalent) at any one time and (b) the sum of (i) the Dollar
Equivalent of the Maximum Drawing Amount on all Letters of Credit, (ii)
the Dollar Equivalent of all Unpaid Reimbursement Obligations, and
(iii) the Dollar Equivalent of the amount of all Revolving Credit Loans
outstanding shall not exceed the Total Commitment. Notwithstanding the
foregoing, the Agent shall have no obligation to issue any Letter of
Credit to support or secure any Indebtedness of the Company or any of
its Subsidiaries to the extent that such Indebtedness was incurred
prior to the proposed issuance date of such Letter of Credit, unless in
any such case the Company demonstrates to the satisfaction of the Agent
that (x) such prior incurred Indebtedness were then fully secured by a
prior perfected and unavoidable security interest in collateral
provided by the Company or such Subsidiary to the proposed beneficiary
of such Letter of Credit or (y) such prior incurred Indebtedness were
then secured or supported by a letter of credit issued for the account
of the Company or such Subsidiary and the reimbursement obligation with
respect to such letter of credit was fully secured by a prior perfected
and
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unavoidable security interest in collateral provided to the issuer of
such letter of credit by the Company or such Subsidiary.
4.1.2. Letter of Credit Applications. Each Letter of Credit
Application shall be completed to the satisfaction of the Agent. In the
event that any provision of any Letter of Credit Application shall be
inconsistent with any provision of this Credit Agreement, then the
provisions of this Credit Agreement shall, to the extent of any such
inconsistency, govern.
4.1.3. Terms of Letters of Credit. Each Letter of Credit
issued, extended or renewed hereunder shall, among other things, (a)
provide for the payment of sight drafts for honor thereunder when
presented in accordance with the terms thereof and when accompanied by
the documents described therein, and (b) have an expiry date no later
than the date which is fourteen (14) days (or, if the Letter of Credit
is confirmed by a confirmer or otherwise provides for one or more
nominated persons, forty-five (45) days) prior to the Revolving Credit
Loan Maturity Date. Each Letter of Credit so issued, extended or
renewed shall be subject to the Uniform Customs.
4.1.4. Reimbursement Obligations of Banks. Each Bank severally
agrees that it shall be absolutely liable, without regard to the
occurrence of any Default or Event of Default or any other condition
precedent whatsoever, to the extent of such Bank's Commitment
Percentage, to reimburse the Agent on demand for the amount of each
draft paid by the Agent (as calculated pursuant to ss.4.2) under each
Letter of Credit to the extent that such amount is not reimbursed by
the applicable Borrower pursuant to ss.4.2 (such agreement for a Bank
being called herein the "Letter of Credit Participation" of such Bank).
4.1.5. Participations of Banks. Each such payment made by a
Bank shall be treated as the purchase by such Bank of a participating
interest in the applicable Borrower's Reimbursement Obligation under
ss.4.2 in an amount equal to such payment. Each Bank shall share in
accordance with its participating interest in any interest which
accrues pursuant to ss.4.2.
4.2. Reimbursement Obligation of the Borrowers. In order to induce the
Agent to issue, extend and renew each Letter of Credit and the Banks to
participate therein, each Borrower hereby agrees to reimburse or pay to the
Agent, for the account of the Agent or (as the case may be) the Banks, with
respect to each Letter of Credit issued, extended or renewed by the Agent
hereunder for the account of such Borrower,
(a) except as otherwise expressly provided in ss.4.2(b) and
(c), on each date that any draft presented under such Letter of Credit
is honored by the Agent, or the Agent otherwise makes a payment with
respect thereto (in the same currency in which such Letter of Credit
was issued or the Dollar Equivalent thereof), (i) the amount paid by
the Agent under or with respect
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to such Letter of Credit, and (ii) the amount of any taxes (other than
taxes based upon or measured by the income or profits of a Bank or the
Agent), fees, charges or other costs and expenses whatsoever incurred
by the Agent or any Bank in connection with any payment made by the
Agent or any Bank under, or with respect to, such Letter of Credit,
(b) upon the reduction (but not termination) of the Total
Commitment to an amount less than the Maximum Drawing Amount, an amount
equal to such difference, which amount shall be held by the Agent for
the benefit of the Banks and the Agent as cash collateral for all
Reimbursement Obligations, and
(c) upon the termination of the Total Commitment, or the
acceleration of the Reimbursement Obligations with respect to all
Letters of Credit in accordance with ss.13, an amount equal to the then
Maximum Drawing Amount on all Letters of Credit, which amount shall be
held by the Agent for the benefit of the Banks and the Agent as cash
collateral for all Reimbursement Obligations.
Each such payment shall be made to the Agent at the Agent's Head Office in Same
Day Funds. Interest on any and all amounts remaining unpaid by the applicable
Borrower under this ss.4.2 at any time from the date such amounts become due and
payable (whether as stated in this ss.4.2, by acceleration or otherwise) until
payment in full (whether before or after judgment) shall be payable to the Agent
on demand at the rate specified in ss.5.11 for overdue principal on the
Revolving Credit Loans.
4.3. Letter of Credit Payments. If any draft shall be presented or
other demand for payment shall be made under any Letter of Credit, the Agent
shall notify the applicable Borrower of the date and amount of the draft
presented or demand for payment and of the date and time when it expects to pay
such draft or honor such demand for payment. If the applicable Borrower fails to
reimburse the Agent as provided in ss.4.2 on or before the date that such draft
is paid or other payment is made by the Agent, the Agent may at any time
thereafter notify the Banks of the amount of any such Unpaid Reimbursement
Obligation and shall specify such amount in Dollars (based upon the actual
exchange rate at which the Agent anticipates being able to obtain the applicable
Optional Currency on the date payment is to be made by the Banks, with any
excess payment being refunded to the Banks and any deficiency being payable by
the Banks) required from each of the Banks. No later than 3:00 p.m. (Boston
time) on the Business Day next following the receipt of such notice, each Bank
shall make available to the Agent, at the Agent's Head Office, in Same Day
Funds, such Bank's Commitment Percentage of such Unpaid Reimbursement
Obligation, together with an amount equal to the product of (a) the average,
computed for the period referred to in clause (c) below, of the Overnight Rate
for each day included in such period, times (b) the amount equal to such Bank's
Commitment Percentage of such Unpaid Reimbursement Obligation, times (c) a
fraction, the numerator of which is the number of days that elapse from and
including the date the Agent paid the draft presented for honor or otherwise
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made payment to the date on which such Bank's Commitment Percentage of such
Unpaid Reimbursement obligation shall become immediately available to the Agent,
and the denominator of which is 365. The responsibility of the Agent to the
Borrowers and the Banks shall be only to determine that the documents (including
each draft) delivered under each Letter of Credit in connection with such
presentment shall be in conformity in all material respects with such Letter of
Credit. From and after such purchase of the applicable Letter of Credit
Participations, such Unpaid Reimbursement Obligations shall be deemed to have
been converted into Base Rate Loans made by the Banks, and all amounts from time
to time accruing, and all amounts from time to time payable, on account of such
Unpaid Reimbursement Obligations shall be payable in Dollars as if such Letter
of Credit had originally been issued in Dollars.
4.4. Obligations Absolute. The Borrowers' obligations under this ss.4
shall be absolute and unconditional under any and all circumstances and
irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which any Borrower may have or have had against the Agent, any Bank or any
beneficiary of a Letter of Credit. Each Borrower further agrees with the Agent
and the Banks that the Agent and the Banks shall not be responsible for, and
each Borrower's Reimbursement Obligations under ss.4.2 shall not be affected by,
among other things, the validity or genuineness of documents or of any
endorsements thereon, even if such documents should in fact prove to be in any
or all respects invalid, fraudulent or forged, or any dispute between or among
any Borrower, the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit may be transferred or
any claims or defenses whatsoever of any Borrower against the beneficiary of any
Letter of Credit or any such transferee. The Agent and the Banks shall not be
liable for any error, omission, interruption or delay in transmission, dispatch
or delivery of any message or advice, however transmitted, in connection with
any Letter of Credit. Each Borrower agrees that any action taken or omitted by
the Agent or any Bank under or in connection with each Letter of Credit and the
related drafts and documents, if done in good faith, shall be binding upon such
Borrower and shall not result in any liability on the part of the Agent or any
Bank to any Borrower.
4.5. Reliance by Issuer. To the extent not inconsistent with ss.4.4,
the Agent shall be entitled to rely, and shall be fully protected in relying
upon, any Letter of Credit, draft, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Agent. The Agent shall be fully justified in
failing or refusing to take any action under this Credit Agreement unless it
shall first have received such advice or concurrence of the Majority Banks as it
reasonably deems appropriate or it shall first be indemnified to its reasonable
satisfaction by the Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take
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any such action. The Agent shall in all cases be fully protected in acting, or
in refraining from acting, under this Credit Agreement in accordance with a
request of the Majority Banks, and such request and any action taken or failure
to act pursuant thereto shall be binding upon the Banks and all future holders
of the Revolving Credit Notes, loan accounts or of a Letter of Credit
Participation.
4.6. Letter of Credit Fee. Each Borrower requesting a Letter of Credit
shall pay a fee (in each case, a "Letter of Credit Fee") to the Agent (a) in
respect of each standby Letter of Credit issued pursuant to this Credit
Agreement, calculated at the rate of the Applicable Margin for letter of credit
fees per annum on the face amount of each such Letter of Credit, which shall be
for the accounts of the Banks in accordance with their respective Commitment
Percentages, plus an amount equal to one quarter of one percent (1/4%) per annum
of the face amount of such standby Letter of Credit shall be for the account of
the Agent, as a fronting fee and (b) in respect of each documentary Letter of
Credit issued pursuant to this Credit Agreement, calculated at the rate of the
Applicable Margin for letter of credit fees minus one half of one percent (1/2%)
per annum on the face amount of each such Letter of Credit, which shall be for
the accounts of the Banks in accordance with their respective Commitment
Percentages, plus an amount equal to one quarter of one percent (1/4%) per annum
of the face amount of such documentary Letter of Credit shall be for the account
of the Agent, as a fronting fee. The Letter of Credit Fees for each Letter of
Credit shall be payable quarterly in arrears on the last day of each calendar
quarter. In respect of each Letter of Credit, the applicable Borrower shall also
pay to the Agent for the Agent's own account, on the date of any issuance,
extension, renewal or amendment of any Letter of Credit, or at such other time
or times as such charges are customarily made by the Agent, for the Agent's own
account, the Agent's customary issuance, amendment, negotiation or document
examination and other administrative fees as in effect from time to time.
5. CERTAIN GENERAL PROVISIONS.
5.1. Closing Fees. The Company agrees to pay to the Agent on the
Closing Date the closing fees as set forth in the Fee Letter.
5.2. Agent's Fee. The Borrower shall pay to the Agent an Agent's fee
(the "Agent's Fee") at the times and in the amounts as provided in the Fee
Letter.
5.3. Funds for Payments.
5.3.1. Payments to Agent. All payments of principal, interest,
Reimbursement Obligations, commitment fees, Letter of Credit Fees, the
closing fee and the Agent's Fee and any other amounts due hereunder or
under any of the other Loan Documents shall be made to the Agent, for
the respective accounts of the Banks and the Agent, at the Agent's Head
Office or at such other location in the Boston, Massachusetts area that
the Agent may from time to time designate, in each case in Same Day
Funds. All payments of principal of and interest on Revolving Credit
Loans made to any
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Subsidiary Borrower which are denominated in an Optional Currency or
Currencies and all other fees due hereunder by any local branch or
affiliate of the Agent or any Bank located outside of the United States
shall be made in immediately available funds, for the account of each
such Bank or the Agent, as the case may be, at a depository designated
by such Bank in the country in which such Optional Currency is legal
tender. Each payment in respect of any Revolving Credit Loan made by a
Borrower shall be made in the same currency in which such Revolving
Credit Loan was made unless otherwise agreed to by such Bank.
5.3.2. No Offset, etc. All payments by the Borrowers hereunder
and under any of the other Loan Documents shall be made without setoff
or counterclaim and free and clear of and without deduction for any
taxes, levies, imposts, duties, charges, fees, deductions,
withholdings, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any jurisdiction or any
political subdivision thereof or taxing or other authority therein
unless such Borrower is compelled by law to make such deduction or
withholding. If any such obligation is imposed upon any such Borrower
with respect to any amount payable by it hereunder or under any of the
other Loan Documents, such Borrower will pay to the Agent, for the
account of the Banks or (as the case may be) the Agent, on the date on
which such amount is due and payable hereunder or under such other Loan
Document, such additional amount in Dollars as shall be necessary to
enable the Banks or the Agent to receive the same net amount which the
Banks or the Agent would have received on such due date had no such
obligation been imposed upon such Borrower. Each such Borrower will
deliver promptly to the Agent certificates or other valid vouchers for
all taxes or other charges deducted from or paid with respect to
payments made by the Borrower hereunder or under such other Loan
Document.
5.3.3. Currency Matters.
5.3.3.1. Currency of Account.
Dollars are the currency of account and payment for
each and every sum at any time due from the Borrowers
hereunder; provided that:(a) except as expressly provided in
this Credit Agreement, each repayment of a Revolving Credit
Loan or a part thereof shall be made in the currency in which
such Revolving Credit Loan is denominated at the time of that
repayment;
(b) each payment of interest shall be made in the
currency in which such principal or other sum in respect of
which such interest is payable, is denominated;
(c) each payment of Letter of Credit Fees and the
commitment fees shall be in Dollars;
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(d) each payment in respect of costs, expenses and
indemnities shall be made in the currency in which the same
were incurred; and
(e) any amount expressed to be payable in a currency
other than Dollars shall be paid in that other currency.
No payment to the Agent or any Bank (whether under
any judgment or court order or otherwise) shall discharge the
obligation or liability in respect of which it was made unless
and until the Agent or such Bank shall have received payment
in full in the currency in which such obligation or liability
was incurred, and to the extent that the amount of any such
payment shall, on actual conversion into such currency, fall
short of such obligation or liability actual or contingent
expressed in that currency, the Borrower shall indemnify and
hold harmless the Agent, the Issuing Bank or such Bank, as the
case may be, with respect to the amount of the shortfall.
5.3.3.2. Currency Fluctuations.
(a) Not later than 1:00 p.m. (Boston time) on the
last Business Day of each calendar month (the "Calculation
Date"), the Agent shall determine the Dollar Equivalent as of
such date. The Dollar Equivalent so determined shall become
effective on the first Business Day immediately following such
determination (a "Reset Date") and shall remain effective
until the next succeeding Reset Date.
(b) If, on any Reset Date and on the Revolving Credit
Loan Maturity Date, the Dollar Equivalent of the aggregate
outstanding amount of all Revolving Credit Loans, the Maximum
Drawing Amount and all Unpaid Reimbursement Obligations
exceeds the Total Commitment for three (3) or more consecutive
Business Days (but only as to the Reset Date), then the
Borrowers shall repay or prepay the Revolving Credit Loans in
accordance with this Credit Agreement in an aggregate
principal amount such that, after giving effect thereto, the
aggregate outstanding amount (expressed in Dollars) of all
Revolving Credit Loans plus the Maximum Drawing Amount and all
Unpaid Reimbursement Obligations no longer exceeds the Total
Commitment (expressed in Dollars).
(c) Without limiting subsection ss.5.3.3.2(b), if, on
any day prior to the Revolving Credit Loan Maturity Date, the
aggregate outstanding amount (expressed in Dollars) of all
Revolving Credit Loans plus the Maximum Drawing Amount plus
the Unpaid Reimbursement Obligations exceeds the Total
Commitment by five percent (5%) or more, then (i) the Agent
shall give notice thereof to the Borrower and the Banks and
(ii) within two (2) Business Days thereafter, the Borrowers
shall repay or prepay the Revolving Credit Loans in accordance
with this Credit Agreement in an aggregate
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principal amount such that, after giving effect thereto, the
aggregate outstanding amount (expressed in Dollars) of all
Revolving Credit Loans plus the Maximum Drawing Amount and all
Unpaid Reimbursement Obligations no longer exceeds the Total
Commitment (expressed in Dollars). Nothing set forth in this
ss.5.3.3.2 shall be construed to require the Agent to
calculate daily compliance under this ss.5.3.3.2 unless
expressly requested to do so by a Bank.
(d) If on any Reset Date, the aggregate outstanding
sum of the Maximum Drawing Amount and all Unpaid Reimbursement
Obligations (expressed in Dollars) exceeds the Letter of
Credit sublimit set forth in ss.4.1 (expressed in Dollars) by
more than five percent (5%), then the Company shall
immediately upon demand provide cash collateral to the Agent
such that, after giving effect thereto, the aggregate
outstanding sum of the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations (expressed in Dollars) no longer
exceed the Letter of Credit sublimit set forth in ss.4.1.
5.4. Computations. All computations of interest on Base Rate Loans and
of commitment fees, Letter of Credit Fees or other fees shall, unless otherwise
expressly provided herein, be based on a 365-day year and paid for the actual
number of days elapsed. All computations of interest on the Eurocurrency Rate
Loans shall be based on a 360-day year and paid for the actual number of days
elapsed. Except as otherwise provided in the definition of the term "Interest
Period" with respect to Eurocurrency Rate Loans, whenever a payment hereunder or
under any of the other Loan Documents becomes due on a day that is not a
Business Day, the due date for such payment shall be extended to the next
succeeding Business Day, and interest shall accrue during such extension. The
outstanding amount of the Revolving Credit Loans as reflected on the Records and
the Loan Account Records from time to time shall, absent manifest error, be
considered correct and binding on the applicable Borrower unless within five (5)
Business Days after receipt by the applicable Borrower of any notice from the
Agent or any of the Banks of such outstanding amount, the applicable Borrower
shall notify the Agent or such Bank to the contrary.
5.5. Inability to Determine Eurocurrency Rate. In the event, prior to
the commencement of any Interest Period relating to any Eurocurrency Rate Loan,
the Agent shall determine or be notified by the Majority Banks that adequate and
reasonable methods do not exist for ascertaining the Eurodollar Rate or the
International Eurocurrency Rate, as the case may be, that would otherwise
determine the rate of interest to be applicable to any Eurocurrency Rate Loan
during any Interest Period, the Agent shall forthwith give notice of such
determination (which shall be conclusive and binding on the applicable Borrower
and the Banks) to the Borrowers and the Banks. In such event (a) any Loan
Request or Conversion Request with respect to Eurocurrency Rate Loans shall be
automatically withdrawn and, in the case of Revolving Credit Loans denominated
in Dollars, shall be deemed
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a request for Base Rate Loans to be denominated in Dollars and in the case of
any Eurocurrency Rate Loan denominated in an Optional Currency, shall be
withdrawn, (b) each Eurocurrency Rate Loan denominated in Dollars will
automatically, on the last day of the then current Interest Period relating
thereto, become a Base Rate Loan and each Eurocurrency Rate Loan denominated in
any Optional Currency will be required to repaid on the last day of the then
current Interest Period relating thereto, and (c) the obligations of the Banks
to make Eurocurrency Rate Loans shall be suspended until the Agent or the
Majority Banks determine that the circumstances giving rise to such suspension
no longer exist, whereupon the Agent or, as the case may be, the Agent upon the
instruction of the Majority Banks, shall so notify the Borrower and the Banks.
5.6. Illegality. Notwithstanding any other provisions herein, if any
present or future law, regulation, treaty or directive or in the interpretation
or application thereof shall make it unlawful for any Bank to make or maintain
Eurocurrency Rate Loans, such Bank shall forthwith give notice of such
circumstances to the Borrowers and the other Banks and thereupon (a) the
commitment of such Bank to make Eurocurrency Rate Loans or convert Revolving
Credit Loans of another Type to Eurocurrency Rate Loans or to make Revolving
Credit Loans in any Optional Currency shall forthwith be suspended and (b) such
Bank's Revolving Credit Loans then outstanding as Eurocurrency Rate Loans, if
any, shall (i) if comprising a Revolving Credit Loan denominated in Dollars, be
converted automatically to Base Rate Loans on the last day of each Interest
Period applicable to such Eurocurrency Rate Loans or within such earlier period
as may be required by law and (ii) if comprising a Revolving Credit Loan
denominated in an Optional Currency, be immediately repaid. Each Borrower hereby
severally and not jointly agrees promptly to pay the Agent for the account of
such Bank, upon demand by such Bank, any additional amounts necessary to
compensate such Bank for any costs incurred by such Bank in making any
conversion in accordance with this ss.5.6, including any interest or fees
payable by such Bank to lenders of funds obtained by it in order to make or
maintain its Eurocurrency Rate Loans hereunder.
5.7. Additional Costs, etc. If any present or future applicable law,
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Bank or the Agent by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:
(a) subject any Bank or the Agent to any tax, levy, impost,
duty, charge, fee, deduction or withholding of any nature with respect
to this Credit Agreement, the other Loan Documents, any Letters of
Credit, such Bank's Commitment or the Revolving Credit Loans (other
than taxes based upon or measured by the income or profits of such Bank
or the Agent), or
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(b) materially change the basis of taxation (except for
changes in taxes on income or profits) of payments to any Bank of the
principal of or the interest on any Revolving Credit Loans or any other
amounts payable to any Bank or the Agent under this Credit Agreement or
any of the other Loan Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Credit Agreement)
any special deposit, reserve, assessment, liquidity, capital adequacy
or other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans
by, or letters of credit issued by, or commitments of an office of any
Bank, or
(d) impose on any Bank or the Agent any other conditions or
requirements with respect to this Credit Agreement, the other Loan
Documents, any Letters of Credit, the Revolving Credit Loans, such
Bank's Commitment, or any class of loans, letters of credit or
commitments of which any of the Revolving Credit Loans or such Bank's
Commitment forms a part, and the result of any of the foregoing is
(i) to increase the cost to any Bank of making,
funding, issuing, renewing, extending or maintaining any of
the Revolving Credit Loans or such Bank's Commitment or any
Letter of Credit, or
(ii) to reduce the amount of principal, interest,
Reimbursement Obligation or other amount payable to such Bank
or the Agent hereunder on account of such Bank's Commitment,
any Letter of Credit or any of the Revolving Credit Loans, or
(iii) to require such Bank or the Agent to make any
payment or to forego any interest or Reimbursement Obligation
or other sum payable hereunder, the amount of which payment or
foregone interest or Reimbursement Obligation or other sum is
calculated by reference to the gross amount of any sum
receivable or deemed received by such Bank or the Agent from
the Borrowers hereunder,
then, and in each such case, each Borrower will, upon demand made by such Bank
or (as the case may be) the Agent at any time and from time to time and as often
as the occasion therefor may arise, pay to such Bank or the Agent such
additional amounts as will be sufficient to compensate such Bank or the Agent
for such additional cost, reduction, payment or foregone interest or
Reimbursement Obligation or other sum applicable to such Borrower's Revolving
Credit Loans, Reimbursement Obligations and Unpaid Reimbursement Obligations
hereunder.
5.8. Capital Adequacy. If after the date hereof any Bank or the Agent
determines that (a) the adoption of or change in any law, governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies or any
change
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in the interpretation or application thereof by a court or governmental
authority with appropriate jurisdiction, or (b) compliance by such Bank or the
Agent or any corporation controlling such Bank or the Agent with any law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) of any such entity regarding capital adequacy, has the
effect of reducing the return on such Bank's or the Agent's commitment with
respect to any Revolving Credit Loans to a level below that which such Bank or
the Agent could have achieved but for such adoption, change or compliance
(taking into consideration such Bank's or the Agent's then existing policies
with respect to capital adequacy and assuming full utilization of such entity's
capital) by any amount deemed by such Bank or (as the case may be) the Agent to
be material, then such Bank or the Agent may notify the Company of such fact. To
the extent that the amount of such reduction in the return on capital is not
reflected in the Base Rate, the Company and such Bank shall thereafter attempt
to negotiate in good faith, within thirty (30) days of the day on which the
Company receives such notice, an adjustment payable hereunder that will
adequately compensate such Bank in light of these circumstances. If the Company
and such Bank are unable to agree to such adjustment within thirty (30) days of
the date on which the Company receives such notice, then commencing on the date
of such notice (but not earlier than the effective date of any such increased
capital requirement), the fees payable hereunder shall increase by an amount
that will, in such Bank's reasonable determination, provide adequate
compensation. Each Bank shall allocate such cost increases among its customers
in good faith and on an equitable basis.
5.9. Certificate. A certificate setting forth any additional amounts
payable pursuant to ss.ss.5.7 or 5.8 and a brief explanation of such amounts
which are due, submitted by any Bank or the Agent to the Borrowers, shall be
conclusive, absent manifest error, that such amounts are due and owing.
5.10. Indemnity. Each Borrower agrees to indemnify each Bank and to
hold each Bank harmless from and against any loss, cost or expense that such
Bank may sustain or incur as a consequence of (a) default by such Borrower in
payment of the principal amount of or any interest on any Eurocurrency Rate
Loans as and when due and payable, including any such loss or expense arising
from interest or fees payable by such Bank to lenders of funds obtained by it in
order to maintain its Eurocurrency Rate Loans, (b) default by such Borrower in
making a borrowing or conversion after such Borrower has given (or is deemed to
have given) a Loan Request or a Conversion Request relating thereto in
accordance with ss.2.6 or ss.2.7 or (c) the making of any payment of a
Eurocurrency Rate Loan or the making of any conversion of any such Revolving
Credit Loan to a Base Rate Loan on a day that is not the last day of the
applicable Interest Period with respect thereto, including interest or fees
payable by such Bank to lenders of funds obtained by it in order to maintain any
such Revolving Credit Loans.
5.11. Interest After Default.
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5.11.1. Overdue Amounts. Overdue principal and (to the extent
permitted by applicable law) interest on the Revolving Credit Loans and
all other overdue amounts payable hereunder or under any of the other
Loan Documents shall bear interest compounded monthly and payable on
demand at a rate per annum equal to two percent (2%) above the highest
rate of interest otherwise applicable to such Revolving Credit Loans
pursuant to ss.2.5 until such amount shall be paid in full (after as
well as before judgment).
5.11.2. Amounts Not Overdue. During the continuance of an
Event of Default under ss.13.1(c) as it relates to ss.10, the principal
of the Revolving Credit Loans not overdue shall, until such Default or
Event of Default has been cured or remedied or such Default or Event of
Default has been waived by the Majority Banks pursuant to ss.26, bear
interest at a rate per annum equal to two percent (2%) above the
highest rate of interest otherwise applicable to such Revolving Credit
Loans pursuant to ss.2.5.
6. COLLATERAL SECURITY AND GUARANTIES.
6.1. Security of Borrowers. The Obligations shall be secured by a
perfected first priority security interest (subject only to Permitted Liens
entitled to priority under applicable law) in (a) all of the assets of the
Company, whether now owned or hereafter acquired, pursuant to the terms of the
Security Documents to which the Company is a party, including, without
limitation, a pledge by the Company of 100% of the capital stock of each
Domestic Subsidiary and 66% of the capital stock of each Foreign Subsidiary
owned by the Company and (b) all of the assets of the Subsidiary Borrowers,
whether now owned or hereafter acquired, pursuant to the terms of the Security
Documents to which each such Subsidiary Borrower is a party.
6.2. Guaranties and Security of Subsidiaries. The Obligations shall
also be guaranteed pursuant to the terms of the Guaranty, and the Obligations of
each Subsidiary Borrower shall also be guaranteed by the Company pursuant to
ss.6.3, and by each other Subsidiary Borrower pursuant to the terms of the
Foreign Guarantees. The obligations of the Guarantors under the Guaranty and of
the Subsidiary Borrowers under the Foreign Guarantees shall be in turn secured
by a perfected first priority security interest (subject only to Permitted Liens
entitled to priority under applicable law) in all of the assets of each such
Guarantor and Subsidiary Borrower, as the case may be, whether now owned or
hereafter acquired, pursuant to the terms of the Security Documents to which
such Guarantor and Subsidiary Borrower, as the case may be, is a party,
including, without limitation, a pledge by such Guarantor of 100% of the capital
stock of each Domestic Subsidiary of such Guarantor and 66% of the capital stock
of each Foreign Subsidiary of such Guarantor.
6.3. Guaranty by the Company of the Obligations.
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6.3.1. Guaranty. For value received and hereby acknowledged
and as an inducement to the Banks and the Agents to make the Revolving
Credit Loans and Letters of Credit available to the Borrowers, the
Company hereby unconditionally and irrevocably guarantees (a) the full
punctual payment when due, whether at stated maturity, by acceleration
or otherwise, of all Obligations of the Subsidiary Borrowers now or
hereafter existing whether for principal, interest, fees, expenses or
otherwise, and (b) the strict performance and observance by the
Subsidiary Borrowers of all agreements, warranties and covenants
applicable to the Subsidiary Borrowers in the Loan Documents and (c)
the obligations of the Subsidiary Borrowers under the Loan Documents
(such Obligations collectively being hereafter referred to as the
"Guaranteed Obligations").
6.3.2. Guaranty Absolute. The Company guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the
terms hereof, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or
the rights of the Banks with respect thereto. The liability of the
Company under this guaranty with regard to the Guaranteed Obligations
of the Subsidiary Borrowers shall be absolute and unconditional
irrespective of:
(a) the Subsidiary Borrowers' lack of authorization,
execution, validity or enforceability of this Credit Agreement and any
amendment hereof (with regard to such Guaranteed Obligations), or any
other obligation, agreement or instrument relating thereto (it being
agreed by the Company that the Guaranteed Obligations shall not be
discharged prior to the final and complete satisfaction of all of the
Obligations of the Subsidiary Borrowers) or any failure to obtain any
necessary governmental consent or approvals or necessary third party
consents or approvals;
(b) the Agent's or any Bank's exercise or enforcement of, or
failure or delay in exercising or enforcing, legal proceedings to
collect the Obligations or the Guaranteed Obligations or any power,
right or remedy with respect to any of the Obligations or the
Guaranteed Obligations, including (i) any suspension of the Agent or
any Bank's right to enforce against the Subsidiary Borrowers of the
Guaranteed Obligations, or (ii) any change in the time, manner or place
of payment of, or in any other term of, all or any of the Guaranteed
Obligations of the Subsidiary Borrowers or any other amendment or
waiver of or any consent to departure from this Credit Agreement or the
other Loan Documents (with regard to such Guaranteed Obligations) or
any other agreement or instrument governing or evidencing any of the
Guaranteed Obligations;
(c) any exchange, release or non-perfection of any collateral,
or any release or amendment or waiver of or consent to departure from
any other guaranty, for all or any of the Guaranteed Obligations of the
Subsidiary Borrowers;
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(d) any change in ownership of the Subsidiary Borrowers;
(e) any acceptance of any partial payment(s) from the
Subsidiary Borrowers;
(f) any insolvency, bankruptcy, reorganization, arrangement,
adjustment, composition, assignment for the benefit of creditors,
appointment of a receiver or trustee for all or any part of the
Subsidiary Borrowers' assets;
(g) any assignment, participation or other transfer or
reallocation, in whole or in part (whether or not subject to a
conversion of a loan of one Type into a loan of another Type or a
conversion from one currency to another), of the Agent's or any Bank's
interest in and rights under this Credit Agreement or any other Loan
Document, or of the Agent or any Bank's interest in the Obligations or
the Guaranteed Obligations;
(h) any cancellation, renunciation or surrender of any pledge,
guaranty or any debt instrument evidencing the Obligations or the
Guaranteed Obligations;
(i) the Agent's or any Bank's vote, claim, distribution,
election, acceptance, action or inaction in any bankruptcy or
reorganization case related to the Obligations or the Guaranteed
Obligations; or
(j) any other action or circumstance, other than payment,
which might otherwise constitute a defense available to, or a discharge
of, the Subsidiary Borrowers or the Company in respect of its
Guaranteed Obligations (other than the defense of payment in full in
cash).
This guaranty shall continue to be effective or be reinstated,
as the case may be, if at any time any payment of any Guaranteed
Obligation is rescinded or must otherwise be returned by the Agent or
any Bank upon the insolvency, bankruptcy or reorganization of the
Subsidiary Borrowers or otherwise, all as though such payment had not
been made.
6.3.3. Effectiveness; Enforcement. The guaranty hereunder
shall be effective and shall be deemed to be made with respect to each
Revolving Credit Loan made as of the time it is made or accepted, as
applicable. No invalidity, irregularity or unenforceability by reason
of any bankruptcy or similar law, or any law or order of any government
or agency thereof purporting to reduce, amend or otherwise affect any
liability of the Subsidiary Borrowers, and no defect in or
insufficiency or want of powers of the Subsidiary Borrowers or
irregular or improperly recorded exercise thereof, shall impair,
affect, be a defense to or claim against such guaranty. The guaranty
hereunder is a continuing guaranty and shall (a) survive any
termination of this Credit Agreement, and (b) remain in full force and
effect until payment in full of, and performance of, all Guaranteed
Obligations and
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all other amounts payable under the guaranty hereunder, all the
Commitments shall have expired and been terminated, all of the Letters
of Credit shall have expired or been terminated and all lending and
other credit commitments of the Banks in respect thereof have
terminated. The guaranty under this Credit Agreement is made for the
benefit of the Agents and the Banks and their successors and assigns,
and may be enforced from time to time as often as occasion therefor may
arise and without requirement on the part of the Agents or the Banks
first to exercise any rights against the Subsidiary Borrowers, or to
resort to any other source or means of obtaining payment of any of the
said Obligations or to elect any other remedy.
6.3.4. Waiver. The Company hereby waives promptness,
diligence, protest, notice of protest, all suretyship defenses, notice
of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this guaranty and any requirement that the
Agent or any Bank secure, perfect or protect any security interest or
lien on any property subject thereto or exhaust any right or take any
action against the Subsidiary Borrowers or any other person or any
collateral. The Company also irrevocably waives, to the fullest extent
permitted by law, all defenses which at any time may be available to it
in respect of the Guaranteed Obligations by virtue of any statute of
limitations, valuation, stay, moratorium law or similar law now or
hereinafter in effect and all suretyship defenses generally.
6.3.5. Subordination; Subrogation. Until the payment and
performance in full of all the Obligations, the Company shall not
exercise and hereby waives any rights against the Subsidiary Borrowers
as a result of payment by the Company hereunder, by way of subrogation,
reimbursement, restitution, contribution or otherwise, and the Company
will not prove any claim in competition with the Agent or any Bank in
respect of any payment hereunder in bankruptcy, insolvency, or
reorganization proceedings of any nature; the Company will not claim
any set-off, recoupment or counterclaim against the Subsidiary
Borrowers in respect of any liability of the Company to the Subsidiary
Borrowers; and the Company waives any benefit of and any right to
participate in any collateral which may be held by any Bank or the
Agent. The Company agrees that, after the occurrence and during the
continuance of any Default or Event of Default, the Company will not
demand, sue for or otherwise attempt to collect any Indebtedness of the
Subsidiary Borrowers to the Company until all of the Obligations of the
Subsidiary Borrowers shall have been paid in full. If, notwithstanding
the foregoing sentence, the Company shall collect, enforce or receive
any amounts in respect of such indebtedness in violation of the
foregoing sentence while any Obligations of the Subsidiary Borrowers
are still outstanding, such amounts shall be collected, enforced and
received by the Company as trustee for the Banks and the Agent and be
paid over to the Agent, for the benefit of the Banks and the Agent on
account of the Obligations of the Subsidiary Borrowers without
affecting in any manner the liability of the Company under the other
provisions hereof. The provisions
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of this section shall survive the expiration or termination of the
Credit Agreement and the other Loan Documents.
6.3.6. Payments. The Company shall pay the Guaranteed
Obligations in the currency in which such Obligation is payable by the
Subsidiary Borrowers and all payments by the Company hereunder shall be
made without setoff or counterclaim and shall be free and clear of and
without deduction for any foreign or domestic taxes, levies, imposts,
duties, charges, fees, deductions, withholdings, compulsory loans,
restrictions or conditions of any nature now or hereafter imposed or
levied by any jurisdiction or any political subdivision thereof or
taxing or other authority therein unless the Subsidiary Borrowers is
required by law to make such deduction or withholding. Except as
otherwise expressly provided in this ss.6.3.6, if any such obligation
is imposed upon the Company or the Subsidiary Borrowers with respect to
any amounts payable by it hereunder or under any of the Loan Documents,
the Company will pay to the Agent for the account of the Banks or, as
the case may be the Agent, on the date on which such amount is due and
payable hereunder or under such other Loan Documents, such additional
amount in Dollars as shall be necessary to enable the Banks or the
Agent to receive the same net amount which the Banks or the Agent would
have received on such due date had not such obligation been imposed on
the Company or the Subsidiary Borrowers.
6.3.7. Receipt of Information. The Company acknowledges and
confirms that the Company itself has established its own adequate means
of obtaining from the Subsidiary Borrowers on a continuing basis all
information desired by the Company concerning the financial condition
of the Subsidiary Borrowers and that the Company will look to the
Subsidiary Borrowers and not to the Agent or any Bank in order for the
Company to keep adequately informed of changes in the Subsidiary
Borrowers' financial condition.
7. REPRESENTATIONS AND WARRANTIES.
Each Borrower represents and warrants to the Banks and the Agent as
follows:
7.1. Corporate Authority.
7.1.1. Incorporation; Good Standing. Each of the Borrowers and
its Subsidiaries (a) is a corporation (or similar business entity) duly
organized, validly existing and in good standing under the laws of its
state or country of incorporation or formation, (b) has all requisite
corporate or similar power to own its property and conduct its business
as now conducted and as presently contemplated, and (c) is in good
standing as a foreign corporation (or similar business entity) and is
duly authorized to do business in each jurisdiction where such
qualification is necessary except where a failure to be so qualified
would not have a Material Adverse Effect.
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7.1.2. Authorization. The execution, delivery and performance
of this Credit Agreement and the other Loan Documents to which the
Borrowers or any of their Subsidiaries is or is to become a party and
the transactions contemplated hereby and thereby (a) are within the
corporate (or similar) authority of such Person, (b) have been duly
authorized by all necessary corporate (or similar organizational)
proceedings, (c) do not conflict with or result in any breach or
contravention of any provision of law, statute, rule or regulation to
which the Borrowers or any of their Subsidiaries is subject or any
judgment, order, writ, injunction, license or permit applicable to the
Borrowers or any of their Subsidiaries and (d) do not conflict with any
provision of the corporate charter or bylaws of, or the Subordinated
Debt Documents or any agreement or other instrument binding upon, the
Borrowers or any of their Subsidiaries.
7.1.3. Enforceability. The execution and delivery of this
Credit Agreement and the other Loan Documents to which the Borrowers or
any of their Subsidiaries is or is to become a party will result in
valid and legally binding obligations of such Person enforceable
against it in accordance with the respective terms and provisions
hereof and thereof, except as enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to
the extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before
which any proceeding therefor may be brought.
7.2. Governmental Approvals. The execution, delivery and performance by
the Borrowers and any of their Subsidiaries of this Credit Agreement and the
other Loan Documents to which such Borrower or any of its Subsidiaries is or is
to become a party and the transactions contemplated hereby and thereby
(including, but not limited to the making by the Borrowers of any borrowings
contemplated by this Credit Agreement or the obtaining by the Company of any
Letters of Credit) do not require the approval, consent, order, authorization or
license by, or giving of notice to, or taking of any other action with respect
to, any governmental agency or authority of any jurisdiction, or other fiscal,
monetary or other authority, under any provisions of any laws or governmental
rules, regulations, orders, or decrees of any jurisdiction or the central bank
of any jurisdiction or other fiscal, monetary or other authority, under any
provision of any laws or governmental rules, regulations, orders or decrees of
any jurisdiction applicable to or binding on any Borrower, other than those
already obtained.
7.3 Title to Properties; Leases. Except as indicated on Schedule 7.3
hereto, the Borrowers and their Subsidiaries own all of the assets reflected in
the Historical Pro Forma Results of the Borrower and its Subsidiaries as at
September 30, 1997 or acquired since that date (except property and assets sold
or otherwise disposed of in the ordinary course of business since that date),
subject to no rights of others, including any mortgages, leases, conditional
sales agreements, title retention agreements, liens or other encumbrances except
Permitted Liens.
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7.4. Financial Statements and Projections.
7.4.1. Fiscal Year. The Borrowers and each of their
Subsidiaries has a fiscal year which is the twelve months ending on
December 31 of each calendar year.
7.4.2. Financial Statements. There has been furnished to each
of the Banks the Historical Pro Forma Results of the Company and its
Subsidiaries as at the Balance Sheet Date, and a pro forma historical
consolidated statement of income of the Company and its Subsidiaries
for the nine and twelve month period then ended. Such balance sheet and
statement of income have been prepared in accordance with generally
accepted accounting principles and fairly present the financial
condition of the Company as at the close of business on the date
thereof and the results of operations for the fiscal year then ended.
Except as disclosed in the Transaction Documents, there are no
contingent liabilities of the Company or any of its Subsidiaries as of
such date involving material amounts, known to the officers of the
Company, which were not disclosed in such balance sheet and the notes
related thereto.
7.4.3. Projections. The projections of the annual operating
budgets of the Company and its Subsidiaries on a consolidated basis,
balance sheets and cash flow statements for the 1997 to 2002 fiscal
years have been delivered to the Agent and the Banks on or prior to the
Closing Date. To the knowledge of the Company and its Subsidiaries, no
facts exist that (individually or in the aggregate) would result in any
material adverse change in any of such projections. The projections
were based when made upon reasonable estimates and assumptions and as
of the Closing Date reflect the reasonable estimates of the Company and
its Subsidiaries of the results of operation and other information
projected therein, it being understood that the projections are not
guaranties of results and that the actual results may vary from the
projections and such variations may be material.
7.4.4. Solvency. The Company and its Subsidiaries, on a
consolidated and consolidating basis, both before and after giving
effect to the transactions contemplated by this Credit Agreement and
the other Loan Documents (a) are solvent, (b) have assets having a fair
value in excess of their liabilities, (c) have assets having a fair
value in excess of the amount required to pay their liabilities on
existing debts as such debts become absolute and matured, and (d) have,
and expect to continue to have, access to adequate capital for the
conduct of their business and the ability to pay their debts from time
to time incurred in connection with the operation of their business as
such debts mature.
7.5. No Material Changes, etc. Since the Balance Sheet Date there has
occurred no materially adverse change in the financial condition or business of
the Company and its Subsidiaries as shown on or reflected in the pro forma
historical
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consolidated balance sheet of the Company and its Subsidiaries as at the Balance
Sheet Date, or the consolidated statement of income for the fiscal year then
ended, other than changes in the ordinary course of business that have not had
any Materially Adverse Effect. Since the Balance Sheet Date, the Company has not
made any Distributions, except for the redemption of its capital stock on the
Closing Date or otherwise pursuant to the Stock Purchase Agreement and except
for redemptions otherwise expressly permitted by this Credit Agreement.
7.6. Franchises, Patents, Copyrights, etc. Each of the Borrowers and
their Subsidiaries possesses all franchises, patents, copyrights, trademarks,
trade names, licenses and permits, and rights in respect of the foregoing,
adequate for the conduct of its business substantially as now conducted without
known conflict with any rights of others, except where such nonpossession or
conflict, as the case may be, could not reasonably be expected to have a
Material Adverse Effect.
7.7. Litigation. Except as set forth in Schedule 7.7 hereto, there are
no actions, suits, proceedings or investigations of any kind pending or
threatened against any of the Borrowers or any of their Subsidiaries before any
court, tribunal or administrative agency or board that, if adversely determined,
might, either in any case or in the aggregate, have a Material Adverse Effect,
result in any substantial liability not adequately covered by insurance, or for
which adequate reserves are not maintained on the consolidated balance sheet of
the Company and its Subsidiaries, or which question the validity of this Credit
Agreement or any of the other Loan Documents, or any action taken or to be taken
pursuant hereto or thereto.
7.8. No Materially Adverse Contracts, etc. The Borrowers and their
Subsidiaries are not subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected in the future to have a Material Adverse Effect. Neither the Borrowers
nor any of their Subsidiaries is a party to any contract or agreement that has
or is expected, in the judgment of the Company's officers, to have a Material
Adverse Effect.
7.9. Compliance with Other Instruments, Laws, etc. Neither any Borrower
nor any of its Subsidiaries is in violation of any provision of its charter
documents, bylaws, or any agreement or instrument to which it may be subject or
by which it or any of its properties may be bound or any decree, order,
judgment, statute, license, rule or regulation, in any of the foregoing cases in
a manner that could reasonably be expected to have a Material Adverse Effect.
7.10. Tax Status. Except as set forth on Schedule 7.10 hereto, each of
the Borrower and their Subsidiaries (a) have made or filed all federal, state
and foreign income and all other tax returns, reports and declarations required
by any jurisdiction to which any of them is subject, (b) have paid all taxes and
other governmental assessments and charges shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and by appropriate proceedings and (c) have set aside on their books provisions
reasonably
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adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due from any of the Borrowers or their
Subsidiaries by the taxing authority of any jurisdiction, and the officers of
the Borrowers know of no basis for any such claim.
7.11. No Event of Default. No Default or Event of Default has occurred
and is continuing.
7.12. Holding Company and Investment Company Acts. Neither the
Borrowers nor any of their Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company", as
such terms are defined in the Public Utility Holding Company Act of 1935; nor is
it an "investment company", or an "affiliated company" or a "principal
underwriter" of an "investment company", as such terms are defined in the
Investment Company Act of 1940.
7.13. Absence of Financing Statements, etc. Except with respect to
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any assets or property of any of the Borrowers or any of their Subsidiaries
or any rights relating thereto.
7.14. Perfection of Security Interest. All filings, assignments,
pledges and deposits of documents or instruments have been made and all other
actions have been taken that are necessary or advisable, under applicable law,
to establish and perfect the Agent's security interest in the Collateral. The
Collateral and the Agent's rights with respect to the Collateral are not subject
to any setoff, claims, withholdings or other defenses. The Company or a
Subsidiary of the Borrower party to one of the Security Agreements is the owner
of the Collateral free from any lien, security interest, encumbrance and any
other claim or demand, except for Permitted Liens.
7.15. Certain Transactions. Except as set forth on Schedule 7.15 hereto
and except for arm's length transactions pursuant to which the Borrowers or any
of their Subsidiaries makes payments in the ordinary course of business upon
terms no less favorable than such Borrower or such Subsidiary could obtain from
third parties, none of the officers, directors, or employees of the Borrowers or
any of their Subsidiaries is presently a party to any transaction with the
Borrowers or any of their Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Borrowers, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
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7.16. Employee Benefit Plans. Except as otherwise expressly disclosed
in Schedule 7.16 hereto:
7.16.1. In General. Each Employee Benefit Plan and each
Guaranteed Pension Plan has been maintained and operated in compliance
in all material respects with the provisions of ERISA and, to the
extent applicable, the Code, including but not limited to the
provisions thereunder respecting prohibited transactions and the
bonding of fiduciaries and other persons handling plan funds as
required by ss.412 of ERISA, except to the extent that noncompliance
would not have a Material Adverse Effect. The Company has heretofore
delivered to the Agent the most recently completed annual report, Form
5500, with all required attachments, and actuarial statement required
to be submitted under ss.103(d) of ERISA, with respect to each
Guaranteed Pension Plan.
7.16.2. Terminability of Welfare Plans. No Employee Benefit
Plan, which is an employee welfare benefit plan within the meaning of
ss.3(1) or ss.3(2)(B) of ERISA, provides benefit coverage subsequent to
termination of employment, except as required by Title I, Part 6 of
ERISA or the applicable state insurance laws. The Borrowers may
terminate each such Plan at any time (or at any time subsequent to the
expiration of any applicable bargaining agreement) in the discretion of
the Borrowers without liability to any Person other than for claims
arising prior to termination.
7.16.3. Guaranteed Pension Plans. Each contribution required
to be made to a Guaranteed Pension Plan, whether required to be made to
avoid the incurrence of an accumulated funding deficiency, the notice
or lien provisions of ss.302(f) of ERISA, or otherwise, has been timely
made. No waiver of an accumulated funding deficiency or extension of
amortization periods has been received with respect to any Guaranteed
Pension Plan, and neither the Borrowers nor any ERISA Affiliate is
obligated to or has posted security in connection with an amendment to
a Guaranteed Pension Plan pursuant to ss.307 of ERISA or ss.401(a)(29)
of the Code. No liability to the PBGC (other than required insurance
premiums, all of which have been paid) has been incurred by the
Borrowers or any ERISA Affiliate with respect to any Guaranteed Pension
Plan and there has not been any ERISA Reportable Event (other than an
ERISA Reportable Event as to which the requirement of thirty (30) days
notice has been waived), or any other event or condition which presents
a material risk of termination of any Guaranteed Pension Plan by the
PBGC. Based on the latest valuation of each Guaranteed Pension Plan
(which in each case occurred within twelve months of the date of this
representation), and on the actuarial methods and assumptions employed
for that valuation, the aggregate benefit liabilities of all such
Guaranteed Pension Plans within the meaning of ss.4001 of ERISA did not
exceed the aggregate value of the assets of all such Guaranteed Pension
Plans, disregarding for this purpose the benefit liabilities and assets
of any Guaranteed Pension Plan with assets in excess of benefit
liabilities.
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7.16.4. Multiemployer Plans. Neither the Borrowers nor any
ERISA Affiliate has incurred any material liability (including
secondary liability) to any Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan under
ss.4201 of ERISA or as a result of a sale of assets described in
ss.4204 of ERISA. Neither the Borrowers nor any ERISA Affiliate has
been notified that any Multiemployer Plan is in reorganization or
insolvent under and within the meaning of ss.4241 or ss.4245 of ERISA
or is at risk of entering reorganization or becoming insolvent, or that
any Multiemployer Plan intends to terminate or has been terminated
under ss.4041A of ERISA.
7.17. Use of Proceeds.
7.17.1. General. The proceeds of the Revolving Credit Loans
shall be used (a) to refinance existing Indebtedness of the Company;
(b) to finance a portion of the Transactions (including fees,
management bonuses and expenses relating thereto) and (c) for working
capital and general corporate purposes (including the financing of all
or any portion of Permitted Acquisitions (including fees and expenses
relating thereto)). The Borrowers will obtain Letters of Credit solely
for working capital and general corporate purposes.
7.17.2. Regulations U and X. No portion of any Revolving
Credit Loan is to be used, and no portion of any Letter of Credit is to
be obtained, for the purpose of purchasing or carrying any "margin
security" or "margin stock" as such terms are used in Regulations U and
X of the Board of Governors of the Federal Reserve System, 12 C.F.R.
Parts 221 and 224.
7.17.3. Ineligible Securities. No portion of the proceeds of
any Revolving Credit Loan is to be used, and no portion of any Letter
of Credit is to be obtained, for the purpose of (a) knowingly
purchasing, or providing credit support for the purchase of, Ineligible
Securities from a Section 20 Subsidiary during any period in which such
Section 20 Subsidiary makes a market in such Ineligible Securities, (b)
knowingly purchasing, or providing credit support for the purchase of,
during the underwriting or placement period, any Ineligible Securities
being underwritten or privately placed by a Section 20 Subsidiary, or
(c) making, or providing credit support for the making of, payments of
principal or interest on Ineligible Securities underwritten or
privately placed by a Section 20 Subsidiary and issued by or for the
benefit of the Borrowers or any Subsidiary or other Affiliate of the
Borrowers.
7.18. Environmental Compliance. The Borrowers have taken all necessary
steps to investigate the past and present condition and usage of the Real Estate
and the operations conducted thereon and, based upon such diligent
investigation, has determined that:
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(a) none of the Borrowers, their Subsidiaries or any operator
of the Real Estate or any operations thereon is in violation, or
alleged violation, of any judgment, decree, order, law, license, rule
or regulation pertaining to environmental matters, including without
limitation, those arising under the Resource Conservation and Recovery
Act ("RCRA"), the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 as amended ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean
Water Act, the Federal Clean Air Act, the Toxic Substances Control Act,
or any state or local statute, regulation, ordinance, order or decree
relating to health, safety or the environment (hereinafter
"Environmental Laws"), which violation would have a material adverse
effect on the environment or a Material Adverse Effect;
(b) neither the Borrowers nor any of their Subsidiaries has
received notice from any third party including, without limitation, any
federal, state or local governmental authority, (i) that any one of
them has been identified by the United States Environmental Protection
Agency ("EPA") as a potentially responsible party under CERCLA with
respect to a site listed on the National Priorities List, 40 C.F.R.
Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42
U.S.C. ss.6903(5), any hazardous substances as defined by 42 U.S.C.
ss.9601(14), any pollutant or contaminant as defined by 42 U.S.C.
ss.9601(33) and any toxic substances, oil or hazardous materials or
other chemicals or substances regulated by any Environmental Laws
("Hazardous Substances") which any one of them has generated,
transported or disposed of has been found at any site at which a
federal, state or local agency or other third party has conducted or
has ordered that any Borrower or any of its respective Subsidiaries
conduct a remedial investigation, removal or other response action
pursuant to any Environmental Law; or (iii) that it is or shall be a
named party to any claim, action, cause of action, complaint, or legal
or administrative proceeding (in each case, contingent or otherwise)
arising out of any third party's incurrence of costs, expenses, losses
or damages of any kind whatsoever in connection with the release of
Hazardous Substances;
(c) except as set forth on Schedule 7.18 attached hereto: (i)
no portion of the Real Estate has been used by the Company or any of
its Subsidiaries for the handling, processing, storage or disposal of
Hazardous Substances except in accordance with applicable Environmental
Laws; and, to the best of the Company's and its Subsidiaries'
knowledge, no underground tank or other underground storage receptacle
for Hazardous Substances is located on any portion of the Real Estate;
(ii) in the course of any activities conducted by the Borrowers, their
Subsidiaries or operators of its properties, no Hazardous Substances
have been generated or are being used on the Real Estate except in
accordance with applicable Environmental Laws; (iii) to the best of the
Borrowers' knowledge, there have been no releases (i.e. any past or
present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing or dumping) or
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threatened releases of Hazardous Substances on, upon, into or from the
properties of the Borrowers or their Subsidiaries, which releases would
have a Material Adverse Effect; (iv) to the best of the Borrowers'
knowledge, there have been no releases on, upon, from or into any real
property in the vicinity of any of the Real Estate which, through soil
or groundwater contamination, may have come to be located on, and which
would have a material adverse effect on the value of, the Real Estate;
and (v) in addition, any Hazardous Substances that have been generated
on any of the Real Estate by the Company or any of its Subsidiaries
have been transported offsite only by carriers having an identification
number issued by the EPA, treated or disposed of only by treatment or
disposal facilities maintaining valid permits as required under
applicable Environmental Laws, which transporters and facilities have
been and are, to the best of the Borrowers' knowledge, operating in
compliance with such permits and applicable Environmental Laws; and
(d) Except as set forth on Schedule 7.18 hereto, none of the
Borrowers and their Subsidiaries or any of the Real Estate is subject
to any applicable environmental law requiring the performance of
Hazardous Substances site assessments, or the removal or remediation of
Hazardous Substances, or the giving of notice to any governmental
agency or the recording or delivery to other Persons of an
environmental disclosure document or statement by virtue of the
transactions set forth herein and contemplated hereby, or as a
condition to the effectiveness of any other transactions contemplated
hereby.
7.19. Subsidiaries, etc. Schedule 7.19(a) sets forth the Subsidiaries
of each of the Borrowers as of the Closing Date. Except as set forth on Schedule
7.19(b) hereto, neither the Borrowers nor any Subsidiary of any Borrower is
engaged in any joint venture or partnership with any other Person.
7.20. Bank Accounts. Schedule 7.20 sets forth the account numbers and
location of all bank accounts of the Borrowers or any of their Subsidiaries.
7.21. Disclosure. Each of this Credit Agreement and the other Loan
Documents, taken as a whole, do not contain any untrue statement of a material
fact or omit to state a material fact (known to the Borrower or any of its
Subsidiaries in the case of any document or information not furnished by it or
any of its Subsidiaries) necessary in order to make the statements herein or
therein not misleading. As of the Closing Date, there is no fact known to the
Company's President, Chief Operating Officer, Chief Financial Officer or Manager
of Far East Operations which has a Material Adverse Effect, or which is
reasonably likely in the future to have a Material Adverse Effect, exclusive of
effects resulting from changes in general economic conditions, legal standards
or regulatory conditions.
7.22. Status of Loans as Senior Debt. All Indebtedness of each of the
Borrowers and their Subsidiaries to the Banks and the Agent in respect of the
Revolving Credit Loans and the Reimbursement Obligations constitute "Senior
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Debt" (or the analogous term used therein) under the terms of the Subordinated
Debt Documents or of any other instrument evidencing or pursuant to which there
is issued Indebtedness which purports to be Subordinated Debt of any Borrower or
any Subsidiary. In addition, (a) this Credit Agreement would constitute the
"Credit Facility" under the terms of the Subordinated Indenture and (b) the
Indebtedness of each of the Borrowers and their Subsidiaries to the Banks and
the Agents in respect of the Revolving Credit Loans and the Reimbursement
Obligations constitutes "Senior Debt". In addition, without prejudice to the
Credit Agreement's status as the "Credit Facility" referred to in the
Subordinated Indenture, the Company expressly designates all Obligations
hereunder, and under the other Loan Documents, as "Senior Debt" for purposes of
the Subordinated Indenture.
7.23. Subordinated Debt Documents and Transaction Documents. Each of
the representations and warranties made by the Company and its Subsidiaries in
any of the Subordinated Debt Documents, the Offering Documents and the
Transaction Documents was true and correct in all material respects when made
and continue to remain true and correct in all material respects on the Closing
Date, except to the extent that any of such representations and warranties
relate, by the express terms thereof, solely to a date falling prior to the
Closing Date, and except to the extent that any of such representations and
warranties may have been affected by the consummation of the transactions
contemplated and permitted or required by the Loan Documents.
7.24. No Other Senior Debt. The Company (a) has not designated any
Indebtedness of the Company or any of its Subsidiaries as, and has no,
"Designated Senior Debt" for purposes of (and as defined in) the Subordinated
Indenture, other than the Obligations, and (b) has no "Senior Debt" as such term
is defined in the Subordinated Indenture other than the Obligations and that set
forth on Schedule 7.24 hereto.
7.25. No Withholding. None of the Borrowers are required by the laws of
any jurisdiction to make any deduction or withholding of any nature whatsoever
from any payment to be made by way of the Borrowers hereunder unless disclosed
to the Agent in writing prior to the Closing Date (which may be in the form of
legal opinions) and unless the amount and likelihood such deductions or
withholdings are not, in the Agent's reasonable discretion, material. Neither
this Credit Agreement nor any of the other Loan Documents is subject to any
registration or stamp tax or any other similar or like taxes payable in any
jurisdiction.
7.26. No Filings Required. No filing, recording or enrolling of this
Credit Agreement or any other Loan Document is required to ensure the legality,
validity, enforceability or admissibility in evidence of this Credit Agreement
or any other Loan Document.
7.27. Chief Executive Office. The Company's chief executive office is
at 233 Fortune Boulevard, Milford, Massachusetts 01757, at which location its
books and
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records are kept. Each of the Guarantors' chief executive office is as set
forth in the Security Agreement to which it is a party.
7.28. Delivery of Certain Documents. The Company has delivered to the
Agent true and complete copies of all of the Capitalization Documents, the
Offering Documents and the Transaction Documents (including any amendments
thereto). Each of the representations and warranties made by the Company and any
of its Subsidiaries in any of the Subordinated Debt Documents, the
Capitalization Documents, the Offering Documents and the Transaction Documents
was true and correct in all material respects when made and continues to be true
and correct in all material respects on the Closing Date, except to the extent
that any of such representations and warranties relate, by the express terms
thereof, solely to a date falling prior to the Closing Date, and except to the
extent that any of such representations and warranties may have been affected by
the consummation of the transactions contemplated and permitted or required by
the Loan Documents.
7.29. Insurance. The Company and each of its Subsidiaries maintains
with financially sound and reputable insurers insurance with respect to its
properties and businesses against such casualties and contingencies as are in
accordance with sound business practices and with the details of such coverage
being more fully described on Schedule 7.29 hereto.
8. AFFIRMATIVE COVENANTS OF THE BORROWERS.
Each of the Borrowers covenants and agrees that, so long as any
Revolving Credit Loan, Unpaid Reimbursement Obligation, Letter of Credit,
Revolving Credit Note or loan account is outstanding or any Bank has any
obligation to make any Revolving Credit Loans or the Agent has any obligation to
issue, extend or renew any Letters of Credit:
8.1. Punctual Payment. Each Borrower will duly and punctually pay or
cause to be paid the principal and interest on the Revolving Credit Loans, all
Reimbursement Obligations, the Letter of Credit Fees, the commitment fees, the
Agent's Fee and all other amounts to be paid by it provided for in this Credit
Agreement and the other Loan Documents to which the Borrowers or any of their
Subsidiaries is a party, all in accordance with the terms of this Credit
Agreement and such other Loan Documents.
8.2. Maintenance of Office. The Company will maintain its chief
executive office in Milford, Massachusetts, or at such other place in the United
States of America as the Company shall designate upon written notice to the
Agent where notices, presentations and demands to or upon the Borrowers in
respect of the Loan Documents to which the Borrowers are a party may be given or
made.
8.3. Records and Accounts. The Borrowers will (a) keep, and cause each
of its Subsidiaries to keep, true and accurate records and books of account in
which full, true and correct entries will be made in accordance with generally
accepted accounting principles, (b) maintain adequate accounts and reserves for
all taxes
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(including income taxes), depreciation, depletion, obsolescence and amortization
of its properties and the properties of its Subsidiaries, contingencies, and
other reserves, and (c) at all times engage Price Waterhouse LLP or other
independent certified public accountants reasonably satisfactory to the Agent as
the independent certified public accountants of the Company and its Subsidiaries
and will not permit more than thirty (30) days to elapse between the cessation
of such firm's (or any successor firm's) engagement as the independent certified
public accountants of the Company and its Subsidiaries and the appointment in
such capacity of a successor firm as shall be reasonably satisfactory to the
Agent.
8.4. Financial Statements, Certificates and Information. The Company
will deliver to each of the Banks:
(a) as soon as practicable, but in any event not later than
ninety (90) days after the end of each fiscal year of the Company, the
consolidated balance sheet of the Company and its Subsidiaries and the
consolidating balance sheet of the Company and its Subsidiaries, each
as at the end of such year, and the related consolidated statement of
income and consolidated statement of cash flow and consolidating
statement of income and consolidating statement of cash flow for such
year, each setting forth in comparative form the figures for the
previous fiscal year and all such consolidated and consolidating
statements to be in reasonable detail, prepared in accordance with
generally accepted accounting principles, and certified without
qualification by Price Waterhouse LLP or by other independent certified
public accountants reasonably satisfactory to the Agent, together with
a written statement from such accountants to the effect that they have
read a copy of this Credit Agreement, and that, in making the
examination necessary to said certification, they have obtained no
knowledge of any Default or Event of Default as it relates to any
financial covenant, or, if such accountants shall have obtained
knowledge of any then existing Default or Event of Default they shall
disclose in such statement any such Default or Event of Default;
provided that such accountants shall not be liable to the Banks for
failure to obtain knowledge of any Default or Event of Default, and,
together with such financial statements and accountant's certification,
a management prepared analysis of such statements, to be in reasonable
detail and prepared in accordance with past practices;
(b) commencing with the fiscal quarter ending December 31,
1997, as soon as practicable, but in any event not later than (i)
forty-five (45) days after the end of each of the first three fiscal
quarters of the Company and (ii) sixty (60) days after the end of the
last fiscal quarter of the Company, copies of the unaudited
consolidated balance sheet of the Company and its Subsidiaries and the
unaudited consolidating balance sheet of the Company and its
Subsidiaries, each as at the end of such quarter, and the related
consolidated statement of income and consolidated statement of cash
flow and consolidating statement of income and consolidating statement
of cash flow for the portion of the Company's fiscal year then elapsed,
each setting
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forth in comparative form the figures for the previous fiscal year and
a comparison setting forth the corresponding figures from the budgeted
or projected figures for such period, all in reasonable detail and
prepared in accordance with generally accepted accounting principles,
together with (i) a certification by the principal financial or
accounting officer of the Company that the information contained in
such financial statements fairly presents the financial position of the
Company and its Subsidiaries on the date thereof (subject to year-end
adjustments) and (ii) a management prepared analysis of such
statements, to be in reasonable detail and prepared in accordance with
past practices;
(c) as soon as practicable, but in any event within (i) thirty
(30) days after the end of each of the first eleven (11) months in each
fiscal year of the Company and (ii) sixty (60) days after the end of
the last month in each fiscal year of the Company, unaudited monthly
consolidated financial statements of the Company and its Subsidiaries
for such month and unaudited monthly consolidating financial statements
of the Company and its Subsidiaries for such month, each setting forth
in comparative form the figures for the previous fiscal year and a
comparison setting forth the corresponding figures from the budgeted or
projected figures for such period and prepared in accordance with
generally accepted accounting principles, together with a certification
by the principal financial or accounting officer of the Company that
the information contained in such financial statements fairly presents
the financial condition of the Company and its Subsidiaries on the date
thereof (subject to year-end adjustments);
(d) commencing with the fiscal period ending December 31,
1997, simultaneously with the delivery of the financial statements
referred to in subsections (a) and (b) above, a statement certified by
the principal financial or accounting officer of the Company in
substantially the form of Exhibit C hereto (the "Compliance
Certificate") and setting forth in reasonable detail computations
evidencing compliance with the covenants contained in ss.10 and (if
applicable) reconciliations to reflect changes in generally accepted
accounting principles since the Balance Sheet Date;
(e) contemporaneously with the filing or mailing thereof,
copies of all material of a financial nature filed with the Securities
and Exchange Commission or sent to the stockholders of the Company;
(f) from time to time upon request of the Agent, annual
projections of the Company and its Subsidiaries updating for a one year
period those projections delivered to the Banks and referred to in
ss.7.4.3 or, if applicable, updating any later such projections
delivered in response to a request pursuant to this ss.8.4(f); and
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(g) from time to time such other financial data and
information (including accountants, management letters) as the Agent or
any Bank may reasonably request.
8.5. Notices.
8.5.1. Defaults. The Borrowers will promptly notify the Agent
and each of the Banks in writing of the occurrence of any Default or
Event of Default. If any Person shall give any notice or take any other
action in respect of a claimed default (whether or not constituting an
Event of Default) under this Credit Agreement or any other note,
evidence of indebtedness, indenture or other obligation to which or
with respect to which the Borrowers or any of their Subsidiaries is a
party or obligor, whether as principal, guarantor, surety or otherwise,
the Borrowers shall forthwith give written notice thereof to the Agent
and each of the Banks, describing the notice or action and the nature
of the claimed default.
8.5.2. Environmental Events. The Borrower will promptly give
notice to the Agent and each of the Banks (a) of any violation of any
Environmental Law that such Borrower or any of its Subsidiaries reports
in writing or is reportable by such Person in writing (or for which any
written report supplemental to any oral report is made) to any federal,
state or local environmental agency and (b) upon becoming aware
thereof, of any inquiry, proceeding, investigation, or other action,
including a notice from any agency of potential environmental
liability, of any federal, state or local environmental agency or
board, that has the potential to materially affect the assets,
liabilities, financial conditions or operations of the Borrowers or any
of their Subsidiaries, or the Agent's security interests pursuant to
the Security Documents.
8.5.3. Notification of Claim against Collateral. The Borrowers
will, immediately upon becoming aware thereof, notify the Agent and
each of the Banks in writing of any setoff, claims (including, with
respect to the Real Estate, environmental claims), withholdings or
other defenses to which any of the Collateral, or the Agent's rights
with respect to the Collateral, are subject.
8.5.4. Notice of Litigation and Judgments. The Borrowers will,
and will cause each of their Subsidiaries to, give notice to the Agent
and each of the Banks in writing within fifteen (15) days of becoming
aware of any litigation or proceedings threatened in writing or any
pending litigation and proceedings affecting the Borrowers or any of
their Subsidiaries or to which the Borrowers or any of their
Subsidiaries is or becomes a party involving an uninsured claim against
the Borrowers or any of their Subsidiaries that could reasonably be
expected to have a Material Adverse Effect and stating the nature and
status of such litigation or proceedings. The Borrowers will, and will
cause each of their Subsidiaries to, give notice to the Agent and each
of
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the Banks, in writing, in form and detail satisfactory to the Agent,
within ten (10) days of any judgment not covered by insurance, final or
otherwise, against the Borrowers or any of their Subsidiaries in an
amount in excess of $500,000.
8.6. Corporate Existence; Maintenance of Properties. Each of the
Borrowers will do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, rights and franchises and
those of its Subsidiaries and will not, and will not cause or permit any of
their Subsidiaries to, convert to a limited liability company. It (a) will cause
all of its properties and those of its Subsidiaries used or useful in the
conduct of its business or the business of its Subsidiaries to be maintained and
kept in good condition, repair and working order and supplied with all necessary
equipment, (b) will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Borrower may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times, and (c)
will, and will cause each of its Subsidiaries to, continue to engage primarily
in the businesses conducted by them and in related businesses and those business
acquired in any Permitted Acquisition; provided that nothing in this ss.8.6
shall prevent any Borrower from discontinuing the operation and maintenance of
any of its properties or any of those of its Subsidiaries if such discontinuance
is, in the judgment of such Borrower, desirable in the conduct of its or their
business and that do not in the aggregate materially adversely affect the
business of such Borrower and its Subsidiaries on a consolidated basis.
8.7. Insurance. The Borrowers will, and will cause each of their
Subsidiaries to, maintain with financially sound and reputable insurers
insurance with respect to its properties and business against such casualties
and contingencies as shall be in accordance with the general practices of
businesses engaged in similar activities in similar geographic areas and in
amounts, containing such terms, in such forms and for such periods as may be
reasonable and prudent and in accordance with the terms of the Security
Agreements.
8.8. Taxes. The Borrowers will, and will cause each of their
Subsidiaries to, duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges imposed upon it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of its property; provided that any such tax,
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if the applicable Borrower or such Subsidiary shall have set aside on its
books adequate reserves with respect thereto; and provided further that the
Borrowers and each Subsidiary of the Borrowers will pay all such taxes,
assessments, charges, levies or claims forthwith upon the commencement of
proceedings to foreclose any lien that may have attached as security therefor.
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8.9. Inspection of Properties and Books, etc.
8.9.1. General. The Borrowers shall permit the Banks,
individually or through the Agent or any of the Banks' other designated
representatives, to visit and inspect any of the properties of the
Borrowers or any of their Subsidiaries, to examine the books of account
of the Borrowers and their Subsidiaries (and to make copies thereof and
extracts therefrom), and to discuss the affairs, finances and accounts
of the Borrowers and their Subsidiaries with, and to be advised as to
the same by, its and their officers, all at such reasonable times and
intervals and, so long as no Default or Event of Default has occurred
and is continuing, subject to reasonable notice, as the Agent or any
Bank may reasonably request.
8.9.2. Appraisals. If an Event of Default shall have occurred
and be continuing, upon the request of the Agent, the Borrowers will
obtain and deliver to the Agent appraisal reports in form and substance
and from appraisers satisfactory to the Agent, stating (a) the then
current fair market, orderly liquidation and forced liquidation values
of all or any portion of the equipment or real estate owned by any
Borrower or any of its Subsidiaries and (b) the then current business
value of each of the Borrowers and their Subsidiaries. All such
appraisals shall be conducted and made at the expense of the Borrower.
8.10. Compliance with Laws, Contracts, Licenses, and Permits. The
Borrowers will, and will cause each of their Subsidiaries to, comply with (a)
the applicable laws and regulations wherever its business is conducted,
including all Environmental Laws, (b) the provisions of its charter documents
and by-laws, (c) all agreements and instruments by which it or any of its
properties may be bound and (d) all applicable decrees, orders, and judgments,
except where any such noncompliance could not reasonably be expected to have a
Material Adverse Effect. If any authorization, consent, approval, permit or
license from any officer, agency or instrumentality of any government shall
become necessary or required in order that the Borrowers or any of their
Subsidiaries may fulfill any of its obligations hereunder or any of the other
Loan Documents to which the Borrowers or such Subsidiary is a party, the
Borrowers will, or (as the case may be) will cause such Subsidiary to,
immediately take or cause to be taken all reasonable steps within the power of
the Borrowers or such Subsidiary to obtain such authorization, consent,
approval, permit or license and furnish the Agent and the Banks with evidence
thereof.
8.11. Employee Benefit Plans. The Borrowers will (a) promptly upon
filing the same with the Department of Labor or Internal Revenue Service,
furnish to the Agent a copy of the most recent actuarial statement required to
be submitted under ss.103(d) of ERISA and Annual Report, Form 5500, with all
required attachments, in respect of each Guaranteed Pension Plan and (b)
promptly upon receipt or dispatch, furnish to the Agent any notice, report or
demand sent (other than as part of a Guaranteed Pension Plan's annual report) or
received in respect of a Guaranteed
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Pension Plan under ss.ss.302, 4041, 4042, 4043, 4063, 4066 and 4068 of ERISA, or
in respect of a Multiemployer Plan, under ss.ss.4041A, 4202, 4219, 4242, or 4245
of ERISA.
8.12. Use of Proceeds. The Borrowers will use the proceeds of the
Revolving Credit Loans solely (a) to refinance existing Indebtedness of the
Borrowers; (b) to finance a portion of the Transaction (including fees and
expenses relating thereto) and (c) for working capital and general corporate
purposes (including to finance all or any portion of Permitted Acquisitions
(including fees and expense relating thereto)). The Borrowers will obtain
Letters of Credit solely for working capital and general corporate purposes.
8.13. Additional Mortgaged Property. If, after the Closing Date, the
Borrowers or any of their Subsidiaries acquires real estate located in the
United States, such Borrower shall, or shall cause such Subsidiary to, forthwith
deliver to the Agent a fully executed mortgage or deed of trust over such real
estate, in form and substance satisfactory to the Agent, together with title
insurance policies, surveys, evidences of insurance with the Agent named as loss
payee and additional insured, legal opinions and other documents and
certificates with respect to such real estate as is required by the Agent. The
Borrowers further agrees that, following the taking of such actions with respect
to such real estate, the Agent shall have for the benefit of the Banks and the
Agent a valid and enforceable first priority mortgage or deed of trust over such
real estate, free and clear of all defects and encumbrances except for Permitted
Liens.
8.14. Fair Labor Standards Act. The Company shall, and shall require
each Subsidiary to, at all times operate its business in compliance with all
material applicable provisions of the Fair Labor Standards Act of 1938, as
amended. None of the inventory of the Company or any of its Subsidiaries are or
will be produced by employees of (a) the Company or any of its Subsidiaries, or
(b) to the best knowledge of the Company, by employees of suppliers, who are, in
each case, employed in violation of any applicable minimum wage or maximum hour
provisions of the Fair Labor Standards Act (29 U.S.C. ss.ss.206 and 207) or any
applicable regulations promulgated thereunder, in each case, as in effect from
time to time.
8.15. Guarantors. The Company will, and will cause each Domestic
Subsidiary created, acquired or existing on or after the Closing Date or any
other Subsidiary which is otherwise required to become a guarantor under the
Subordinated Indenture, to become a Guarantor immediately and shall cause such
Subsidiary to execute and deliver to the Agent for the benefit of the Agent and
the Banks (a) a Guaranty (or an Instrument of Adherence to the Guaranty executed
on the Closing Date), and (b) further Security Documents or other instruments
and documents as the Agent may reasonably require in order to grant to the Agent
a first priority perfected security interest in such Subsidiary's assets,
together with legal opinions in form and substance reasonably satisfactory to
the Agent to be delivered to the Agent and the Banks opining as to the
authorization, validity and enforceability of such Guaranty or Instrument of
Adherence and Security
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Documents and (as to the applicable Security Documents) the perfection of such
security interests.
8.16. Subordinated Guarantees. The Company will promptly advise the
Agent of any Subordinated Guarantee entered into in connection with the
Subordinated Indenture, identifying the guarantor thereunder.
8.17. Status of Loans as Senior Debt. The Company shall, on the Closing
Date and at such other times as may reasonably be requested by the Agent,
deliver to the Agent certificates and, if requested, legal opinions, evidencing
that the Indebtedness of each of the Borrowers and their Subsidiaries to the
Agent and the Banks in respect of the Revolving Credit Loans and Reimbursement
Obligations constitutes "Senior Debt" (or the analogous term used therein) under
the terms of the Subordinated Debt Documents or of any other instrument
evidencing or pursuant to which there is issued indebtedness which purports to
be Subordinated Debt of the Company or any of its Subsidiaries and that (a) this
Credit Agreement would constitute the "Credit Facility" under the terms of the
Subordinated Indenture, and (b) the Indebtedness of each of the Borrowers and
their Subsidiaries to the Banks and the Agents in respect of the Revolving
Credit Loans and Reimbursement Obligations constitutes "Designated Senior Debt"
as defined by the Subordinated Indenture.
8.18. Further Assurances. The Borrower will, and will cause each of its
Subsidiaries to, cooperate with the Banks and the Agent and execute such further
instruments and documents as the Banks or the Agent shall reasonably request to
carry out to their satisfaction the transactions contemplated by this Credit
Agreement and the other Loan Documents.
8.19. Additional Subsidiaries. If, after the Closing Date, the Company
or any of its Subsidiaries creates or acquires, either directly or indirectly,
any Subsidiary, it will immediately notify the Agent and the Banks if such
creation or acquisition, as the case may be, and provide the Agent and the Banks
with an updated Schedule 7.19(a) hereof and take all other actions required by
ss.8.15 and ss.9.5.1 hereof.
8.20. Landlord Consents. The Company will use its best efforts to
deliver to the Agent within thirty (30) days from the Closing Date landlord
consents from the landlords of the leased Real Estate set forth on Schedule 8.20
hereto, which landlord consents shall be in form and substance reasonably
satisfactory to the Agent.
9. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS.
Each of the Borrowers covenants and agrees that, so long as any
Revolving Credit Loan, Unpaid Reimbursement Obligation, Letter of Credit,
Revolving Credit Note or loan account is outstanding or any Bank has any
obligation to make any Revolving Credit Loans or the Agent has any obligations
to issue, extend or renew any Letters of Credit:
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9.1. Restrictions on Indebtedness. The Borrowers will not, and will not
permit any of their Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(a) Indebtedness to the Banks and the Agent arising under any
of the Loan Documents;
(b) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(c) Subordinated Debt (including Indebtedness of a Domestic
Subsidiary of the Company pursuant to the Subordinated Guarantee
provided for in the Subordinated Indenture);
(d) Indebtedness incurred in connection with the acquisition
after the date hereof of any real or personal property by the Borrowers
or such Subsidiary or under any Capitalized Lease, provided that the
aggregate principal amount of such Indebtedness of the Borrowers and
their Subsidiaries shall not exceed the aggregate amount of $15,000,000
at any one time;
(e) Indebtedness existing on the date hereof and listed and
described on Schedule 9.1 hereto;
(f) (i) Indebtedness of a Subsidiary of a Borrower to a
Borrower so long as such Subsidiary is a Guarantor hereunder; and (ii)
Indebtedness of a Subsidiary of a Borrower which is not a Guarantor to
a Borrower provided that the aggregate principal amounts of all such
Indebtedness permitted under this ss.9.1(f)(ii) shall not exceed at any
one time an amount equal to $20,000,000 less the aggregate amount of
all Revolving Credit Loans, Reimbursement Obligations and Unpaid
Reimbursement Obligations outstanding to all Subsidiary Borrowers at
such time;
(g) (i) unsecured Indebtedness incurred in connection with any
Permitted Acquisitions, including Indebtedness of Persons acquired
pursuant to ss.9.5.1 hereof, so long as the terms of such Indebtedness
comply with the provisions of ss.9.5.1(b) (iii) hereof; and (ii)
secured Indebtedness assumed in connection with any Permitted
Acquisitions so long as the aggregate principal amount of all such
Indebtedness does not exceed $5,000,000 at any one time, the terms of
such Indebtedness comply with the provisions of ss.9.5.1(b)(iii)
hereof, and, if such Indebtedness is secured, such security interest
covers only the real or personal property acquired in such Permitted
Acquisition;
(h) Indebtedness of the Company in respect of any promissory
notes issued by the Company to certain members of its management as
permitted
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by ss.9.4(e) hereof as payment for the redemption by the Company of
certain shares of its capital stock issued to such member; and
(i) unsecured Indebtedness of the Company to any of the
Principals or Additional Investors, provided (i) no Default or Event of
Default has occurred and is continuing or would exist as a result
thereof; (ii) the amount of such Indebtedness and the terms and
conditions (including, without limitation, a prohibition on any cash
payments to be made to the holders thereof during the term of this
Credit Agreement and a limitation of use of proceeds) of such
Indebtedness are acceptable to the Agent and the Majority Banks; and
(iii) such Indebtedness shall contain subordination provisions
acceptable to the Agent and the Majority Banks.
provided, however, notwithstanding the foregoing provisions of this
ss.9.1, all such Indebtedness must in any event qualify at all times as
"Indebtedness" (as such term is defined in the Subordinated Indenture) permitted
to be incurred pursuant to ss.4.09 of the Subordinated Indenture.
9.2. Restrictions on Liens. The Borrowers will not, and will not permit
any of their Subsidiaries to, (a) create or incur or suffer to be created or
incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (b) transfer any of such property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; (c) acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; (d) suffer to exist
for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness or claim or demand against it that if unpaid might by
law or upon bankruptcy or insolvency, or otherwise, be given any priority
whatsoever over its general creditors; (e) sell, assign, pledge or otherwise
transfer any "receivables" as defined in clause (g) of the definition of the
term "Indebtedness," with or without recourse; or (f) enter into or permit to
exist any arrangement or agreement, enforceable under applicable law, which
directly or indirectly prohibits the Borrowers or any of their Subsidiaries from
creating or incurring any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest other than in favor of the Agent for the
benefit of the Banks and the Agent under the Loan Documents and other than
customary anti-assignment provisions in leases and licensing agreements entered
into by the Borrowers or such Subsidiary in the ordinary course of its business,
provided that the Borrowers or any of their Subsidiaries may create or incur or
suffer to be created or incurred or to exist:
(a) liens in favor of the Borrowers on all or part of the
assets of Subsidiaries of the Borrowers securing Indebtedness owing by
Subsidiaries of the Borrowers to such Borrower;
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(b) liens to secure taxes, assessments and other government
charges in respect of obligations not overdue or liens on properties to
secure claims for labor, material or supplies in respect of obligations
not overdue;
(c) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(d) liens on properties in respect of judgments or awards that
have been in force for less than the applicable period for taking an
appeal so long as execution is not levied thereunder or in respect of
which such Borrowers or such Subsidiary shall at the time in good faith
be prosecuting an appeal or proceedings for review and in respect of
which a stay of execution shall have been obtained pending such appeal
or review;
(e) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens on properties, in existence less than
120 days from the date of creation thereof in respect of obligations
not overdue;
(f) encumbrances on Real Estate consisting of easements,
rights of way, zoning restrictions, restrictions on the use of real
property and defects and irregularities in the title thereto,
landlord's or lessor's liens under leases to which the Borrowers or a
Subsidiary of any Borrower is a party, and other minor liens or
encumbrances none of which in the opinion of the applicable Borrower
interferes materially with the use of the property affected in the
ordinary conduct of the business of such Borrower and its Subsidiaries,
which defects do not individually or in the aggregate have a materially
adverse effect on the business of such Borrower individually or of such
Borrower and its Subsidiaries on a consolidated basis;
(g) liens existing on the date hereof and listed on Schedule
9.2 hereto;
(h) purchase money security interests in or purchase money
mortgages on real or personal property acquired after the date hereof
to secure purchase money Indebtedness of the type and amount permitted
by ss.9.1(d) and ss.9.1(g)(ii), incurred in connection with the
acquisition of such property, which security interests or mortgages
cover only the real or personal property so acquired;
(i) liens in favor of the Agent for the benefit of the Banks
and the Agent under the Loan Documents; and
(j) liens incurred in the ordinary course of business
consistent with past practices in favor of a Person providing insurance
of collection of certain of the Company's accounts receivable, provided
such liens cover only those receivables so insured and provided that
the Agent has a first priority perfected security interest in such
insurance proceeds.
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9.3. Restrictions on Investments. The Borrowers will not, and will not
permit any of their Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United
States of America that mature within one (1) year from the date of
purchase by the Borrowers;
(b) demand deposits, certificates of deposit, bankers
acceptances and time deposits of United States banks having total
assets in excess of $1,000,000,000;
(c) securities commonly known as "commercial paper" issued by
a corporation organized and existing under the laws of the United
States of America or any state thereof that at the time of purchase
have been rated and the ratings for which are not less than "P 1" if
rated by Moody's Investors Service, Inc., and not less than "A 1" if
rated by Standard and Poor's Rating Group;
(d) Investments existing on the date hereof and listed on
Schedule 9.3 hereto;
(e) Investments with respect to Indebtedness permitted by
ss.9.1(f)(i) so long as such entities remain a Subsidiary of any
Borrower and a Guarantor hereunder and Investments with respect to
Indebtedness permitted by ss.9.1(f)(ii) so long as such entities remain
a Subsidiary of any Borrower hereunder;
(f) Investments with respect to Indebtedness permitted by
ss.9.1(g) hereof so long as the Person incurring such Indebtedness
remains a Subsidiary of any Borrower hereunder and Investments
consisting of Permitted Acquisitions under ss.9.5.1 hereof, of assets
or Persons that become, at the time of such Permitted Acquisitions, a
Subsidiary of the Company.
(g) Investments consisting of the Guaranty or the Foreign
Guarantees or Investments by the Borrowers in Guarantors; and
(h) Investments consisting of promissory notes or other
obligations or securities received as proceeds of asset dispositions
permitted by ss.9.5.2;
provided, however, that (a) with the exception of demand deposits referred to in
ss.9.3(b), such Investments will be considered Investments permitted by this
ss.9.3 only if all actions have been taken to the satisfaction of the Agent to
provide to the Agent, for the benefit of the Banks and the Agent, a first
priority perfected security interest in all of such Investments free of all
encumbrances other than Permitted Liens and (b) all Investments made pursuant to
this ss.9.3 must be permitted to be made pursuant to the Subordinated Indenture.
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9.4. Distributions and Restricted Payments. The Company and its
Subsidiaries will not make any Distributions or Restricted Payments, other than
dividends or payments:
(a) so long as no Event of Default under ss.13.1(c) as it relates to
ss.10 or under ss.13.1(a) or (b) has occurred and is continuing or would result
therefrom, by the Company to Berkshire Partners consisting of quarterly
management services fees pursuant to the Management Agreement in an aggregate
amount not to exceed (i) $100,000 in any fiscal quarter plus (ii) the amount of
management services fees, if any, which are in arrears under the Management
Agreement, provided, however, that the aggregate amount of all fees to be paid
in any fiscal quarter under this ss.9.4(a)(i) and (ii) shall not exceed 150% of
the amount otherwise required to be paid by ss.9.4(a)(i), and provided,.
further, that such payments shall not be made earlier than ten (10) days prior
to the date such payments are due and payable pursuant to the terms of the
Management Agreement;
(b) by any Subsidiary of the Company to such Subsidiary's parent.
(c) expressly permitted to be made pursuant to the Transaction
Documents;
(d) so long as no Event or Default under ss.13.1(c) as it relates to
ss.10 or under ss.13.1(a) or (b) has occurred and is continuing or would result
therefrom, by the Company in the form of redemptions of Equity Interests of the
Company held by any member of the Company's or any Subsidiary's management or
Board of Directors, provided that the aggregate sum paid therefor shall not
exceed the sum of (i) $500,000 in any twelve (12) month period, plus (ii) the
aggregate Net Cash Proceeds received by the Company from the issuance after the
Closing Date of Equity Interests to members of management or the Company's Board
of Directors; and
(e) by the Company as a Distribution in the form of promissory notes
issued by the Company to repurchase or redeem shares of its capital stock
pursuant to certain buy-back arrangements with certain members of the Company's
management, provided that (i) no Event of Default then exists or would result
after the making of such Distribution; (ii) the terms of such notes are
acceptable to the Agent in all respects; and (iii) such notes contain
subordination provisions acceptable to the Agent.
9.5. Merger, Consolidation and Disposition of Assets.
9.5.1. Mergers and Acquisitions. The Borrowers will not, and
will not permit any of their Subsidiaries to, become a party to any
merger or consolidation, or agree to or effect any asset acquisition or
stock acquisition except, so long as no Default or Event of Default has
occurred and is continuing, or would exist after giving effect thereto:
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(a) the merger of one or more of the Subsidiaries of the
Company with and into the Company, any other Borrower hereunder or a
Guarantor hereunder, and provided the Company, the other Borrower or
the Guarantor, as the case may be, has taken or caused to be taken all
action necessary to grant to the Agent a first priority perfected
security interest in all of the Company's or such other Borrower's or
Guarantor's assets after such merger; and
(b) the acquisition of the assets or stock of Persons in the
same or a similar line of business as the Company and its Subsidiaries
(including home electrical and other consumer appliances and products)
(each, a "Permitted Acquisition") where (i) the Company has provided
the Agent with thirty (30) days prior written notice of such Permitted
Acquisition, which notice shall include a reasonably detailed
description of such Permitted Acquisition and copies of all acquisition
documents in connection therewith; (ii) the business to be acquired
would not subject the Agent or the Banks to regulatory or third party
approvals in connection with the exercise of their rights and remedies
under this Credit Agreement or any other Loan Document; (iii) no
contingent liabilities or liabilities will be incurred or assumed in
connection with such Permitted Acquisition which could be expected to
have a Material Adverse Effect, and any Indebtedness incurred or
assumed in connection with such Permitted Acquisition (1) shall have
been permitted to be incurred or assumed pursuant to ss.9.1 hereof; (2)
shall not bear cash interest at a rate in excess of 600 basis points
over the applicable treasury rate per annum and shall not bear interest
at a rate in excess of 900 basis points over the applicable treasury
rate per annum; (3) shall not have a maturity prior to the Revolving
Credit Loan Maturity Date; (4) shall not contain any financial
covenants; (5) shall be unsecured; (6) shall contain an amortization
schedule acceptable to the Agent and (7) shall contain subordination
provisions acceptable to the Agent and the Banks; provided that any
such Indebtedness permitted by ss.9.1(g)(ii) shall not have to comply
with clauses (2)-(7) hereof; (iv) the Company has provided the Agent
with such other information as was reasonably requested by the Agent;
(v) after the consummation of the Permitted Acquisition, the Company
shall own a majority of the capital stock of the Person to be acquired
or shall otherwise control such Person (including, without limitation,
controlling the ability of such Person to make loans, advances and
Distributions in cash to the Company); (vi) the Company shall take, or
shall cause to be taken, all necessary action to grant to the Agent a
first priority perfected lien in all assets and stock acquired in
connection with such Permitted Acquisition, with such exceptions as the
Agent may approve; provided, however, the Company or any Guarantor, as
the case may be, shall only be required to pledge 66% of the capital
stock of any Foreign Subsidiary or any other Person not incorporated or
otherwise organized in the United States of America (a "Foreign
Entity"), and such Foreign Entity shall not be required to grant a lien
on its assets to secure the Obligations of the Company or any
Guarantor; (vii) the Company has demonstrated to the reasonable
satisfaction of the Agent, based on a pro
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forma Compliance Certificate, compliance with ss.10 immediately prior
to and on a Pro Forma Basis immediately after giving effect to such
Permitted Acquisition and the Leverage Ratio (calculated on a Pro Forma
Basis) after giving effect to such Permitted Acquisition shall not
exceed 5.50:1.00; (viii) the maximum amount of the proceeds of the
Revolving Credit Loans to be used for any single Permitted Acquisition
or series of Permitted Acquisitions relating to the same business
organization or group of related companies does not exceed the sum of
$40,000,000 plus the aggregate amount of secured Indebtedness assumed
in connection with such Permitted Acquisition; (ix) board of directors
and the shareholders (if required by applicable law), or the
equivalent, of each of the Company and the Person to be acquired has
approved such merger, consolidation or acquisition and such Permitted
Acquisition is otherwise considered "friendly"; (x) to the extent the
Company or any Subsidiary is acquiring any Real Estate in connection
with such Permitted Acquisition, the Company shall have delivered to
the Agent all appraisals and environmental site assessments which the
Agent shall reasonably require, with all such appraisals and site
assessments to be in form and substance reasonably satisfactory to the
Agent; and (xi) the Company has delivered to the Agent a certificate of
the chief financial officer of the Company to the effect that (1) the
Company will be solvent upon the consummation of the Permitted
Acquisition; (2) the pro forma Compliance Certificate fairly presents
the financial condition of the Company and its Subsidiaries as of the
date thereof and after giving effect to such Permitted Acquisition; and
(3) no Default or Event of Default then exists or would result after
giving effect to the Permitted Acquisition.
In the event any new Domestic Subsidiary is formed or acquired
as a result of or in connection with any acquisition, such new Domestic
Subsidiary shall, immediately upon its creation or acquisition, execute
and deliver to the Agent for the benefit of the Agent and the Banks, an
Instrument of Adherence in substantially the form of Exhibit D hereto
(an "Instrument of Adherence") and the Loan Documents shall be amended
and/or supplemented as necessary to make the terms and conditions of
the Loan Documents applicable to such Domestic Subsidiary. Such
Domestic Subsidiary shall become a Guarantor hereunder and shall become
party to the Guaranty and the Security Agreement and shall execute and
deliver to the Agent any and all other agreements, documents,
instruments and financing statements necessary to grant to the Agent a
first priority perfected lien in such Domestic Subsidiary's assets. The
Company and its Subsidiaries shall, immediately upon the creation or
acquisition of such Domestic Subsidiary, pledge all of such Domestic
Subsidiary's capital stock to the Agent for the benefit of the Agent
and the Banks. In the event any new Foreign Subsidiary is formed or
acquired as a result of or in connection with any acquisition, such new
Foreign Subsidiary shall, immediately upon its creation or acquisition,
and to the extent legally possible in its jurisdiction of organization
and to the extent that to do so would not result in the recognition of
a deemed dividend from such Foreign Subsidiary, execute and
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deliver to the Agent for the benefit of the Agent and the Banks such
guarantees and security documents as the Agent deems necessary to make
the terms and conditions of the Loan Documents applicable to such
Foreign Subsidiary. To the extent legally permissable, and to the
extent that to do so would not result in the recognition of a deemed
dividend from such Foreign Subsidiary, such Foreign Subsidiary shall
guarantee the Obligations of the Subsidiary Borrowers hereunder and
shall execute and deliver to the Agent any and all other agreements,
documents, instruments and financing statements necessary to grant to
the Agent a first priority perfected lien in such Foreign Subsidiary's
assets to secure its guarantee obligations. In addition, the Company
and its Subsidiaries shall (unless otherwise previously agreed to in
writing by the Agent), immediately upon the creation or acquisition of
such Foreign Subsidiary, pledge 66% of such Foreign Subsidiary's
capital stock to the Agent for the benefit of the Agent and the Banks.
9.5.2. Disposition of Assets. The Borrowers will not, and will
not permit any of their Subsidiaries to, become a party to or agree to
or effect any Asset Sale or other disposition of assets, other than (a)
the sale of inventory, the sale or other disposition of doubtful, bad,
overdue or defaulted receivables (that does not constitute a financing
arrangement), the licensing of intellectual property and the
disposition of obsolete assets, in each case in the ordinary course of
business consistent with past practices and (b) the sale of assets in
arms-length transactions for fair and reasonable value, provided that,
with respect to this clause (b) (i) no Default or Event of Default
shall have occurred and be continuing at the time of such sale and no
Default or Event of Default will exist after giving effect to such
Asset Sale; (ii) at least seventy five percent (75%) of the purchase
price for such assets is received in cash and the Net Cash Sale
Proceeds from such sales are applied as provided in ss.3.2 hereof,
(iii) any promissory note or other instrument received by the Company
or any of its Subsidiaries in connection with such sale is an
Investment permitted by ss.9.3 hereof, and the Company or such
Subsidiary, as applicable, has delivered such promissory note or other
instrument to the Agent to be held in pledge for the benefit of itself
and the Banks in accordance with the terms of the Loan Documents; (iv)
the aggregate value of all assets sold in any Asset Sale is not more
than $10,000,000 in any fiscal year and (v) the Company shall have
delivered to the Agent on the date of such sale a certificate signed by
an authorized officer of the Company and evidence satisfactory to the
Agent showing compliance with the provisions of clauses (i) through
(iv) of this ss.9.5.2.
Notwithstanding anything to the contrary contained in this
ss.9.5, neither the Company nor any of its Subsidiaries shall be
permitted to dispose of any assets or take (or omit to take) any action
in connection with any Asset Sale or other asset disposition or engage
in any other transaction which action (or omission) would require or
result in any repayment, repurchase or redemption (or any mandatory
offer to repay, repurchase or
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redeem) by the Company or any of its Subsidiaries of the Subordinated
Notes pursuant to the Subordinated Indenture.
9.6. Sale and Leaseback. Except as permitted by ss.9.5.2, the Borrowers
will not, and will not permit any of their Subsidiaries to, enter into any
arrangement, directly or indirectly, whereby such Borrower or any Subsidiary of
such Borrower shall sell or transfer any property owned by it in order then or
thereafter to lease such property or lease other property that such Borrower or
any Subsidiary of such Borrower intends to use for substantially the same
purpose as the property being sold or transferred.
9.7. Compliance with Environmental Laws. The Borrowers will not, and
will not permit any of their Subsidiaries to, (a) use any of the Real Estate or
any portion thereof for the handling, processing, storage or disposal of
Hazardous Substances, (b) cause or permit to be located on any of the Real
Estate any underground tank or other underground storage receptacle for
Hazardous Substances, (c) generate any Hazardous Substances on any of the Real
Estate, (d) conduct any activity at any Real Estate or use any Real Estate in
any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping) or threatened release of Hazardous Substances on, upon or
into the Real Estate or (e) otherwise conduct any activity at any Real Estate or
use any Real Estate, each in any manner that would violate any Environmental Law
or bring such Real Estate in violation of any Environmental Law, except where
such noncompliance would not have a Material Adverse Effect.
9.8. Subordinated Debt. The Company will not, and will not permit any
of its Subsidiaries to, amend, supplement or otherwise modify the terms of any
of the Subordinated Debt Documents or prepay, redeem or repurchase (or offer to
prepay, redeem or repurchase) any of the Subordinated Debt; provided, however,
the Company shall be permitted to use any Net Cash Proceeds received from its
Initial Public Offering and subsequent public offerings of its capital stock
which it is not otherwise required pursuant to the terms of the Credit Agreement
to apply to the repayment of the Revolving Credit Loans and the reduction of the
Total Commitment pursuant to ss.3.2 hereof to prepay, redeem and repurchase the
Subordinated Debt so long as no Default or Event of Default has occurred and is
continuing or would occur as a result thereof.
9.9. Employee Benefit Plans. Neither the Borrowers nor any ERISA
Affiliate will
(a) engage in any "prohibited transaction" within the meaning
of ss.406 of ERISA or ss.4975 of the Code which could reasonably be
expected to result in a material liability for the Borrower or any of
its Subsidiaries; or
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(b) permit any Guaranteed Pension Plan to incur an
"accumulated funding deficiency", as such term is defined in ss.302 of
ERISA, whether or not such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an
extent which, or terminate any Guaranteed Pension Plan in a manner
which, could reasonably be expected to result in the imposition of a
lien or encumbrance on the assets of the Borrower or any of its
Subsidiaries pursuant to ss.302(f) or ss.4068 of ERISA; or
(d) amend any Guaranteed Pension Plan in circumstances
requiring the posting of security pursuant to ss.307 of ERISA or
ss.401(a)(29) of the Code; or
(e) permit or take any action which would result in the
aggregate benefit liabilities (with the meaning of ss.4001 of ERISA) of
all Guaranteed Pension Plans exceeding the value of the aggregate
assets of such Plans, disregarding for this purpose the benefit
liabilities and assets of any such Plan with assets in excess of
benefit liabilities.
9.10. Business Activities. The Borrowers will not, and will not permit
any of their Subsidiaries to, engage directly or indirectly (whether through
Subsidiaries or otherwise) in any type of business other than the businesses
conducted by them on the Closing Date or businesses conducted by subjects of
Permitted Acquisitions and in related businesses.
9.11. Fiscal Year. The Borrowers will not, and will not permit any of
their Subsidiaries to, change the date of the end of its fiscal year from that
set forth in ss.7.4.1.
9.12. Transactions with Affiliates. The Borrowers will not, and will
not permit any of their Subsidiaries to, engage in any transaction with any
Affiliate (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
Affiliate or, to the knowledge of the Borrowers, any corporation, partnership,
trust or other entity in which any such Affiliate has a substantial interest or
is an officer, director, trustee or partner, on terms more favorable to such
Person than would have been obtainable on an arm's-length basis in the ordinary
course of business.
9.13. Modification of Documents and Charter. Neither the Borrowers nor
any of their Subsidiaries will consent to or agree to any amendment, supplement
or other modification to the Transaction Documents, the Stockholders Agreement
or the Management Agreement without the prior written consent of the Agent
unless such amendment, supplement or modification would not have any material
adverse effect on the Agent's or the Banks' rights under the Loan Documents or
the Borrowers' or any of their Subsidiaries' obligations under the Loan
Documents. In
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addition, neither the Borrowers nor any of their Subsidiaries will consent to or
agree to any amendment, supplement or modification to the Offering Documents, or
amend or permit to be amended its certificate of incorporation or bylaws, or
similar organizational documents unless such change or amendment would not have
any material adverse effect on the Agent's or the Banks' rights under the Loan
Documents or the Borrowers' or any of their Subsidiaries' obligations under the
Loan Documents.
9.14. Upstream Limitations. Neither the Borrowers nor any of their
Subsidiaries will enter into, or permit any of their Subsidiaries to enter into,
any agreement, contract or arrangement (other than the Credit Agreement and the
other Loan Documents) restricting the ability of any Subsidiary to pay or make
dividends or distributions in cash or kind, to make loans, advances or other
payments of whatsoever nature or to make transfers or distributions of all or
any part of its assets to any Borrower or any Guarantor.
9.15. Inconsistent Agreements. Neither the Borrowers nor any of their
Subsidiaries will, nor will they permit their Subsidiaries to, enter into any
agreement containing any provision which would be violated or breached by the
performance by such Borrower or such Subsidiary of its obligations hereunder or
under any of the Loan Documents.
9.16. Senior Debt. The Company and its Subsidiaries will not (a) in any
manner designate or permit to exist any other Indebtedness of the Company or any
of its Subsidiaries as "Designated Senior Debt" for purposes (and as defined in)
of the Subordinated Indenture, other than the Indebtedness arising under this
Credit Agreement and the Guaranty, or (b) incur or permit to exist any "Senior
Debt" as such term is defined in the Subordinated Indenture, other than the
Indebtedness arising or permitted under this Credit Agreement and the Guaranty
and the other Obligations.
9.17. Limitations on Foreign Exchange Arrangements. The Company will
not and will not permit any of its Subsidiaries to enter into any interest rate
hedging or risk protection arrangements, foreign exchange risk protection
arrangements, or currency risk protection arrangements which are not in the
ordinary course of business or are for speculative purposes.
10. FINANCIAL COVENANTS OF THE BORROWERS.
Each of the Borrowers covenants and agrees that, so long as any
Revolving Credit Loan, Unpaid Reimbursement Obligation, Letter of Credit or
Revolving Credit Note or loan account is outstanding or any Bank has any
obligation to make any Revolving Credit Loans or the Agent has any obligation to
issue, extend or renew any Letters of Credit:
10.1. Leverage Ratio. The Borrowers will not at any time during the
period described in the table set forth below, permit the Leverage Ratio to
exceed the ratio set forth opposite such period in such table:
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Period Ratio
------ -----
Closing Date - March 30, 1999 6.00:1.00
-------------------------------------------------------
any time thereafter 5.50:1.00
-------------------------------------------------------
10.2. Interest Coverage Ratio. The Borrowers will not, as of the end of
any fiscal quarter ending on any date or during any period described in the
table set forth below, permit the Interest Coverage Ratio to be less than the
ratio set forth opposite such period in such table:
Period Ratio
------ -----
Closing Date - December 31, 1998 1.75:1.00
-------------------------------------------------------
January 1, 1999 - December 31, 1999 1.95:1.00
-------------------------------------------------------
any fiscal quarter ending thereafter 2.15:1.00
-------------------------------------------------------
10.3. Fixed Charge Coverage Ratio. The Borrowers will not, as of the
end of any fiscal quarter ending on any date or during any period described in
the table set forth below, permit the Fixed Charge Coverage Ratio to be less
than the ratio set forth opposite such period in such table:
Period Ratio
------ -----
Closing Date - December 31, 1998 1.05:1.00
-------------------------------------------------------
January 1, 1999 - December 31, 1999 1.10:1.00
-------------------------------------------------------
any fiscal quarter ending thereafter 1.20:1.00
-------------------------------------------------------
10.4. Capital Expenditures. The Borrowers will not make, or permit any
Subsidiary of such Borrower to make, Capital Expenditures (other than Capital
Expenditures consisting of Permitted Acquisitions) in any fiscal year that
exceed, in the aggregate, $10,000,000 for such fiscal year; provided, however,
fifty percent (50%) of Capital Expenditures not spent in a given year may be
carried over and added to the Capital Expenditures permitted only for the
immediately following year (after first utilizing the amount of Capital
Expenditures permitted for such fiscal year), each such carry over not to exceed
one year.
11. CLOSING CONDITIONS.
The obligations of the Banks to make the initial Revolving Credit Loans
to the Company and of the Agent to issue any initial Letters of Credit for the
account of the Company shall be subject to the satisfaction of the following
conditions precedent (other than ss.11.21) on or prior to November 26, 1997, and
the obligations of the Banks to make the initial Revolving Credit Loans to the
Subsidiary Borrowers and of the Agent to issue any initial Letters of Credit for
the account of any Subsidiary Borrower shall be subject to the following
conditions precedent (including, without limitation, ss.11.21) on or prior to
December 15, 1997:
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11.1. Loan Documents, etc..
11.1.1. Loan Documents. Each of the Loan Documents other than
the Foreign Security Documents shall have been duly executed and
delivered by the respective parties thereto, shall be in full force and
effect and shall be in form and substance satisfactory to each of the
Banks. Each Bank shall have received a fully executed copy of each such
document.
11.1.2. Subordination Documents. Each of the Offering
Documents and the Subordinated Debt Documents shall have been duly
executed and delivered by the respective parties thereto, shall be in
full force and effect and shall be in form and substance satisfactory
to each of the Banks. Each Bank shall have received a fully executed
copy of each such document.
11.1.3. Transaction Documents. Each of the Transaction
Documents shall have been duly executed and delivered by the respective
parties thereto, shall be in full force and effect and shall be in form
and substance satisfactory to each of the Banks. Each Bank shall have
received a fully executed copy of each such document.
11.2. Certified Copies of Charter Documents. Each of the Banks shall
have received from the Company and each of its Subsidiaries a copy, certified by
a duly authorized officer of such Person to be true and complete on the Closing
Date, of each of (a) its charter or other incorporation documents as in effect
on such date of certification, and (b) its by-laws as in effect on such date.
11.3. Corporate Action. All corporate action necessary for the valid
execution, delivery and performance by the Borrowers and each of their
Subsidiaries of this Credit Agreement and the other Loan Documents to which it
is or is to become a party shall have been duly and effectively taken, and
evidence thereof satisfactory to the Banks shall have been provided to each of
the Banks.
11.4. Incumbency Certificate. Each of the Banks shall have received
from each of the Borrowers and each of the Guarantors an incumbency certificate,
dated as of the Closing Date, signed by a duly authorized officer of such
Borrower or such Guarantor, and giving the name and bearing a specimen signature
of each individual who shall be authorized: (a) to sign, in the name and on
behalf of each of such Borrower or such Guarantor, each of the Loan Documents to
which such Borrower or such Guarantor is or is to become a party; (b) in the
case of the Borrowers, to make Loan Requests and Conversion Requests and, in the
case of the Company, to apply for Letters of Credit; and (c) to give notices and
to take other action on its behalf under the Loan Documents.
11.5. Validity of Liens. The Security Documents other than the Foreign
Security Documents shall be effective to create in favor of the Agent a legal,
valid and enforceable first (except for Permitted Liens entitled to priority
under applicable law) security interest in and lien upon the Collateral. All
filings, recordings, deliveries of instruments and other actions necessary or
desirable in the
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opinion of the Agent to protect and preserve such security interests shall have
been duly effected. The Agent shall have received evidence thereof in form and
substance satisfactory to the Agent.
11.6. Perfection Certificates and UCC Search Results. The Agent shall
have received from each of the Borrowers and the Guarantors a completed and
fully executed Perfection Certificate and the results of UCC searches with
respect to the Collateral, indicating no liens other than Permitted Liens and
otherwise in form and substance satisfactory to the Agent.
11.7. Landlord Consents. The Company and its Subsidiaries shall have
delivered to the Agent all landlord consents as the Agent may request.
11.8. Certificates of Insurance. The Agent shall have received (a) a
certificate of insurance from an independent insurance broker dated as of the
Closing Date, identifying insurers, types of insurance, insurance limits, and
policy terms, and otherwise describing the insurance obtained in accordance with
the provisions of the Security Agreements and (b) certified copies of all
policies evidencing such insurance (or certificates therefore signed by the
insurer or an agent authorized to bind the insurer).
11.9. Hazardous Waste Assessments. The Agent shall have received
hazardous waste site assessments from environmental engineers and in form and
substance satisfactory to the Agent, covering all Real Estate and all other real
property in respect of which any Borrower or any of its Subsidiaries may have
material liability, whether contingent or otherwise, for dumping or disposal of
Hazardous Substances.
11.10. Solvency Opinion. Each of the Banks shall have received a copy
of an opinion from Valuation Research dated not less than three (3) days prior
to the Closing Date, describing in detail the solvency of the Company and its
Subsidiaries after the consummation of the transactions contemplated herein and
in form and substances satisfactory to the Banks.
11.11. Opinion of Counsel. Each of the Banks and the Agent shall have
received a favorable legal opinion addressed to the Banks and the Agent, dated
as of the Closing Date, in form and substance satisfactory to the Banks and the
Agent, from Posternak, Blankstein & Lund, L.L.P., counsel to the Company and its
Subsidiaries.
11.12. Payment of Fees. The Company shall have paid to the Banks or the
Agent, as appropriate, the closing fees and the Agent's Fee as contemplated by
the Fee Letter.
11.13. Payoff Letter. The Agent shall have received appropriate payoff
letters, termination letters and collateral discharges in form and substance
satisfactory to the Agent from holders of existing Indebtedness of the Borrowers
and their Subsidiaries not otherwise permitted hereunder.
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11.14. Disbursement Instructions. The Agent shall have received
disbursement instructions from the Company with respect to the proceeds of the
initial Revolving Credit Loan.
11.15. Completion of Transaction. The Agent shall have received
evidence that all of the closing conditions in the Transaction Documents have
been satisfied and the Transaction shall have been completed pursuant to the
Transaction Documents and otherwise on terms and conditions that are reasonably
satisfactory to the Agent in all respects. The purchase price of the assets and
business acquired pursuant to the Transaction (including the redemption by the
Company of its capital stock) and all expenditures and transaction costs
associated therewith shall not exceed $190,000,000 in the aggregate.
11.16. Capitalization. The Agent and the Banks shall have received
evidence satisfactory to the Agent and the Banks that (a) the Company shall have
received an equity investment of not less than $35,000,000 constituted by a cash
investment of not less than $26,215,000 from Holmes Acquisition and its
assignees and the balance being the value of stock retained by existing
stockholders, in each case on terms and conditions which are satisfactory to the
Agent in all respects and (b) the Company shall have received the gross proceeds
from the Subordinated Notes in an aggregate amount of not less than
$100,000,000.
11.17. Consents and Approvals. The Agent shall have received evidence
that all consents and approvals necessary to complete the Transaction and all
transactions contemplated hereby have been obtained.
11.18. Closing Date EBITDA. The Company shall provide the Agent with
evidence satisfactory to the Agent that the Leverage Ratio on the Closing Date
(after giving effect to all amounts to be borrowed on the Closing Date) is not
greater than 6.00:1.00.
11.19. Availability. The Agent shall have received evidence that on the
Closing Date, after giving effect to the transactions contemplated hereby
(including, without limitation, after giving effect to all borrowings under the
Credit Agreement), the Borrowers will have unused availability under the Credit
Agreement of not less than $10,000,000.
11.20. Designation of Senior Debt. The Agent shall have received
evidence that the Company and the Agent have taken all necessary action under
the Subordinated Indenture to designate the Obligations as "Designated Senior
Debt".
11.21. Conditions to Funding to Subsidiary Borrowers. Each of the
following shall have been satisfied: (a) each of the Foreign Security Documents
shall have been duly executed and delivered by the respective parties thereto,
shall be in full force and effect and shall be in form and substance
satisfactory to each of the Banks, and each Bank shall have received a fully
executed copy of each such document; (b) the Foreign Security Documents shall be
effective to create in favor of the Agent a legal, valid and enforceable first
(except for Permitted Liens entitled to
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priority under applicable law) security interest in and lien upon the
Collateral, and all filings, recordings, deliveries of instruments and other
actions necessary or desirable in the opinion of the Agent to protect and
preserve such security interests shall have been duly effected, with the Agent
having received evidence thereof in form and substance satisfactory to the
Agent; and (c) each of the Banks and the Agent shall have received a favorable
legal opinion addressed to the Banks and the Agent, dated as of the Closing
Date, in form and substance satisfactory to the Banks and the Agent from Messrs.
David Y.W. Ho and Co. and Messrs. McKenney, Bancroft & Hughes, local counsel to
the Subsidiary Borrowers.
12. CONDITIONS TO ALL BORROWINGS.
The obligations of the Banks to make any Revolving Credit Loan and of
the Agent to issue, extend or renew any Letter of Credit, in each case whether
on or after the Closing Date, shall also be subject to the satisfaction of the
following conditions precedent:
12.1. Representations True; No Event of Default. Each of the
representations and warranties of any of the Borrowers and its Subsidiaries
contained in this Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection with this Credit Agreement
shall be true as of the date as of which they were made and shall also be true
at and as of the time of the making of such Revolving Credit Loan or the
issuance, extension or renewal of such Letter of Credit, with the same effect as
if made at and as of that time (except to the extent of changes resulting from
transactions contemplated or permitted by this Credit Agreement and the other
Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse to the Company and its
Subsidiaries taken as a whole, and to the extent that such representations and
warranties relate expressly to an earlier date) and no Default or Event of
Default shall have occurred and be continuing.
12.2. No Legal Impediment. No change shall have occurred in any law or
regulations thereunder or interpretations thereof that in the reasonable opinion
of any Bank would make it illegal for such Bank to make such Revolving Credit
Loan or to participate in the issuance, extension or renewal of such Letter of
Credit or in the reasonable opinion of the Agent would make it illegal for the
Agent to issue, extend or renew such Letter of Credit.
12.3. Governmental Regulation. Each Bank shall have received such
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors of the Federal
Reserve System.
12.4. Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Credit Agreement, the other Loan Documents and
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all other documents incident thereto shall be satisfactory in substance and in
form to the Banks and to the Agent and the Agent's Special Counsel, and the
Banks, the Agent and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as the
Agent may reasonably request.
12.5. Exchange Limitations. There exists no reason whatsoever,
including without limitation, by reason of the application of any so-called
"currency exchange" laws or regulations (as in effect at the time of any
proposed borrowing hereunder) which could reasonably be expected to interfere
with any Borrower satisfying any of its Obligations hereunder in full at such
time as such Obligations become due and payable pursuant to the terms hereof.
13. EVENTS OF DEFAULT; ACCELERATION; ETC.
13.1. Events of Default and Acceleration. If any of the following
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults") shall
occur:
(a) any Borrower shall fail to pay any principal of the
Revolving Credit Loans or any Reimbursement Obligation when the same
shall become due and payable, whether at the stated date of maturity or
any accelerated date of maturity or at any other date fixed for
payment;
(b) any Borrower shall fail to pay any interest on the
Revolving Credit Loans, the commitment fee, any Letter of Credit Fee,
the Agent's Fee, or other sums due hereunder or under any of the other
Loan Documents, when the same shall become due and payable, whether at
the stated date of maturity or any accelerated date of maturity or at
any other date fixed for payment, and such failure shall continue for
three (3) days;
(c) any Borrower shall fail to comply with any of its
covenants contained in ss.ss.8.1-8.4, 8.5.1, 8.7, 8.9, 8.10-8.12,
8.15-8.17, 9.1-9.6, 9.8, 9.10-9.17 or 10;
(d) any Borrower or any of its Subsidiaries shall fail to
perform any term, covenant or agreement contained herein or in any of
the other Loan Documents (other than those specified elsewhere in this
ss.13.1) for thirty (30) days after written notice of such failure has
been given to the Borrower by the Agent;
(e) any representation or warranty of any Borrower or any of
its Subsidiaries in this Credit Agreement or any of the other Loan
Documents or in any of the Transaction Documents or the Offering
Documents or in any other document or instrument delivered pursuant to
or in connection with this Credit Agreement or any of the other Loan
Documents, or any of the Transaction Documents or the Offering
Documents shall prove to have been
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false in any material respect upon the date when made or deemed to have
been made or repeated;
(f) any Borrower or any of its Subsidiaries shall fail to pay
at maturity, or within any applicable period of grace, any obligation
for borrowed money or credit received or in respect of any Capitalized
Leases in an aggregate amount in excess of $2,000,000, or fail to
observe or perform any material term, covenant or agreement contained
in any agreement by which it is bound, evidencing or securing borrowed
money or credit received or in respect of any Capitalized Leases in an
aggregate amount in excess of $2,000,000 for such period of time as
would permit (assuming the giving of appropriate notice if required)
the holder or holders thereof or of any obligations issued thereunder
to accelerate the maturity thereof;
(g) any Borrower or any of its Subsidiaries shall make an
assignment for the benefit of creditors, or admit in writing its
inability to pay or generally fail to pay its debts as they mature or
become due, or shall petition or apply for the appointment of a trustee
or other custodian, liquidator or receiver of any Borrower or any of
its Subsidiaries or of any substantial part of the assets of any
Borrower or any of its Subsidiaries or shall commence any case or other
proceeding relating to any Borrower or any of its Subsidiaries under
any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation or similar law of any jurisdiction,
now or hereafter in effect, or shall take any action to authorize or in
furtherance of any of the foregoing, or if any such petition or
application shall be filed or any such case or other proceeding shall
be commenced against any Borrower or any of its Subsidiaries and such
Borrower or any of its Subsidiaries shall indicate its approval
thereof, consent thereto or acquiescence therein or such petition or
application shall not have been dismissed within forty-five (45) days
following the filing thereof;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating any Borrower or any
of its Subsidiaries bankrupt or insolvent, or approving a petition in
any such case or other proceeding, or a decree or order for relief is
entered in respect of any Borrower or any Subsidiary of such Borrower
in an involuntary case under federal bankruptcy laws as now or
hereafter constituted;
(i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any
final judgment against any Borrower or any of its Subsidiaries that,
with other outstanding final judgments, undischarged, against such
Borrower or any of its Subsidiaries exceeds in the aggregate
$1,000,000;
(j) the holders of all or any part of the Subordinated Debt
shall accelerate the maturity of all or any part of the Subordinated
Debt or, except
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as expressly permitted by ss.9.8, the Subordinated Debt shall be (or
shall be required at such time to be) prepaid, redeemed or repurchased
in whole or in part; or the Company or any of its Subsidiaries shall be
or become required under the Subordinated Indenture to prepay, redeem
or repurchase (or shall be or become required thereunder to offer to
prepay, redeem or repurchase) all or any part of the Subordinated Debt;
(k) if any of the Loan Documents shall be cancelled,
terminated, revoked or rescinded or the Agent's security interests,
mortgages or liens in a substantial portion of the Collateral shall
cease to be perfected, or shall cease to have the priority contemplated
by the Security Documents, in each case otherwise than in accordance
with the terms thereof or with the express prior written agreement,
consent or approval of the Banks, or any action at law, suit or in
equity or other legal proceeding to cancel, revoke or rescind any of
the Loan Documents shall be commenced by or on behalf of any Borrower
or any of its Subsidiaries party thereto or any of their respective
stockholders, or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to the
effect that, any one or more of the Loan Documents is illegal, invalid
or unenforceable in accordance with the terms thereof;
(l) any Borrower or any of its Subsidiaries incurs any
liability to the PBGC or a Guaranteed Pension Plan pursuant to Title IV
of ERISA in an aggregate amount exceeding $1,000,000, or any Borrower
or any of its Subsidiaries is assessed withdrawal liability pursuant to
Title IV of ERISA by a Multiemployer Plan requiring aggregate annual
payments exceeding $1,000,000, or any of the following occurs with
respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event, a
failure to make a required installment or other payment (within the
meaning of ss.302(f)(1) of ERISA), an ERISA Affiliate incurs any
liability to the PBGC or a Guaranteed Pension Plan pursuant to Title IV
of ERISA or is assessed withdrawal liability pursuant to Title IV of
ERISA, provided that the Agent determines in its reasonable discretion
that such event (A) could reasonably be expected to result in liability
of the Borrowers or any of their Subsidiaries to the PBGC or such
Guaranteed Pension Plan in an aggregate amount exceeding $1,000,000 and
(B) could constitute grounds for the termination of such Guaranteed
Pension Plan by the PBGC, for the appointment by the appropriate United
States District Court of a trustee to administer such Guaranteed
Pension Plan or for the imposition of a lien in favor of such
Guaranteed Pension Plan; or (ii) the appointment by a United States
District Court of a trustee to administer such Guaranteed Pension Plan;
or (iii) the institution by the PBGC of proceedings to terminate such
Guaranteed Pension Plan;
(m) any Borrower or any of its Subsidiaries shall be enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting any material part
of its
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business and such order shall continue in effect for more than thirty
(30) days;
(n) there shall occur any material damage to, or loss, theft
or destruction of, any Collateral, whether or not insured, or any
strike, lockout, labor dispute, embargo, condemnation, act of God or
public enemy, or other casualty, which in any such case causes, for
more than fifteen (15) consecutive days, the cessation or substantial
curtailment of revenue producing activities at any facility of any
Borrower or any of its Subsidiaries if such event or circumstance is
not covered by business interruption insurance and would have a
Material Adverse Effect;
(o) there shall occur the loss, suspension or revocation of,
or failure to renew, any license or permit now held or hereafter
acquired by any Borrower or any of its Subsidiaries if such loss,
suspension, revocation or failure to renew would have a Material
Adverse Effect;
(p) the Company shall at any time, legally or beneficially own
less than (i) 100% of the capital stock of each of its Subsidiaries
existing on the Closing Date, or (ii) the greater of (1) 80% of that
portion of the capital stock of any Subsidiary acquired or formed after
the Closing Date which the Company owned on the date of such
acquisition or formation, and (2) 51% of the capital stock of such
Subsidiary;
(q) a Change of Control (as such term is defined in the
Subordinated Indenture) occurs; or
(r) prior to the Initial Public Offering, the Principals shall
at any time, legally or beneficially own less than 51% of the capital
stock of the Company, as adjusted pursuant to any stock split, stock
dividend or recapitalization or reclassification of the capital of the
Company and after the Initial Public Offering, any person or group of
persons (within the meaning of Section 13 or 14 of the Securities
Exchange Act of 1934, as amended) other than the Principals shall have
acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under said Act)
of twenty five percent (25%) or more of the outstanding shares of
common stock of the Company or, at any time, more than a majority of
the members of the Board of Directors of the Company are not Continuing
Directors.
then, and in any such event, so long as the same may be continuing, the Agent,
upon the request of the Majority Banks shall, by notice in writing to the
Company declare all amounts owing with respect to this Credit Agreement, the
Revolving Credit Notes and the other Loan Documents and all Reimbursement
Obligations to be, and they shall thereupon forthwith become, immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by the Borrowers; provided that in the
event of any Event of Default specified in ss.ss.13.1(g), 13.1(h) or 13.1(j),
all such amounts shall become
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immediately due and payable automatically and without any requirement of notice
from the Agent or any Bank.
13.2. Termination of Commitments. If any one or more of the Events of
Default specified in ss.13.1(g), ss.13.1(h) or ss.13.1(j) shall occur, any
unused portion of the credit hereunder shall forthwith terminate and each of the
Banks shall be relieved of all further obligations to make Revolving Credit
Loans to the Borrowers and the Agent shall be relieved of all further
obligations to issue, extend or renew Letters of Credit. If any other Event of
Default shall have occurred and be continuing, or if on any Drawdown Date or
other date for issuing, extending or renewing any Letter of Credit the
conditions precedent to the making of the Revolving Credit Loans to be made on
such Drawdown Date or (as the case may be) to issuing, extending or renewing
such Letter of Credit on such other date are not satisfied, the Agent, upon the
request of the Majority Banks, shall, by notice to the Company, terminate the
unused portion of the credit hereunder, and upon such notice being given such
unused portion of the credit hereunder shall terminate immediately and each of
the Banks shall be relieved of all further obligations to make Revolving Credit
Loans and the Agent shall be relieved of all further obligations to issue,
extend or renew Letters of Credit. No termination of the credit hereunder shall
relieve the Borrowers or any of their Subsidiaries of any of the Obligations.
13.3. Remedies. In case any one or more of the Events of Default shall
have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Revolving Credit Loans pursuant to ss.13.1, each
Bank, if owed any amount with respect to the Revolving Credit Loans or the
Reimbursement Obligations, may, with the consent of the Majority Banks but not
otherwise, proceed to protect and enforce its rights by suit in equity, action
at law or other appropriate proceeding, whether for the specific performance of
any covenant or agreement contained in this Credit Agreement and the other Loan
Documents or any instrument pursuant to which the Obligations to such Bank are
evidenced, including as permitted by applicable law the obtaining of the ex
parte appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of such Bank. No remedy herein conferred upon any Bank
or the Agent or the holder of any Revolving Credit Note or loan account or
purchaser of any Letter of Credit Participation is intended to be exclusive of
any other remedy and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or any other provision of law.
13.4. Exchange Rate. If, for the purpose of obtaining judgment in any
court or obtaining an order enforcing a judgment, it becomes necessary for any
Bank to convert any amount due to such Bank under this Credit Agreement in
Dollars or in any other currency (hereinafter in this ss.13.4 called the "first
currency") into any other currency (hereinafter in this ss.13.4 called the
"second currency"), then the conversion shall be made at such Bank's spot rate
of exchange for buying the first
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currency with the second currency prevailing at such Bank's close of business on
the Business Day next preceding the day on which the judgment is given or (as
the case may be) the order is made. Any payment made to any Bank pursuant to
this Credit Agreement in the second currency shall constitute a discharge of the
obligations of the respective Borrower to pay to such Bank any amount originally
due to such Bank in the first currency under this Credit Agreement only to the
extent of the amount of the first currency which such Bank is able, on the date
of the actual receipt by it of such payment in any second currency, to purchase,
in accordance with such Bank's normal banking procedures, with the amount of
such second currency so received. If the amount of the first currency falls
short of the amount originally due to such Bank in the first currency under this
Credit Agreement, the Borrowers hereby agree that they will indemnify such Bank
against and save such Bank harmless from any shortfall so arising. This
indemnity shall constitute an obligation of such Borrower separate and
independent from the other obligations contained in this Credit Agreement, shall
give rise to a separate and independent cause of action and shall continue in
full force and effect notwithstanding any judgment or order for a liquidated sum
or sums in respect of amounts due to such Bank under this Credit Agreement or
under any such judgment or order. Any such shortfall shall be deemed to
constitute a loss suffered by such Bank and the Borrowers shall not be entitled
to require any proof or evidence of any actual loss. The covenant contained in
this ss.13.4 shall survive the payment in full of all of the other obligations
of the Borrowers under this Credit Agreement.
13.5. Distribution of Collateral Proceeds. In the event that, following
the occurrence or during the continuance of any Default or Event of Default, the
Agent or any Bank, as the case may be, receives any monies in connection with
the enforcement of any the Security Documents, or otherwise with respect to the
realization upon any of the Collateral, such monies shall be distributed for
application as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Agent for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Agent in connection with the collection of such monies
by the Agent, for the exercise, protection or enforcement by the Agent
of all or any of the rights, remedies, powers and privileges of the
Agent under this Credit Agreement or any of the other Loan Documents or
in respect of the Collateral or in support of any provision of adequate
indemnity to the Agent against any taxes or liens which by law shall
have, or may have, priority over the rights of the Agent to such
monies;
(b) Second, to all other Obligations in such order or
preference as the Majority Banks may determine; provided, however, that
(i) distributions shall be made (A) pari passu among Obligations with
respect to the Agent's fee payable pursuant to ss.5.2 and all other
Obligations and (B) with respect to each type of Obligation owing to
the Banks, such as interest, principal, fees and expenses, among the
Banks pro rata in accordance with each Bank's
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Commitment Percentage, and (ii) the Agent may in its reasonable
discretion make proper allowance to take into account any Obligations
not then due and payable;
(c) Third, upon payment and satisfaction in full or other
provisions for payment in full satisfactory to the Banks and the Agent
of all of the Obligations, to the payment of any obligations required
to be paid pursuant to ss.9-504(1)(c) of the Uniform Commercial Code of
the Commonwealth of Massachusetts; and
(d) Fourth, the excess, if any, shall be returned to the
Borrowers or to such other Persons as are entitled thereto.
14. SETOFF.
Regardless of the adequacy of any collateral, during the continuance of
any Event of Default, any deposits or other sums credited by or due from any of
the Banks to any Borrower and any securities or other property of any Borrower
in the possession of such Bank may be applied to or set off by such Bank against
the payment of Obligations and any and all other liabilities, direct, or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of any Borrower to such Bank. Each of the Banks agrees with
each other Bank that (a) if an amount to be set off is to be applied to
Indebtedness of any Borrower to such Bank, other than Indebtedness evidenced by
the Revolving Credit Notes or loan accounts held by such Bank or constituting
Reimbursement Obligations owed to such Bank, such amount shall be applied
ratably to such other Indebtedness and to the Indebtedness evidenced by all such
Revolving Credit Notes and loan accounts held by such Bank or constituting
Reimbursement Obligations owed to such Bank, and (b) if such Bank shall receive
from any Borrower, whether by voluntary payment, exercise of the right of
setoff, counterclaim, cross action, enforcement of the claim evidenced by the
Revolving Credit Notes or loan accounts held by, or constituting Reimbursement
Obligations owed to, such Bank by proceedings against such Borrower at law or in
equity or by proof thereof in bankruptcy, reorganization, liquidation,
receivership or similar proceedings, or otherwise, and shall retain and apply to
the payment of the Revolving Credit Note, Revolving Credit Notes or loan
accounts held by, or Reimbursement Obligations owed to, such Bank any amount in
excess of its ratable portion of the payments received by all of the Banks with
respect to the Revolving Credit Notes or loan accounts held by, and
Reimbursement Obligations owed to, all of the Banks, such Bank will make such
disposition and arrangements with the other Banks with respect to such excess,
either by way of distribution, pro tanto assignment of claims, subrogation or
otherwise as shall result in each Bank receiving in respect of the Revolving
Credit Notes and loan accounts held by it or Reimbursement obligations owed it,
its proportionate payment as contemplated by this Credit Agreement; provided
that if all or any part of such excess payment is thereafter recovered from such
Bank, such disposition and arrangements shall be rescinded and the amount
restored to the extent of such recovery, but without interest.
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15. THE AGENT.
15.1. Authorization.
(a) The Agent is authorized to take such action on behalf of
each of the Banks and to exercise all such powers as are hereunder and
under any of the other Loan Documents and any related documents
delegated to the Agent, together with such powers as are reasonably
incident thereto, provided that no duties or responsibilities not
expressly assumed herein or therein shall be implied to have been
assumed by the Agent.
(b) The relationship between the Agent and each of the Banks
is that of an independent contractor. The use of the term "Agent" is
for convenience only and is used to describe, as a form of convention,
the independent contractual relationship between the Agent and each of
the Banks. Nothing contained in this Credit Agreement nor the other
Loan Documents shall be construed to create an agency, trust or other
fiduciary relationship between the Agent and any of the Banks.
(c) As an independent contractor empowered by the Banks to
exercise certain rights and perform certain duties and responsibilities
hereunder and under the other Loan Documents, the Agent is nevertheless
a "representative" of the Banks, as that term is defined in Article 1
of the Uniform Commercial Code, for purposes of actions for the benefit
of the Banks and the Agent with respect to all collateral security and
guaranties contemplated by the Loan Documents. Such actions include the
designation of the Agent as "secured party", "mortgagee" or the like on
all financing statements and other documents and instruments, whether
recorded or otherwise, relating to the attachment, perfection, priority
or enforcement of any security interests, mortgages or deeds of trust
in collateral security intended to secure the payment or performance of
any of the Obligations, all for the benefit of the Banks and the Agent.
15.2. Employees and Agents. The Agent may exercise its powers and
execute its duties by or through employees or agents and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to its
rights and duties under this Credit Agreement and the other Loan Documents. The
Agent may utilize the services of such Persons as the Agent in its sole
discretion may reasonably determine, and all reasonable fees and expenses of any
such Persons shall be paid by the Borrowers.
15.3. No Liability. Neither the Agent nor any of its shareholders,
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by it or them hereunder or under any of the other Loan Documents, or in
connection herewith or therewith, or be responsible for the consequences of any
oversight or error of judgment
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whatsoever, except that the Agent or such other Person, as the case may be, may
be liable for losses due to its willful misconduct or gross negligence.
15.4. No Representations.
15.4.1. General. The Agent shall not be responsible for the
execution or validity or enforceability of this Credit Agreement, the
Revolving Credit Notes, the loan accounts the Letters of Credit, any of
the other Loan Documents or any instrument at any time constituting, or
intended to constitute, collateral security for the Revolving Credit
Notes and loan accounts, or for the value of any such collateral
security or for the validity, enforceability or collectability of any
such amounts owing with respect to the Revolving Credit Notes and loan
accounts, or for any recitals or statements, warranties or
representations made herein or in any of the other Loan Documents or in
any certificate or instrument hereafter furnished to it by or on behalf
of any Borrower or any of its Subsidiaries, or be bound to ascertain or
inquire as to the performance or observance of any of the terms,
conditions, covenants or agreements herein or in any instrument at any
time constituting, or intended to constitute, collateral security for
the Revolving Credit Notes and loan accounts or to inspect any of the
properties, books or records of the Borrower or any of its
Subsidiaries. The Agent shall not be bound to ascertain whether any
notice, consent, waiver or request delivered to it by any Borrower or
any holder of any of the Revolving Credit Notes or loan accounts shall
have been duly authorized or is true, accurate and complete. The Agent
has not made nor does it now make any representations or warranties,
express or implied, nor does it assume any liability to the Banks, with
respect to the credit worthiness or financial conditions of the
Borrowers or any of their Subsidiaries. Each Bank acknowledges that it
has, independently and without reliance upon the Agent or any other
Bank, and based upon such information and documents as it has deemed
appropriate, made its own credit analysis and decision to enter into
this Credit Agreement.
15.4.2. Closing Documentation, etc. For purposes of
determining compliance with the conditions set forth in ss.11, each
Bank that has executed this Credit Agreement shall be deemed to have
consented to, approved or accepted, or to be satisfied with, each
document and matter either sent, or reasonably made available, by the
Agent or BancBoston Securities Inc., as arranger to such Bank for
consent, approval, acceptance or satisfaction, or required thereunder
to be to be consent to or approved by or acceptable or satisfactory to
such Bank, unless an officer of the Agent or BancBoston Securities Inc.
active upon the Borrowers' account shall have received notice from such
Bank prior to the Closing Date specifying such Bank's objection thereto
and such objection shall not have been withdrawn by notice to the Agent
or BancBoston Securities Inc. to such effect on or prior to the Closing
Date.
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15.5. Payments.
15.5.1. Payments to Agent. A payment by any Borrower to the
Agent hereunder or any of the other Loan Documents for the account of
any Bank shall constitute a payment to such Bank. The Agent agrees
promptly to distribute to each Bank such Bank's pro rata share (in
accordance with such Bank's Commitment Percentage) of payments received
by the Agent for the account of the Banks except as otherwise expressly
provided herein or in any of the other Loan Documents.
15.5.2. Distribution by Agent. If in the opinion of the Agent
the distribution of any amount received by it in such capacity
hereunder, under the Revolving Credit Notes, loan accounts or under any
of the other Loan Documents might involve it in liability, it may
refrain from making distribution until its right to make distribution
shall have been adjudicated by a court of competent jurisdiction. If a
court of competent jurisdiction shall adjudge that any amount received
and distributed by the Agent is to be repaid, each Person to whom any
such distribution shall have been made shall either repay to the Agent
its proportionate share of the amount so adjudged to be repaid or shall
pay over the same in such manner and to such Persons as shall be
determined by such court.
15.5.3. Delinquent Banks. Notwithstanding anything to the
contrary contained in this Credit Agreement or any of the other Loan
Documents, any Bank that fails (a) to make available to the Agent its
pro rata share of any Revolving Credit Loan or to purchase any Letter
of Credit Participation or (b) to comply with the provisions of ss.14
with respect to making dispositions and arrangements with the other
Banks, where such Bank's share of any payment received, whether by
setoff or otherwise, is in excess of its pro rata share of such
payments due and payable to all of the Banks, in each case as, when and
to the full extent required by the provisions of this Credit Agreement,
shall be deemed delinquent (a "Delinquent Bank") and shall be deemed a
Delinquent Bank until such time as such delinquency is satisfied. A
Delinquent Bank shall be deemed to have assigned any and all payments
due to it from the Borrowers, whether on account of outstanding
Revolving Credit Loans, Unpaid Reimbursement Obligations, interest,
fees or otherwise, to the remaining nondelinquent Banks for application
to, and reduction of, their respective pro rata shares of all
outstanding Revolving Credit Loans and Unpaid Reimbursement
Obligations. The Delinquent Bank hereby authorizes the Agent to
distribute such payments to the nondelinquent Banks in proportion to
their respective pro rata shares of all outstanding Revolving Credit
Loans and Unpaid Reimbursement Obligations. A Delinquent Bank shall be
deemed to have satisfied in full a delinquency when and if, as a result
of application of the assigned payments to all outstanding Revolving
Credit Loans and Unpaid Reimbursement Obligations of the nondelinquent
Banks, the Banks' respective pro rata shares of all outstanding
Revolving Credit Loans and Unpaid Reimbursement
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Obligations have returned to those in effect immediately prior to such
delinquency and without giving effect to the nonpayment causing such
delinquency.
15.6. Holders of Revolving Credit Notes. The Agent may deem and treat
the payee of any Revolving Credit Note or the purchaser of any Letter of Credit
Participation as the absolute owner or purchaser thereof for all purposes hereof
until it shall have been furnished in writing with a different name by such
payee or by a subsequent holder, assignee or transferee.
15.7. Indemnity. The Banks ratably agree hereby to indemnify and hold
harmless the Agent and its affiliates from and against any and all claims,
actions and suits (whether groundless or otherwise), losses, damages, costs,
expenses (including any expenses for which the Agent or such affiliate has not
been reimbursed by the Borrowers as required by ss.16), and liabilities of every
nature and character arising out of or related to this Credit Agreement, the
Revolving Credit Notes, the loan accounts or any of the other Loan Documents or
the transactions contemplated or evidenced hereby or thereby, or the Agent's
actions taken hereunder or thereunder, except to the extent that any of the same
shall be directly caused by the Agent's willful misconduct or gross negligence.
15.8. Agent as Bank. In its individual capacity, BKB shall have the
same obligations and the same rights, powers and privileges in respect to its
Commitment and the Revolving Credit Loans made by it, and as the holder of any
of the Revolving Credit Notes, loan accounts and as the purchaser of any Letter
of Credit Participations, as it would have were it not also the Agent.
15.9. Resignation. The Agent may resign at any time by giving sixty
(60) days prior written notice thereof to the Banks and the Company. Upon any
such resignation, the Majority Banks shall have the right to appoint a successor
Agent. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable to the Company.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial institution
having a rating of not less than A or its equivalent by Standard & Poor's
Corporation. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation, the provisions of this Credit
Agreement and the other Loan Documents shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
15.10. Notification of Defaults and Events of Default. Each Bank hereby
agrees that, upon learning of the existence of a Default or an Event of Default,
it
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shall promptly notify the Agent thereof. The Agent hereby agrees that upon
receipt of any notice under this ss.15.10 it shall promptly notify the other
Banks of the existence of such Default or Event of Default.
15.11. Duties in the Case of Enforcement. In case one of more Events of
Default have occurred and shall be continuing, and whether or not acceleration
of the Obligations shall have occurred, the Agent shall, if (a) so requested by
the Majority Banks and (b) the Banks have provided to the Agent such additional
indemnities and assurances against expenses and liabilities as the Agent may
reasonably request, proceed to enforce the provisions of the Security Documents
authorizing the sale or other disposition of all or any part of the Collateral
and exercise all or any such other legal and equitable and other rights or
remedies as it may have in respect of such Collateral. The Majority Banks may
direct the Agent in writing as to the method and the extent of any such sale or
other disposition, the Banks hereby agreeing to indemnify and hold the Agent,
harmless from all liabilities incurred in respect of all actions taken or
omitted in accordance with such directions, provided that the Agent need not
comply with any such direction to the extent that the Agent reasonably believes
the Agent's compliance with such direction to be unlawful or commercially
unreasonable in any applicable jurisdiction.
15.12. Duties of Documentation Agent. The parties hereto hereby
acknowledge and agree that the Documentation Agent shall have no duties or
obligations under this Credit Agreement.
16. EXPENSES AND INDEMNIFICATION.
16.1. Expenses. The Borrowers agree to pay (a) the reasonable costs of
producing and reproducing this Credit Agreement, the other Loan Documents and
the other agreements and instruments mentioned herein, (b) any taxes (including
any interest and penalties in respect thereto) payable by the Agent or any of
the Banks (other than taxes based upon the Agent's or any Bank's net income) on
or with respect to the transactions contemplated by this Credit Agreement (the
Borrowers hereby agreeing to indemnify the Agent and each Bank with respect
thereto), (c) the reasonable fees, expenses and disbursements of the Agent's
Special Counsel or any local counsel to the Agent incurred in connection with
the preparation, syndication, administration or interpretation of the Loan
Documents and other instruments mentioned herein, each closing hereunder, any
amendments, modifications, approvals, consents or waivers hereto or hereunder,
or the cancellation of any Loan Document upon payment in full in cash of all of
the Obligations or pursuant to any terms of such Loan Document for providing for
such cancellation, (d) the fees, expenses and disbursements of the Agent or any
of its affiliates incurred by the Agent or such affiliate in connection with the
preparation, syndication, administration or interpretation of the Loan Documents
and other instruments mentioned herein, including all title insurance premiums
and surveyor, engineering and appraisal charges, (v) all reasonable
out-of-pocket expenses (including without limitation reasonable attorneys' fees
and costs, which attorneys
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may be employees of any Bank or the Agent, and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees and
charges) incurred by any Bank or the Agent in connection with (A) the
enforcement of or preservation of rights under any of the Loan Documents against
any Borrower or any of its Subsidiaries or the administration thereof after the
occurrence of a Default or Event of Default and (B) any litigation, proceeding
or dispute whether arising hereunder or otherwise, in any way related to any
Bank's or the Agent's relationship with the Borrowers or any of their
Subsidiaries and (vi) all reasonable fees, expenses and disbursements of any
Bank or the Agent incurred in connection with UCC searches, UCC filings or
mortgage (including intellectual property mortgage) recordings.
16.2. Indemnification. Each of the Borrowers agrees to indemnify and
hold harmless the Agent, its affiliates and the Banks from and against any and
all claims, actions and suits whether groundless or otherwise, and from and
against any and all liabilities, losses, damages and expenses of every nature
and character arising out of this Credit Agreement or any of the other Loan
Documents or the transactions contemplated hereby including, without limitation,
(a) any actual or proposed use by any Borrower or any of its Subsidiaries of the
proceeds of any of the Revolving Credit Loans or Letters of Credit, (ii) any
actual or alleged infringement of any patent, copyright, trademark, service mark
or similar right of the Company or any of its Subsidiaries comprised in the
Collateral, (iii) the Borrowers or any of their Subsidiaries entering into or
performing this Credit Agreement or any of the other Loan Documents or (iv) with
respect to the Borrowers and their Subsidiaries and their respective properties
and assets, the violation of any Environmental Law, the presence, disposal,
escape, seepage, leakage, spillage, discharge, emission, release or threatened
release of any Hazardous Substances or any action, suit, proceeding or
investigation brought or threatened with respect to any Hazardous Substances
(including, but not limited to, claims with respect to wrongful death, personal
injury or damage to property), in each case including, without limitation, the
reasonable fees and disbursements of counsel and allocated costs of internal
counsel incurred in connection with any such investigation, litigation or other
proceeding. In litigation, or the preparation therefor, the Banks and the Agent
and its affiliates shall each be entitled to select their own counsel and, in
addition to the foregoing indemnity, each of the Borrowers agrees to pay
promptly the reasonable fees and expenses of such counsel. If, and to the extent
that the obligations of the Borrowers under this ss.16.2 are unenforceable for
any reason, the each of the Borrowers hereby agrees to make the maximum
contribution to the payment in satisfaction of such obligations which is
permissible under applicable law.
16.3. Survival. The covenants contained in this ss.16 shall survive
payment or satisfaction in full of all other Obligations.
17. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.
17.1. Sharing of Information with Section 20 Subsidiary. The Company
acknowledges that from time to time financial advisory, investment banking and
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other services may be offered or provided to the Company or one or more of its
Subsidiaries, in connection with this Credit Agreement or otherwise, by a
Section 20 Subsidiary. The Company, for itself and each of its Subsidiaries,
hereby authorizes (a) such Section 20 Subsidiary to share with the Agent and
each Bank any information delivered to such Section 20 Subsidiary by the
Borrower or any of its Subsidiaries, and (b) the Agent and each Bank to share
with such Section 20 Subsidiary any information delivered to the Agent or such
Bank by the Company or any of its Subsidiaries pursuant to this Credit
Agreement, or in connection with the decision of such Bank to enter into this
Credit Agreement; it being understood, in each case, that any such Section 20
Subsidiary receiving such information shall be bound by the confidentiality
provisions of this Credit Agreement. Such authorization shall survive the
payment and satisfaction in full of all of Obligations.
17.2. Confidentiality. Each of the Banks and the Agent agrees, on
behalf of itself and each of its affiliates, directors, officers, employees and
representatives, to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by the Company or any of its Subsidiaries
pursuant to this Credit Agreement that is identified by such Person as being
confidential at the time the same is delivered to the Banks or the Agent,
provided that nothing herein shall limit the disclosure of any such information
(a) after such information shall have become public other than through a
violation of this ss.17, (b) to the extent required by statute, rule, regulation
or judicial process, (c) to counsel for any of the Banks or the Agent, (d) to
bank examiners or any other regulatory authority having jurisdiction over any
Bank or the Agent, or to auditors or accountants, (e) to the Agent, any Bank or
any Section 20 Subsidiary, (f) in connection with any litigation to which any
one or more of the Banks, the Agent or any Section 20 Subsidiary is a party, or
in connection with the enforcement of rights or remedies hereunder or under any
other Loan Document, (g) to a Subsidiary or affiliate of such Bank as provided
in ss.17.1 or (h) to any assignee or participant (or prospective assignee or
participant) so long as such assignee or participant agrees to be bound by the
provisions of ss.19.6.
17.3. Prior Notification. Unless specifically prohibited by applicable
law or court order, each of the Banks and the Agent shall, prior to disclosure
thereof, notify the Company of any request for disclosure of any such non-public
information by any governmental agency or representative thereof (other than any
such request in connection with an examination of the financial condition of
such Bank by such governmental agency) or pursuant to legal process.
17.4. Other. In no event shall any Bank or the Agent be obligated or
required to return any materials furnished to it or any Section 20 Subsidiary by
the Company or any of its Subsidiaries. The obligations of each Bank under this
ss.17 shall supersede and replace the obligations of such Bank under any
confidentiality letter in respect of this financing signed and delivered by such
Bank to the Company prior to the date hereof and shall be binding upon any
assignee of, or
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purchaser of any participation in, any interest in any of the Revolving Credit
Loans or Reimbursement Obligations from any Bank.
18. SURVIVAL OF COVENANTS, ETC.
All covenants, agreements, representations and warranties made herein,
in the Revolving Credit Notes, in any of the other Loan Documents or in any
certificates or financial statements expressly required by the terms of the
Credit Agreement to be delivered by or on behalf of the Borrowers or any of
their Subsidiaries pursuant hereto shall be deemed to have been relied upon by
the Banks and the Agent, notwithstanding any investigation heretofore or
hereafter made by any of them, and shall survive the making by the Banks of any
of the Revolving Credit Loans and the issuance, extension or renewal of any
Letters of Credit, as herein contemplated, and shall continue in full force and
effect so long as any Letter of Credit or any amount due under this Credit
Agreement or the Revolving Credit Notes or the loan accounts or any of the other
Loan Documents remains outstanding or any Bank has any obligation to make any
Revolving Credit Loans or the Agent has any obligation to issue, extend or renew
any Letter of Credit, and for such further time as may be otherwise expressly
specified in this Credit Agreement.
19. ASSIGNMENT AND PARTICIPATION.
19.1. Conditions to Assignment by Banks. Except as provided herein,
each Bank may assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Credit Agreement (including all or
a portion of its Commitment Percentage and Commitment and the same portion of
the Revolving Credit Loans at the time owing to it, the Revolving Credit Notes
held by it and its participating interest in the risk relating to any Letters of
Credit); provided that (a) each of the Agent and, unless a Default or Event of
Default shall have occurred and be continuing, the Company shall have given its
prior written consent to such assignment, which consent, in the case of the
Company, will not be unreasonably withheld, (b) each such assignment shall be of
a constant, and not a varying, percentage of all the assigning Bank's rights and
obligations under this Credit Agreement, (c) each assignment shall be in an
amount that is a whole multiple of $5,000,000 (or if less, such assignor's
entire Commitment), and (d) the parties to such assignment shall execute and
deliver to the Agent, for recording in the Register (as hereinafter defined), an
Assignment and Acceptance, substantially in the form of Exhibit E hereto (an
"Assignment and Acceptance"), together with any Revolving Credit Notes subject
to such assignment. Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in each Assignment and Acceptance,
which effective date shall be at least five (5) Business Days after the
execution thereof, (i) the assignee thereunder shall be a party hereto and, to
the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder, and (ii) the assigning Bank shall, to the
extent provided in such assignment and upon payment to the Agent of the
registration fee referred to in ss.19.3, be released from its obligations under
this Credit Agreement.
<PAGE>
-106-
19.2. Certain Representations and Warranties; Limitations; Covenants.
By executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows:
(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, the assigning Bank makes no
representation or warranty, express or implied, and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Credit Agreement or
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Credit Agreement, the other Loan Documents
or any other instrument or document furnished pursuant hereto or the
attachment, perfection or priority of any security interest or
mortgage,
(b) the assigning Bank makes no representation or warranty and
assumes no responsibility with respect to the financial condition of
the Company and its Subsidiaries or any other Person primarily or
secondarily liable in respect of any of the Obligations, or the
performance or observance by the Company and its Subsidiaries or any
other Person primarily or secondarily liable in respect of any of the
Obligations of any of their obligations under this Credit Agreement or
any of the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto;
(c) such assignee confirms that it has received a copy of this
Credit Agreement, together with copies of the most recent financial
statements referred to in ss.7.4 and ss.8.4 and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;
(d) such assignee will, independently and without reliance
upon the assigning Bank, the Agent or any other Bank and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking
action under this Credit Agreement;
(e) such assignee represents and warrants that it is an
Eligible Assignee;
(f) such assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under
this Credit Agreement and the other Loan Documents as are delegated to
the Agent by the terms hereof or thereof, together with such powers as
are reasonably incidental thereto;
(g) such assignee agrees that it will perform in accordance
with their terms all of the obligations that by the terms of this
Credit Agreement are required to be performed by it as a Bank;
<PAGE>
-107-
(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance; and
(i) such assignee acknowledges that it has made arrangements
with the assigning Bank satisfactory to such assignee with respect to
its pro rata share of Letter of Credit Fees in respect of outstanding
Letters of Credit.
19.3. Register. The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register or similar list (the "Register") for
the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Revolving Credit Loans owing to and
Letter of Credit Participations purchased by, the Banks from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Agent and the Banks may treat each Person whose name is
recorded in the Register as a Bank hereunder for all purposes of this Credit
Agreement. The Register shall be available for inspection by the Company and the
Banks at any reasonable time and from time to time upon reasonable prior notice.
Upon each such recordation, the assigning Bank agrees to pay to the Agent a
registration fee in the sum of $2,500.
19.4. New Revolving Credit Notes. Upon its receipt of an Assignment and
Acceptance executed by the parties to such assignment, together with each
Revolving Credit Note subject to such assignment, the Agent shall (a) record the
information contained therein in the Register, and (b) give prompt notice
thereof to the Company and the Banks (other than the assigning Bank). Within
five (5) Business Days after receipt of such notice, the Company, at its own
expense, shall execute and deliver to the Agent, in exchange for each
surrendered Revolving Credit Note, a new Revolving Credit Note to the order of
such Eligible Assignee in an amount equal to the amount assumed by such Eligible
Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank
has retained some portion of its obligations hereunder, a new Revolving Credit
Note to the order of the assigning Bank in an amount equal to the amount
retained by it hereunder. Such new Revolving Credit Notes shall provide that
they are replacements for the surrendered Revolving Credit Notes, shall be in an
aggregate principal amount equal to the aggregate principal amount of the
surrendered Revolving Credit Notes, shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be substantially the form of the
assigned Revolving Credit Notes. Within five (5) days of issuance of any new
Revolving Credit Notes pursuant to this ss.19.4, the Company shall deliver an
opinion of counsel, addressed to the Banks and the Agent, relating to the due
authorization, execution and delivery of such new Revolving Credit Notes and the
legality, validity and binding effect thereof, in form and substance
satisfactory to the Banks. The surrendered Revolving Credit Notes shall be
cancelled and returned to the Company.
19.5. Participations. Each Bank may sell participations to one or more
banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; provided
that (a) each such
<PAGE>
-108-
participation shall be in an amount of not less than $2,500,000, (b) any such
sale or participation shall not affect the rights and duties of the selling Bank
hereunder to the Borrowers and (c) the only rights granted to the participant
pursuant to such participation arrangements with respect to waivers, amendments
or modifications of the Loan Documents shall be the rights to approve waivers,
amendments or modifications that would reduce the principal of or the interest
rate on any Revolving Credit Loans, extend the term or increase the amount of
the Commitment of such Bank as it relates to such participant, reduce the amount
of any commitment fees or Letter of Credit Fees to which such participant is
entitled or extend any regularly scheduled payment date for principal or
interest.
19.6. Disclosure. Each of the Borrowers agrees that in addition to
disclosures made in accordance with standard and customary banking practices any
Bank may disclose information obtained by such Bank pursuant to this Credit
Agreement to assignees or participants and potential assignees or participants
hereunder; provided that such assignees or participants or potential assignees
or participants shall agree (a) to treat in confidence such information unless
such information otherwise becomes public knowledge, (b) not to disclose such
information to a third party, except as required by law or legal process and (c)
not to make use of such information for purposes of transactions unrelated to
such contemplated assignment or participation.
19.7. Assignee or Participant Affiliated with any Borrower. If any
assignee Bank is an Affiliate of any Borrower, then any such assignee Bank shall
have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Agent pursuant to ss.13.1 or ss.13.2, and
the determination of the Majority Banks shall for all purposes of this Credit
Agreement and the other Loan Documents be made without regard to such assignee
Bank's interest in any of the Revolving Credit Loans or Reimbursement
Obligations. If any Bank sells a participating interest in any of the Revolving
Credit Loans or Reimbursement Obligations to a participant, and such participant
is any Borrower or an Affiliate of any Borrower, then such transferor Bank shall
promptly notify the Agent of the sale of such participation. A transferor Bank
shall have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or modifications to any of the Loan Documents or for
purposes of making requests to the Agent pursuant to ss.13.1 or ss.13.2 to the
extent that such participation is beneficially owned by any Borrower or any
Affiliate of any Borrower, and the determination of the Majority Banks shall for
all purposes of this Credit Agreement and the other Loan Documents be made
without regard to the interest of such transferor Bank in the Revolving Credit
Loans or Reimbursement Obligations to the extent of such participation.
19.8. Miscellaneous Assignment Provisions. Any assigning Bank shall
retain its rights to be indemnified pursuant to ss.16 or any other express
provision of
<PAGE>
-109-
this Credit Agreement with respect to any claims or actions arising prior to the
date of such assignment. If any assignee Bank is not incorporated under the laws
of the United States of America or any state thereof, it shall, prior to the
date on which any interest or fees are payable hereunder or under any of the
other Loan Documents for its account, deliver to the Borrowers and the Agent
certification as to its exemption from deduction or withholding of any United
States federal income taxes. If any Reference Bank transfers all of its
interest, rights and obligations under this Credit Agreement, the Agent shall,
in consultation with the Borrowers and with the consent of the Borrowers and the
Majority Banks, appoint another Bank to act as a Reference Bank hereunder.
Anything contained in this ss.19 to the contrary notwithstanding, any Bank may
at any time pledge all or any portion of its interest and rights under this
Credit Agreement (including all or any portion of its Revolving Credit Notes) to
any of the twelve Federal Reserve Banks organized under ss.4 of the Federal
Reserve Act, 12 U.S.C. ss.341. No such pledge or the enforcement thereof shall
release the pledgor Bank from its obligations hereunder or under any of the
other Loan Documents.
19.9. Assignment by Borrowers. The Borrowers shall not assign or
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of each of the Banks.
20. NOTICES, ETC.
Except as otherwise expressly provided in this Credit Agreement, all
notices and other communications made or required to be given pursuant to this
Credit Agreement or the Revolving Credit Notes or any Letter of Credit
Applications shall be in writing and shall be delivered in hand, mailed by
United States registered or certified first class mail, postage prepaid, sent by
overnight courier, or sent by telegraph, telecopy, facsimile or telex and
confirmed by delivery via courier or postal service, addressed as follows:
(a) if to any Borrower, at 233 Fortune Boulevard, Milford,
Massachusetts 01757, Attention: President, or at such other address for
notice as the Borrower shall last have furnished in writing to the
Person giving the notice;
(b) if to the Agent, at 100 Federal Street, Boston,
Massachusetts 02110, USA, Attention: Linda Alto, Vice President, or
such other address for notice as the Agent shall last have furnished in
writing to the Person giving the notice; and
(c) if to any Bank, at such Bank's address set forth on
Schedule 1 hereto, or such other address for notice as such Bank shall
have last furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (a) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of
<PAGE>
-110-
the receipt thereof by such officer or the sending of such facsimile and (b) if
sent by registered or certified first-class mail, postage prepaid, on the third
Business Day following the mailing thereof.
21. GOVERNING LAW.
THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). EACH OF THE
BORROWERS AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH
OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT
BEING MADE UPON SUCH BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN ss.20. EACH OF
THE BORROWERS HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
22. HEADINGS.
The captions in this Credit Agreement are for convenience of reference
only and shall not define or limit the provisions hereof.
23. COUNTERPARTS.
This Credit Agreement and any amendment hereof may be executed in
several counterparts and by each party on a separate counterpart, each of which
when executed and delivered shall be an original, and all of which together
shall constitute one instrument. In proving this Credit Agreement it shall not
be necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought.
24. ENTIRE AGREEMENT, ETC.
The Loan Documents and any other documents executed in connection
herewith or therewith express the entire understanding of the parties with
respect to the transactions contemplated hereby. Neither this Credit Agreement
nor any term hereof may be changed, waived, discharged or terminated, except as
provided in ss.26.
<PAGE>
-111-
25. WAIVER OF JURY TRIAL.
Each of the Borrowers hereby waives its right to a jury trial with
respect to any action or claim arising out of any dispute in connection with
this Credit Agreement, the Revolving Credit Notes or any of the other Loan
Documents, any rights or obligations hereunder or thereunder or the performance
of which rights and obligations. Except as prohibited by law, each of the
Borrowers hereby waives any right it may have to claim or recover in any
litigation referred to in the preceding sentence any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. Each of the Borrowers (a) certifies that no representative,
agent or attorney of any Bank or the Agent has represented, expressly or
otherwise, that such Bank or the Agent would not, in the event of litigation,
seek to enforce the foregoing waivers and (b) acknowledges that the Agent and
the Banks have been induced to enter into this Credit Agreement, the other Loan
Documents to which it is a party by, among other things, the waivers and
certifications contained herein.
26. CONSENTS, AMENDMENTS, WAIVERS, ETC.
Any consent or approval required or permitted by this Credit Agreement
to be given by the Banks (including, without limitation, an increase in the
sublimit of Revolving Credit Loans and Letters of Credit available to the
Subsidiary Borrowers) may be given, and any term of this Credit Agreement, the
other Loan Documents or any other instrument related hereto or mentioned herein
may be amended, and the performance or observance by the Borrowers or any of
their Subsidiaries of any terms of this Credit Agreement, the other Loan
Documents or such other instrument or the continuance of any Default or Event of
Default may be waived (either generally or in a particular instance and either
retroactively or prospectively) with, but only with, the written consent of the
Borrowers and the written consent of the Majority Banks. Notwithstanding the
foregoing, a decrease in the rate of interest on the Revolving Credit Notes and
loan accounts (other than interest accruing pursuant to ss.5.11.2 following the
effective date of any waiver by the Majority Banks of the Default or Event of
Default relating thereto), any change in the regularly scheduled or otherwise
required payment dates for any amounts owing under the Loan Documents to the
Banks, the release of any security interest or lien as to Collateral
constituting all or substantially all of the Collateral (except if the release
or disposition of such Collateral is permitted or provided for in the provisions
of ss.9.5.2. hereof or elsewhere in the Loan Documents), the release of any
Guarantor (except if the release or disposition of such Collateral is permitted
or provided for in the provisions of ss.9.5.2 hereof or elsewhere in the Loan
Documents), the amount of the Commitments of the Banks, and the amount of
commitment fee or Letter of Credit Fees hereunder may not be changed without the
written consent of the Borrower and the written consent of each Bank affected
thereby; the Revolving Credit Loan Maturity Date may not be postponed without
the written consent of each Bank affected thereby; this ss.26 and the definition
of Majority Banks may not be amended, without the written consent of all of the
Banks; and the amount of the Agent's Fee or any Letter of Credit Fees payable
for the Agent's account and ss.15
<PAGE>
-112-
may not be amended without the written consent of the Agent. No waiver shall
extend to or affect any obligation not expressly waived or impair any right
consequent thereon. No course of dealing or delay or omission on the part of the
Agent or any Bank in exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereto. No notice to or demand upon the Borrowers
shall entitle the Borrowers to other or further notice or demand in similar or
other circumstances.
27. SEVERABILITY.
The provisions of this Credit Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction, and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Credit Agreement in any jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this Credit
Agreement as a sealed instrument as of the date first set forth above.
HOLMES PRODUCTS CORP.
By: /s/ Jordan A. Kahn
-------------------------------
Name: Jordan A. Kahn
Title: Director
HOLMES PRODUCTS (FAR EAST) LIMITED
By: /s/ Jordan A. Kahn
-------------------------------
Name: Jordan A. Kahn
Title: Director
ESTEEM INDUSTRIES LTD.
By: /s/ Jordan A. Kahn
-------------------------------
Name: Jordan A. Kahn
Title: Director
RAIDER MOTOR CORPORATION
By: /s/ Jordan A. Kahn
-------------------------------
Name: Jordan A. Kahn
Title: Director
<PAGE>
BANKBOSTON, N.A., individually and as Agent
By: /s/ Linda Alto
-------------------------------
Title: Vice President
BANKBOSTON, N.A. acting through its
Hong Kong branch, as Fronting Bank
By: /s/ Linda Alto
-------------------------------
<PAGE>
LEHMAN COMMERCIAL PAPER INC.
Individually and as Documentation Agent
By: /s/ Dennis J. Dee
---------------------------------
Name: Dennis J. Dee
Title:
<PAGE>
COMERICA BANK
By: /s/ Kimberly S. Kersten
-------------------------------
Name: Kimberly S. Kersten
Title: Vice President
<PAGE>
FLEET NATIONAL BANK
By: /s/ Wayne S. Antion
-------------------------------
Name: Wayne S. Antion
Title: Director
<PAGE>
KEY CORPORATE CAPITAL INC.
By: /s/ Guy J. Simmons
-------------------------------
Name: Guy J. Simmons
Title: Senior Vice President
<PAGE>
LASALLE NATIONAL BANK
By: /s/ Shonagh Aylsworth
-------------------------------
Name: Shonagh Aylsworth
Title: First Vice President
<PAGE>
USTRUST
By: /s/ Thomas F. Macina
-------------------------------
Name: Thomas F. Macina
Title: Vice President
EXECUTION COPY
STOCK PURCHASE
AND
REDEMPTION AGREEMENT
by and among
ASCO INVESTMENTS LTD.,
JORDAN A. KAHN,
HOLMES PRODUCTS CORP.,
HOLMES PRODUCTS (FAR EAST) LTD.
and
HOLMES ACQUISITION LLC
Dated as of October 27, 1997
<PAGE>
STOCK PURCHASE
AND
REDEMPTION AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS........................................................................2
ARTICLE II
THE TRANSACTIONS....................................................................4
2.1 Contribution of Capital Stock.................................................4
-----------------------------
2.2 Redemption from Asco Investments..............................................4
--------------------------------
2.3 Capital Contribution. ......................................................4
--------------------
2.4 Stock Sale by Holmes..........................................................4
--------------------
2.5 Closing.......................................................................5
-------
2.6 Working Capital Purchase Price Adjustment.....................................5
-----------------------------------------
2.7 Payment of Affiliated Debt and Management Bonuses.............................7
-------------------------------------------------
2.8 Credit Support................................................................8
--------------
2.9 Payment of Closing Expenses...................................................8
---------------------------
2.10 Employees and Benefits........................................................8
----------------------
2.11. Resignation of Directors and Officers.........................................9
-------------------------------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS AND THE COMPANIES....................................................9
3.1 Representations and Warranties Relating to the Sellers........................9
------------------------------------------------------
3.2 Representations and Warranties Relating to Holmes and Holmes (Far East)......11
-----------------------------------------------------------------------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER........................................24
4.1 Organization, Standing and Corporate Power...................................24
------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.2 Authority; Binding Effect; Noncontravention..................................24
-------------------------------------------
4.3 Brokers......................................................................25
-------
4.4 Litigation...................................................................25
----------
4.5 Funding......................................................................25
-------
4.6 Investment Representation....................................................25
-------------------------
4.7 Solvency.....................................................................26
--------
4.8 Business Risks in the Far East...............................................26
------------------------------
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO CLOSING.........................26
5.1 Conduct of Business of the Companies.........................................26
------------------------------------
5.2 Changes in Employment Arrangements...........................................28
----------------------------------
5.3 Severance....................................................................29
---------
5.4 WARN.........................................................................29
----
5.5 Tax Elections................................................................29
-------------
ARTICLE VI
ADDITIONAL AGREEMENTS..............................................................29
6.1 Contribution of Shares.......................................................29
----------------------
6.2 Access.......................................................................29
------
6.3 Confidentiality..............................................................30
---------------
6.4 Financing....................................................................30
---------
6.5 Efforts......................................................................30
-------
6.6 Intra-Family Transfers of Shares.............................................31
--------------------------------
6.7 Exclusivity..................................................................31
-----------
6.8 Warrant......................................................................31
-------
6.9 Supplemental Information.....................................................31
------------------------
6.10 Indemnification..............................................................32
---------------
6.11 Termination of Employment Arrangements; Payment of Management Bonuses........32
---------------------------------------------------------------------
6.12 Non-Competition Agreement....................................................32
-------------------------
ARTICLE VII
CONDITIONS PRECEDENT...............................................................33
7.1 Conditions to Each Party's Obligations.......................................33
--------------------------------------
7.2 Conditions to the Buyer's Obligations........................................34
-------------------------------------
7.3 Conditions to Sellers' and Holmes' Obligations...............................36
----------------------------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII INDEMNIFICATION.........................................................38
8.1 Survival.....................................................................38
--------
8.2 Indemnification by the Sellers...............................................38
------------------------------
8.3 Indemnification of the Sellers...............................................38
------------------------------
8.4 Third Person Claims..........................................................39
-------------------
8.5 Limitation on Indemnification................................................40
-----------------------------
8.6 Limitation on Tax Liability..................................................42
---------------------------
8.7 Civil Liability under RICO...................................................42
--------------------------
8.8 Indemnification Exclusive Remedy.............................................43
--------------------------------
ARTICLE IX
GENERAL PROVISIONS.................................................................43
9.1 Fees and Expenses............................................................43
-----------------
9.2 Termination..................................................................43
-----------
9.3 Amendment; Extension; Waiver.................................................43
----------------------------
9.4 Notices......................................................................44
-------
9.5 Interpretation...............................................................45
--------------
9.6 Counterparts.................................................................45
------------
9.7 Entire Agreement.............................................................45
----------------
9.8 Control by Asco Investments..................................................45
---------------------------
9.9 Liquidation of Buyer.........................................................45
--------------------
9.10 GOVERNING LAW................................................................45
-------------
9.11 JURISDICTION OF DISPUTES; WAIVER OF JURY TRIAL...............................46
----------------------------------------------
9.12 Assignment. ................................................................46
----------
9.13 Enforcement..................................................................47
-----------
9.14 Limitation and Warranties....................................................47
-------------------------
9.15 U.S. Dollars.................................................................47
------------
9.16 Disclosure Schedule..........................................................47
-------------------
</TABLE>
iii
<PAGE>
Exhibits
A Shareholders/Executives Agreement
B Escrow Agreement
C Accounting Policies
C-1 Working Capital Example
D Warrant
E Stockholders' Agreement
F Registration Rights Agreement
G Employment Agreements
H Non-Competition Agreement
I Far East Lease
iv
<PAGE>
EXECUTION COPY
STOCK PURCHASE
AND
REDEMPTION AGREEMENT
THIS STOCK PURCHASE AND REDEMPTION AGREEMENT (this "Agreement") is
entered into as of this 27th day of October, 1997 by and among, Asco Investments
Ltd., a Bahamas corporation ("Asco Investments"), Jordan A. Kahn, a
Massachusetts resident ("Kahn"), Holmes Products Corp., a Massachusetts
corporation ("Holmes"), Holmes Products (Far East) Limited, a Bahamas
corporation ("Holmes (Far East));" and Holmes Acquisition LLC, a Delaware
limited liability company (the "Buyer").
WHEREAS, (i) Holmes (together with its direct and indirect
majority-owned subsidiaries on a consolidated basis, the "North American
Companies"), and (ii) Holmes (Far East) (together with its direct and indirect
majority-owned subsidiaries on a consolidated basis, collectively, the "Far East
Companies"), conduct a business of designing, manufacturing and marketing home
comfort and lighting appliances (the North American Companies and Holmes (Far
East) being referred to herein on a combined basis as the "Companies"); and
WHEREAS, Asco Investments and Kahn (collectively, the "Sellers") either
directly or indirectly are the beneficial and record owners of all of the issued
and outstanding shares of capital stock of each of Holmes and Holmes (Far East);
and
WHEREAS, immediately prior to the Closing (as defined herein), Asco
Investments and Kahn shall have contributed all of the shares of Holmes (Far
East) to Holmes in exchange for shares of common stock of Holmes, so that Holmes
(Far East) shall have become a wholly-owned subsidiary of Holmes; and
WHEREAS, (i) the Board of Directors of Holmes has approved the
execution and delivery of and performance under this Agreement by Holmes,
pursuant to which Holmes will issue and sell to Buyer shares of common stock, no
par value, of Holmes ("Common Stock"); and (ii) the Board of Directors of each
of Holmes and Asco Investments has approved the redemption by Holmes from Asco
Investments of shares of Common Stock, pursuant to this Agreement.
WHEREAS, it is intended that the transactions set forth herein be
recorded as a recapitalization for financial reporting purposes.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following defined terms shall have
the meanings indicated below:
(a) an "Affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "Additional Kahn Bonus" shall mean an amount equal to (x) five
percent (5%) of the Cash Purchase Price minus (y) $1.118 million;
(c) "Affiliated Debt" shall mean the principal amount of, and all
accrued interest, expenses, fees, commissions, and other amounts owed or payable
in respect of Indebtedness (as defined herein) or other obligations owed or
payable by the Companies to Pentland Group plc and its subsidiaries, including
Pentland Management Services, Ltd., Asco Group Limited, Asco Investments, Asco
General Supplies Hong Kong (1972) Limited, Asco General Supplies (Far East)
Limited ("Asco General") and Holmes Products Hong Kong (1985) Limited ("Holmes
(HK)") and/or to any of their respective lenders or providers of Indebtedness.
(d) "Cash Purchase Price" shall mean an amount equal to (i)
$173,500,000, minus (ii) the aggregate principal amount of, and accrued interest
on, unpaid Indebtedness (other than undrawn letters of credit as of the Closing
Date), minus (iii) the Closing Expenses, minus (iv) the Management Bonuses, and
plus or minus (v) the preliminary Working Capital Adjustment under Section
2.6(a); provided, however that there shall be excluded from amounts otherwise
includable under any of clauses (ii), (iii) or (iv) any amount with respect to
an item which is (x) included as a current liability, accrual or reserve in the
Companies' financial statements as of the Closing and (y) subtracted from
working capital as of the Closing Date for the purposes of making the adjustment
described in Section 2.6. As used herein, the term "Closing Expenses" shall mean
the legal and accounting expenses (including with respect to the opinion
referred to in Section 7.2(o)) and investment banking fee due Goldman, Sachs &
Co. and incurred by the Sellers and/or the Companies in conjunction with the
transactions provided for under this Agreement, provided, however, that in no
event shall any such expenses include any expenses incurred in conjunction with
or in preparation for any financing obtained by the Company in order to perform
the transactions provided for herein; and provided further, that Closing
Expenses shall not include any such fees or expenses to the extent they have
been paid or accrued as current liabilities prior to the Closing Date.
(e) "Indebtedness" shall mean, without duplication, as to the Companies
(a) indebtedness created, issued or incurred by any of the Companies for
borrowed money (whether
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by loan or the issuance or sale of debt securities), including any interest,
fees, premiums or other amounts required to be paid upon the repayment thereof,
(b) obligations of any of the Companies to pay the deferred purchase or
acquisition price of property or services, other than trade accounts payable
arising in the ordinary course of business, (c) indebtedness of others secured
by a lien on the property of such Companies, whether or not the indebtedness so
secured has been assumed by such Companies, (d) reimbursement obligations in
respect of drawn letters of credit or similar instruments issued or accepted by
banks and other financial institutions for the account of any of the Companies
or for which any of the Companies are liable and (e) capital lease obligations
of any of the Companies; provided, however, that Indebtedness shall not include
(a) any lease which is accounted for under United States generally accepted
accounting principles as an operating lease, but for which a lien has been
created for the benefit of the Lessor, or (b) any obligation secured by a lien
described in clause (ii) or (iii) of the definition of "Permitted Lien".
(f) "Kahn Stock Purchase Agreement" shall mean the Stock Purchase
Agreement dated as of the date hereof between the Buyer and Kahn, pursuant to
which Buyer shall purchase shares of Holmes Common Stock from Kahn.
(g) "Knowledge", with respect to the Companies means the actual
knowledge of any one or more of Jordan Kahn, Stanley Rosenzweig, Gregory White,
Tommy Liu and David Dusseault, in each case after reasonable investigation and
inquiry.
(h) "Laws" means all applicable laws, statutes, governmental rules,
regulations and orders, and all applicable judicial or administrative
judgements, orders and decrees.
(i) "Management Bonus" shall mean the bonuses (other than the
Additional Kahn Bonus) payable to Jordan A. Kahn, Stanley Rosenzweig and Gregory
F. White in connection with the Closing and the transactions contemplated hereby
as provided in the Shareholders/Executives Agreement attached as Exhibit A
hereto.
(j) "Material Adverse Effect," as used in this Agreement, means, with
respect to the Companies, a material adverse effect upon (i) the assets,
properties, condition (financial or otherwise), customers, suppliers or results
of operations of the Companies, taken as a whole, or (ii) the transactions
contemplated hereby or the legality or validity of this Agreement.
(k) "Permitted Liens" means (i) liens or other encumbrances disclosed
on the Balance Sheet of the Companies at December 31, 1996 or the footnotes
thereto, (ii) liens or other encumbrances securing taxes, assessments,
governmental charges or levies, or the claims of materialmen, carriers,
landlords, and like persons, all of which are not yet due and payable or are
being contested in good faith and for which adequate reserves have been
established in accordance with GAAP consistently applied, (iii) minor liens,
imperfections to title or other encumbrances of a character that do not
substantially impair the value of the assets or properties subject thereto or
interfere in any material respect with the conduct of the business of the
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Companies, or (iv) liens, leases and other encumbrances on equipment and other
assets incurred in the ordinary course of business and which do not exceed
$100,000 in the aggregate.
(l) "Person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
(m) "PRC" means The People's Republic of China, and from and after July
1, 1997, includes also the former British colony of Hong Kong (and all related
territories).
(n) a "Subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors (or
other governing body) or, if there are no such voting interests, 50% or more of
the equity interests of which is owned directly or indirectly by such first
person.
ARTICLE II
THE TRANSACTIONS
2.1 Contribution of Capital Stock. Immediately preceding the Closing
(as defined herein), Asco Investments and Kahn shall contribute all of the
shares of Holmes (Far East) to Holmes in consideration of the issuance to them
of a number of shares of Common Stock of Holmes to be mutually agreed upon.
2.2 Redemption from Asco Investments. Upon the terms and subject to the
conditions of this Agreement, on the Closing Date (as defined herein), Holmes
shall redeem from Asco Investments, with the proceeds of new debt issuance by
Holmes at Closing, that number of shares of Common Stock of Holmes so that
following the consummation of the transactions contemplated hereby and by the
Kahn Stock Purchase Agreement, and after giving effect to the issuance of shares
of Common Stock pursuant to Section 2.1 above, Asco Investments will own 5.1% of
the issued and outstanding Common Stock of Holmes on the Closing Date. Such
shares shall be redeemed at a price per share, subject to adjustment as provided
in Section 2.6(b) hereof, equal to the Cash Purchase Price divided by the total
number of shares of Common Stock outstanding immediately prior to Closing, of
which an amount equal to $7,500,000 shall be deposited in an escrow account to
be held and distributed in accordance with the terms of an Escrow Agreement in
the form of Exhibit B attached hereto (the "Escrow Agreement").
2.3 Capital Contribution. At the Closing, Asco Investments will make a
contribution to the capital of Holmes, through reduction in the amount of the
Cash Purchase Price due Asco Investments under Section 2.2 above, in an amount
equal to the Additional Kahn Bonus.
2.4 Stock Sale by Holmes. Upon the terms and subject to the conditions
of this Agreement, on the Closing Date and concurrently with the transactions
contemplated by
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Section 2.2, Holmes shall sell to the Buyer, and the Buyer shall purchase from
Holmes, that number of shares of Common Stock so that following the consummation
of the transactions contemplated hereby and by the Kahn Stock Purchase
Agreement, and after giving effect to the issuance of shares of Common Stock
pursuant to Section 2.1 hereof, Buyer will own 74.9% of the issued and
outstanding Common Stock of Holmes on the Closing Date. Such shares shall be
sold at a price per share equal to the Cash Purchase Price divided by the total
number of shares of Common Stock outstanding immediately prior to the Closing
subject to adjustment as provided in Section 2.6(b) hereof. The proceeds of such
sale shall be applied by Holmes to repay a portion of the Affiliated Debt.
2.5 Closing. The closing of the transactions contemplated by Sections
2.1 and 2.2 hereof (the "Closing") shall take place at 9:00 a.m., local time, on
December 1, 1997, at the offices of Hutchins, Wheeler & Dittmar, 101 Federal
Street, Boston, Massachusetts, or at such other time, date on or before December
1, 1997 or place as the parties may agree. The date on which the Closing occurs
is hereinafter referred to as the "Closing Date."
2.6 Working Capital Purchase Price Adjustment. The consideration per
share to be paid to Asco Investments pursuant to Section 2.2 and to be paid by
the Buyer pursuant to Section 2.4 is subject to adjustment as provided in this
Section 2.6.
(a) Preliminary Working Capital Adjustment. Two (2) business days prior
to the Closing Date, Holmes shall deliver to the Buyer and the Sellers a
certificate, executed by the President of Holmes, setting forth an estimate of
the Companies' working capital as of the close of business on the Closing Date
(the "Working Capital Estimate"), including a detailed computation thereof,
which Working Capital Estimate shall be prepared in conformity with Holmes'
historic accounting policies in accordance with the provisions of Exhibit C. A
sample calculation of the Companies' working capital, based on the Companies'
September 30, 1997 financial statements, is attached as Exhibit C-1. To the
extent that the Working Capital Estimate is greater than $87,208,000 (the "Base
Amount"), the Cash Purchase Price shall be increased by the amount of such
excess. To the extent that the Working Capital Estimate is less than the Base
Amount, the Cash Purchase Price shall be reduced by such shortfall.
(b) Final Working Capital Adjustment.
(i) Not later than ninety (90) days after the Closing Date,
Holmes shall prepare and deliver to Berkshire Partners LLC
("Berkshire"), as representative of the stockholders of the Buyer, and
the Sellers a statement setting forth the Companies' actual working
capital as of the close of business on the Closing Date (the "Working
Capital Statement"), including a detailed computation thereof, which
statement shall be audited by Price Waterhouse, LLP, independent
accountants to Holmes ("PW"), and shall be accompanied by a report from
such independent accountants confirming that such Working Capital
Statement was prepared in a manner consistent with Holmes' historic
accounting policies and in accordance with the provisions of Exhibit C
(collectively,
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"Historic Practices"), which provisions shall be binding upon the
accountants preparing the Working Capital Statement. The Working
Capital Statement will not reflect (i) any items for which
indemnification claims may be made pursuant to the Agreement , (ii) any
reduction in tax accruals in respect of or as a result of the payment
of the Management Bonus, the Additional Kahn Bonus, any Closing
Expenses, or any expenses paid by the Companies which would have been
Closing Expenses but for their payment prior to the Closing Date, or
(iii) any interest, fees or other expenses incurred by the Companies on
behalf of Buyer on or after the Closing Date or as a result of the
transactions contemplated by this Agreement. In addition, PW shall
provide, together with the Working Capital Statement, a calculation and
statement of the final amounts of Closing Expenses, Affiliated Debt,
Additional Kahn Bonus and Management Bonus (the "Closing Statement" and
together with the Working Capital Statement, the "Statements").
(ii) Each of Berkshire and the Sellers shall have twenty (20)
days following receipt of the Statements within which to accept or
reject the Statements. Holmes shall make available to both Berkshire
and the Sellers all information, books and records used in preparing
both the Working Capital Estimate and the Statements, including the
work papers of PW. If Berkshire or the Sellers objects (the "Objecting
Party") to the Statements, the Objecting Party shall provide Holmes and
the Sellers or Berkshire (as the case may be) with written notice of
such objection (the "Objection Notice"), setting forth in reasonable
detail the nature of its objection and such parties calculation of the
Companies' working capital or amounts set forth in the Closing
Statement as of the close of business on the Closing Date. If neither
Berkshire nor the Sellers object to the Statements within such twenty
(20) day period, they shall conclusively be deemed to have accepted
such Statements. If either party objects to the Statements, Berkshire
and the Sellers shall negotiate in good faith for a period of fifteen
(15) days following receipt of the Objection Notice in an effort to
resolve any differences with respect thereto. If within such period
Berkshire and the Sellers are unable to resolve such differences, the
Statements shall be referred to Arthur Andersen & Co. or such other
accounting firm as is acceptable to Berkshire and Sellers ("AA") for
review in accordance with the Historic Practices and the review by AA
shall be conclusive and binding on Berkshire and the Sellers. If only
one party is an Objecting Party, the fees and expenses of such
accounting firm shall be borne proportionately by the Objecting Party
on the one hand, and the non- Objecting Party on the other, with the
Objecting Party paying the proportion of such fees and expenses equal
to the ratio of (x) the difference between the working capital amount
determined by AA (the "AA" Amount) and the working capital amount
determined by the Objecting Party, divided by (y) the difference
between the amount determined by PW in the Working Capital Statement
and the working capital amount determined by the Objecting Party; and
with the non-Objecting Party paying the balance of such fees and
expenses. If both Berkshire and the Sellers are Objecting Parties, the
fees and expenses of AA shall be borne such that each Objecting Party
shall pay the proportion of such fees and expenses equal to the ratio
of (x) the difference between the working capital amount determined by
that party and the AA Amount, divided by (y) the difference between the
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working capital estimates of the two Objecting Parties. Any payment
obligations allocated to Berkshire hereunder shall be borne by Holmes.
The final Working Capital Statement, obtained either through agreement
of the parties or by decision of the neutral accounting firm, is
referred to herein as the "Final Working Capital Statement."
(iii) To the extent that the amount of the Companies' working
capital as reflected in the Final Working Capital Statement is greater
than the Base Amount (which Base Amount shall be adjusted by the
adjustments to the Cash Purchase Price made at the Closing pursuant to
Section 2.6(a)), Buyer shall pay to Holmes and Holmes shall pay to Asco
Investments an amount per share (based on the number of shares
purchased or redeemed) equal to the amount of such excess divided by
the total number of shares of Common Stock outstanding immediately
prior to the Closing. To the extent that the amount of the Companies'
working capital as reflected in the Final Working Capital Statement is
less than the Base Amount (which Base Amount shall be adjusted by the
adjustments to the Cash Purchase Price made at the Closing pursuant to
Section 2.6(a)), Asco Investments shall pay to Holmes and Holmes shall
pay to Buyer an amount per share (based on the number of shares
purchased or redeemed) equal to the amount of such excess divided by
the total number of shares of Common Stock outstanding immediately
prior to the Closing. Any payment required to be made pursuant to
Section 2.6(b) shall be made in immediately available funds within
three (3) business days following acceptance of the Final Working
Capital Statement. In addition, to the extent that the actual amounts
of Closing Expenses, Affiliated Debt, Additional Kahn Bonus and
Management Bonus as set forth in the Final Working Capital Statement
and the Closing Statement differ from the amounts paid as of the
Closing Date, appropriate adjustments shall be made in connection with
the payments due in respect thereof.
(iv) The parties agree that the working capital adjustment
mechanism set forth in this Section 2.6(b) is not intended to be used
to indemnify any party for a breach of a representation, warranty or
covenant contained herein, that indemnification for any such breach
shall be available only to the extent set forth in Article VIII hereof,
and that no current liability, accrual or reserve shall be taken into
account as of the Closing Date on account of any such breach for the
purpose of making the working capital adjustment described in this
Section 2.6.
(c) Limit on Adjustment. In no event shall the adjustments made
pursuant to this Section 2.6 exceed $15.0 million in the aggregate.
2.7 Payment of Affiliated Debt and Management Bonuses. At the Closing,
Buyer shall provide the Companies with funds through equity contributions, which
taken together with Holmes' debt issuances and the like, shall be used in order
to, and Buyer shall cause the Companies to, pay all principal of, interest on,
premium, if any, expenses, commissions and other amounts owing on account of (i)
all Affiliated Debt, (ii) the Management Bonus and (iii) the Additional Kahn
Bonus. Schedule 2.7 hereto sets forth a list of the Affiliated Debt,
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Management Bonus and Additional Kahn Bonus as of the most recently available
date, which Schedule 2.7 shall be updated by the Companies (on an estimated
basis) as of the close of business on the business day immediately preceding the
Closing Date.
2.8 Credit Support.
(a) In addition to the delivery of the Cash Purchase Price
and the repayment of Affiliated Debt as provided in Sections 2.2
and 2.7, the Buyer shall cause each letter of credit issued for the
account of the Companies and outstanding and undrawn on the Closing
Date ("Letters of Credit") to be replaced with a substitute letter
of credit acceptable in form and substance to the beneficiary
thereof, or shall obtain a back-up letter of credit from a
financial institution reasonably acceptable to Asco General and the
issuers of such letters of credit in a corresponding amount to each
Letter of Credit for the benefit of the issuer of each Letter of
Credit. Schedule 2.8(a) hereto sets forth a list of all outstanding
and undrawn Letters of Credit issued for the account of the
Companies as set forth in such Schedule, which Schedule 2.8(a)
shall be updated by the Companies as of the close of business on
the business day immediately preceding the Closing Date.
(b) Following the payment of the Affiliated Debt as
provided in Section 2.7 and the substitution or backing up of the
outstanding Letters of Credit as provided in Section 2.8(a), the
Buyer will, at the Closing, take, and cause the Companies to take,
any further reasonable actions necessary to release and discharge
the Sellers, Pentland Group plc, Asco General and any other party
affiliated with Pentland Group plc (other than the Companies) from
the letters of comfort or other forms of credit support (other than
the Letters of Credit) listed on Schedule 2.8(b), which Schedule
2.8(b) shall be updated by the Companies as of the close of
business on the business day immediately preceding the Closing
Date.
2.9 Payment of Closing Expenses. At the Closing, the Buyer shall
provide the Companies with equity contributions, which together with Holmes'
debt issuances and the like, shall be used in order to, and Buyer shall cause
the Companies to, pay the Closing Expenses. Schedule 2.9 hereto sets forth a
list of Closing Expenses, which Schedule 2.9 shall be updated by the Companies
(on an estimated basis) as of the close of business on the business day
immediately preceding the Closing Date.
2.10 Employees and Benefits.
(a) The Buyer shall cause the Companies to continue the
employment of all employees who are employed by the Companies in
the United States and all executive employees who are employed by
the Companies outside of the United States as of the Closing Date
(including, without limitation, those on temporary
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layoffs, medical or disability leaves or other approved lease of
absence) (the "Hired Employees") on the terms and conditions of
employment then provided by the Companies immediately prior to the
Closing Date, including, without limitation, job responsibilities,
wages and compensation no less favorable than those applicable to
each such employee immediately before the Closing Date. Each such
employee shall be hired on an at-will basis unless the Companies
have entered into a written agreement specifying another term of
employment.
(b) In any termination or layoff of any Hired Employee by
the Buyer as of or after the Closing, the Buyer shall cause the
Companies to comply fully with the applicable provisions of the
Worker Adjustment and Retraining Notification Act of 1988 ("WARN"),
the Massachusetts Corporate Takeover Act (M.G.L. ch. 149, Section
183) and the Massachusetts Plant Closing Law (M.G.L. ch. 151A,
Section 71A, et seq.) and all other applicable foreign, federal,
state and local laws, including those prohibiting discrimination
and requiring notice to employees. The Companies will bear the cost
of compliance with (or failure to comply with) any such laws.
(c) For a period of twelve months following the Closing
Date, the Buyer shall cause the Companies to provide their United
States employees with employee benefits which, in the aggregate,
are substantially equivalent in value to those provided immediately
prior to the Closing Date; provided, however, that this Section
2.10(c) shall not obligate the Companies to continue any severance
or bonus arrangements which were in place for the benefit of senior
management prior to the Closing.
2.11. Resignation of Directors and Officers. The Sellers shall cause
each member of the Board of Directors and officers of each of the Companies
designated by the Buyer to tender his or her resignation from such Board of
Directors or as such officer effective as of the Closing Date, immediately
before giving effect to the transactions set forth in the Article II. Each
respective Company shall, as of the Closing Date, release each such person from
all claims and liabilities to or in respect of the Companies arising in
connection with such person's service as a director or officer, as the case may
be, other than claims and liabilities arising out of malfeasance, intentional
misconduct or a knowing violation of law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS AND THE COMPANIES
3.1 Representations and Warranties Relating to the Sellers. Each of
Asco Investments and Kahn, severally according to their Applicable Percentage
(which in the case of Asco
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Investments shall be 75% and in the case of Kahn 25%), and not jointly, hereby
represent and warrant to the Buyer, as to itself or himself, as the case may be,
as follows:
(a) Authority; Binding Effect. Each Seller has taken prior to the date
hereof, all necessary action, and has obtained all necessary authorization, to
enter into and perform his or its obligations under this Agreement and all other
agreements, documents and instruments executed by each Seller in connection
herewith. This Agreement and all other agreements, documents and instruments
executed by each Seller in connection herewith are and will be the valid and
binding obligations of each Seller, enforceable against such Seller in
accordance with their respective terms, except as enforceability may be subject
to bankruptcy, insolvency, receivership, moratorium, reorganization, fraudulent
conveyance, equitable subordination or similar laws of general application, and
the application of equitable principles.
(b) Non-Contravention. Neither the execution and delivery of this
Agreement nor any agreement executed in connection herewith by such Seller, nor
the consummation by such Seller of the transactions contemplated hereby or
thereby, will constitute a violation of, or be a default under, or conflict with
the terms of, the charter documents or By-laws of such Seller, if applicable, or
any contract, lease, indenture, mortgage, agreement or instrument to which such
Seller is a party or by which it is bound or to which any of the assets of such
Seller are subject, or will violate or constitute a default under any applicable
statute, rule, regulation, order, ordinance, judgment or decree of any
governmental, judicial or arbitral body binding upon such Seller.
(c) Capitalization and Title to Shares.
(i) Holmes has a total authorized capitalization consisting of
15,000 shares of Common Stock, without par value, of which 1,000 shares
in the aggregate are issued and outstanding and owned of record by the
Sellers or nominees of the Sellers. No other shares of capital stock of
Holmes are issued or outstanding. All of such outstanding shares of
Common Stock have been duly authorized, are validly issued and
outstanding, and are fully paid and non-assessable. There are no
commitments for the purchase or sale of, and no options, warrants or
other rights to subscribe for or purchase, any shares of capital stock
of Holmes or any other securities of Holmes.
(ii) Holmes (Far East) has a total authorized capitalization
consisting of 100,000 shares, U.S. $1.00 par value, of which 100,000
shares in the aggregate are issued and outstanding and owned of record
by the Sellers or nominees of the Sellers. No other shares of capital
stock of Holmes (Far East) are issued or outstanding. All of such
outstanding shares have been duly authorized, are validly issued and
outstanding, and are fully paid and non-assessable. There are no
commitments for the purchase or sale of, and no options, warrants or
other rights to subscribe for or purchase, any shares of capital stock
of Holmes (Far East) or any other securities of Holmes (Far East). As
of the Closing, all of the shares of Holmes (Far East) shall be
beneficially owned by Holmes.
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(iii) Each Seller owns beneficially the number of Shares of
Holmes set forth next to such Seller's name on Schedule 3.1(c), free
and clear of all liens and encumbrances of any nature.
(iv) The sale by Holmes of the shares of Common Stock pursuant
to Article II hereof will not be subject to any preemptive or similar
rights, voting agreements, or to any rights of first refusal or other
similar rights in favor of any person or entity, except such rights as
will have been waived or terminated at or prior to the Closing.
3.2 Representations and Warranties Relating to Holmes and Holmes (Far
East). Holmes and Holmes (Far East) hereby represent and warrant to the Buyer,
as follows:
(a) Organization and Authority.
(i) Holmes is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts and is qualified to do business in such other
jurisdictions in which the failure to be so qualified would have a
Material Adverse Effect. Holmes has all requisite power to own its
property and to carry on its business as presently conducted. The
Sellers have made available to the Buyer copies of the Articles of
Organization and By-laws of Holmes and the same are true and complete
as of the date hereof and will be true and complete as of the Closing
Date.
(ii) Holmes (Far East) is a corporation duly organized,
validly existing and in good standing under the laws of the Bahamas and
is qualified to do business in such other jurisdictions in which the
failure to be so qualified would have a Material Adverse Effect. Holmes
(Far East) has all requisite power to own its property and to carry on
its business as presently conducted. The Sellers have made available to
the Buyer copies of the charter documents and By-laws of Holmes (Far
East) and the same are true and complete as of the date hereof and will
be true and complete as of the Closing Date.
(iii) The respective subsidiaries of Holmes (U.S.) and Holmes
(Far East) are listed on Schedule 3.2(a). Schedule 3.2(a) sets forth
the jurisdiction of incorporation, authorized capital, number of issued
and outstanding shares and the holders thereof, for each such
subsidiary. Each such subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation and, except as set forth on the Schedule
3.2(a), is qualified to do business in such other jurisdictions in
which the failure to be so qualified would have a Material Adverse
Effect. Each such subsidiary has all requisite corporate power to own
its property and to carry on its business as presently conducted. The
Sellers have made available to the Buyer copies of the charter
documents and By-laws of each such subsidiary and the same are true and
complete as of the date hereof and will be true and complete as of the
Closing Date.
(b) Compliance with Laws. Except as set forth on Schedule 3.2(b):
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(i) Each of the North American Companies has conducted its
business in compliance with its respective charter documents, By-laws
or other governing documents, and in compliance with all applicable
Laws (as defined in Article I), except where the failure to do so would
not have a Material Adverse Effect.
(ii) To the Companies' knowledge, each of the Far East
Companies has conducted its business in compliance with its respective
charter documents and By-laws and all applicable Laws.
(c) Governmental Approvals; Permits. Except as set forth in Schedule
3.2(c) or as would not have a Material Adverse Effect, (i) no consent, order,
waiver, approval or authorization of, or registration, designation, declaration
or filing with, any governmental agency or authority, whether federal or other,
or to the Companies' knowledge, any third party, on the part of the Companies,
is required in connection with the execution and delivery by the Sellers of this
Agreement or the consummation of the transactions contemplated hereby (other
than pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and except as would not have a Material Adverse
Effect), and (ii) each of the Companies possesses, all licenses and permits
necessary or appropriate for the conduct of its business, all of which are in
full force and effect without default or notice thereof.
(d) Financial Statements. The Companies have delivered to the Buyer
copies of the combined financial statements and footnotes thereto of the
Companies and Holmes (HK), at and for the years ended December 31, 1994 and
1995, and of the Companies (without Holmes (HK)), at and for the years ended
December 31, 1995 and 1996 as audited by PW (the "Audited Financial Statements")
and the combined financial statements for the six months ended June 30, 1997
(the "Unaudited Financial Statements") (copies of which are attached to the
Disclosure Schedules). The Audited Financial Statements and the Unaudited
Financial Statements are referred to as the "Financial Statements." The
Financial Statements (i) are consistent with the books and records of the
Companies (which, in turn, are accurate and complete in all material respects)
and (ii) fairly present the combined financial condition, cash flows and results
of operations of the Companies as of such dates in accordance with United States
generally accepted accounting principles ("GAAP"), applied on a basis consistent
with the Companies' prior practice, except, in the case of the Unaudited
Financial Statements, for the absence of footnotes and year-end adjustments,
reserves and accruals and adjustments to reflect the transactions contemplated
hereby.
(e) Absence of Certain Changes. To the Companies' knowledge, except as
would not have a Material Adverse Effect, since June 30, 1997 there has not been
any damage, destruction or loss affecting the Companies' assets or properties,
nor any change in the Companies' combined financial condition, liabilities or
business; and since June 30, 1997, the Companies' business has been operated in
the ordinary course. Without limiting the generality of the foregoing, except as
set forth in the Financial Statements or Schedule 3.2(e), or would not have a
Material Adverse Effect on the Companies, since June 30, 1997, the Companies
have not:
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(i) incurred any obligations or liabilities (whether absolute,
accrued, contingent or otherwise and whether due or to become due),
except in the ordinary course of business or in furtherance of the
transactions provided for in this Agreement;
(ii) paid, discharged or satisfied any claim, lien,
encumbrance or liability (whether absolute, accrued, contingent or
otherwise and whether due or to become due), except claims, liens,
encumbrances or liabilities (A) which are reflected or reserved against
in the Financial Statements, or (B) which were incurred and paid,
discharged or satisfied since June 30, 1997 in the ordinary course of
business;
(iii) except for the sale of its inventory in the ordinary
course of business, sold, leased or otherwise disposed of any of its
properties or assets, real, personal or mixed, tangible or intangible;
(iv) made any change in any method of accounting or accounting
practice;
(v) declared or paid any dividend, or declared or made any
distribution on, or directly or indirectly redeemed, purchased or
otherwise acquired, any shares of the outstanding capital stock of the
Companies;
(vi) merged or combined with, or agreed to merge or
consolidate with, or to otherwise acquire or agree to be acquired by,
any corporation, partnership, or other business entity, other than the
Buyer;
(vii) issued any capital stock or other equity securities or
any securities convertible, exchangeable or exercisable into any
capital stock or other equity securities;
(viii) entered into any contract, lease, sublease, license, or
sublicense (other than purchase and sales orders in the ordinary course
of business) involving more than $500,000;
(ix) made any capital expenditure (other than for tooling) in
excess of $250,000 individually or $1,000,000 in the aggregate;
(x) delayed or postponed the payment of accounts payable and
other liabilities or obligations or accelerated the collection of
accounts receivable or other amounts owed to it, in each case other
than in the ordinary course of business;
(xi) suffered any damage, destruction, casualty or loss
whether or not covered by insurance policies which in the aggregate
exceeds $500,000;
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(xii) made any loans or advances to, guarantees for the
benefit of or any investments in any Person (other than the Companies
and their subsidiaries) in excess of $250,000 individually or
$1,000,000 in the aggregate;
(xiii) changed any employment terms, conditions or Benefit
Plans for any of their respective directors, officers and employees
other than in the ordinary course of business consistent with past
custom and practice; and
(xiv) agreed, whether in writing or otherwise, to take any
action described in this Section 3.2(e).
(f) Indebtedness. The Companies are not in default beyond any
applicable grace or cure period in the performance of their obligations under
any written loan agreement, credit agreement, note, bond, indenture, mortgage,
pledge, security agreement or other instrument or document to which the
Companies are a party or by which the Companies are bound which creates,
evidences or secures any Indebtedness. The Sellers have provided the Buyer with
copies of all such instruments or documents, whether or not the Companies are in
default thereunder.
(g) Title to and Condition of Assets and Properties. Except as set
forth on Schedule 3.2(g), the Companies have good title to or leasehold interest
in all of their assets and properties, including, without limitation, those
reflected on the December 31, 1996 balance sheet included in the Financial
Statements (except assets sold or otherwise disposed of in the ordinary course
of business since the date of such balance sheet), free and clear of all liens
and encumbrances of any nature, other than Permitted Liens. To the Companies'
knowledge, except as would not have a Material Adverse Effect, all such assets
are in good operating order, repair and condition, which assets consist of all
of the assets utilized by the Companies to conduct their business as currently
conducted. Schedule 3.2(g) contains a list of all real property owned or leased
by the Companies (the "Premises"), as well as all capitalized leases and the
leases, subleases, occupancy agreements or other agreements pursuant to which
the Premises are occupied, including all amendments and other modifications
thereto (collectively, the "Leases"). Except as would not have a Material
Adverse Effect, and except as set forth on the Disclosure Schedules, the
Premises located within the United States, and the activities conducted by the
Companies thereon, are not, to the knowledge of the Companies, in violation of
any applicable building, zoning, environmental or health statute, regulation or
ordinance, and the Companies have not received any written notice from any
governmental authority or agency of any violation by the Companies at such
Premises of any applicable building, zoning, environmental or health statute,
regulation or ordinance. Each Lease is in full force and effect and is
enforceable in accordance with its terms. The Companies have received no notices
of default which would have a Material Adverse Effect under any Lease. Sellers
have previously delivered to Buyer true and complete copies of all the Leases.
The Premises constitute all of the real property utilized in connection with the
business of the Companies. Other than the Companies, there are no parties in
possession or parties having any current or future right to occupy any portion
of the Premises, except as set forth on Schedule 3.2(g). To the Companies'
knowledge, and except as would not have a
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Material Adverse Effect, the Premises are in good condition and repair and
sufficient and appropriate for the conduct of the business of the Companies'
business. Except as would not have a Material Adverse Effect, the Companies have
obtained, and there are in full force and effect, all permits, licenses and
other approvals necessary for the current occupancy and use of (i) the Premises
located in North America and (ii) to the Companies' knowledge, the premises
located in the Far East, and to the Companies' knowledge, none of such permits,
licenses or other approvals have been violated. To the Companies' knowledge,
there exists no violation of any covenant, condition, restriction, easement,
agreement or order affecting any portion of the Premises which would have a
Material Adverse Effect. There is no pending or, to the knowledge of the
Companies, any threatened condemnation proceeding affecting any portion of the
Premises which would have a Material Adverse Effect.
(h) Contracts. To the Companies' knowledge, except as set forth on
Schedule 3.2(h) or as would not have a Material Adverse Effect, the Companies
are not in default in the performance of their obligations under any written
contract, agreement, lease or commitment extending beyond the Closing Date to
which any Company is a party or by which any Company is bound (collectively, the
"Contracts"). Schedule 3.2(h) lists the following:
(i) any lease or license of personal property from or to third
parties providing for lease or royalty payments in excess of $250,000
per annum;
(ii) any sales or purchase orders, distribution or other
agreement for the purchase or sale of raw materials, commodities,
supplies, goods, products, or other personal property or for the
furnishing or receipt of services which involves consideration of more
than the sum of $500,000 and for a term of longer than six (6) months;
(iii) any partnership or joint venture agreement;
(iv) any indenture, mortgage, note, bond or other evidence of
Indebtedness, any credit or similar agreement under which any of the
Companies has borrowed money or issued any note, bond, indenture or
other evidence of Indebtedness for more than $250,000 or under which
any of the Companies has imposed (or may impose) a Lien on any of its
respective assets, tangible or intangible;
(v) any noncompetition agreement or any agreement which
restricts any of the Companies from entering into any new or expanding
any existing line of business or any agreement which contains
geographic restrictions on their respective abilities to conduct
business activities;
(vi) any agreement under which any of the Companies could have
liabilities or obligations after the Closing with any current or former
directors, officers, and executive employees or in the nature of a
collective bargaining agreement (including without
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limitation any collective bargaining pursuant to which any employee
plan is maintained), an employment agreement, a consulting agreement or
a severance agreement);
(vii) any instrument or agreement entered into outside the
ordinary course of business whereby any of the Companies grants any
other person a power of attorney, guarantees the liabilities or
obligations of any other Person or indemnifies any other Person against
loss or liability;
(viii) any agreement under which any of the Companies could
have liabilities or obligations in the future relating to the
acquisition or disposition of material assets by way of merger,
consolidation, purchase, sale or otherwise, or granting to any person a
right at such person's option to purchase or acquire any material asset
or property of the Company or any interest therein (not including
purchases or dispositions of inventory in the ordinary course of
business);
(ix) any agreement or commitment for the construction or
modification of any building, structure or other fixed asset, or for
the incurrence of any other capital expenditure (other than tooling)
involving amounts in excess of $250,000;
(x) any agreement with any manufacturer's representative,
distributor or other independent sales agent that is not terminable by
the Company without penalty or payment of compensation on sixty (60)
days' or less notice;
(xi) any agreement not otherwise required to be disclosed
pursuant to this Section 3.2(h) the consequences of a default under or
termination of which would have a Material Adverse Effect; and
(xii) any agreement not otherwise required to be disclosed
pursuant to this Section 3.2(h) involving consideration of more than
$250,000 and not entered into in the ordinary course of business.
To the Companies' knowledge, except as set forth on the Schedule 3.2(h), no
approval or consent of any person or entity is needed in order that the
Contracts continue in full force and effect following the Closing and the
consummation of the transactions contemplated by this Agreement. The Companies
have not received any notice that any party to any of the Contracts intends to
cancel or terminate such Contract which would have a Material Adverse Effect.
The Contracts are in full force and effect.
(i) Litigation. Except as set forth on Schedule 3.2(i), there is no
suit, action or legal, administrative, arbitration or other proceeding pending
or, to the Companies' knowledge, threatened against the Companies, the legality
or validity of this Agreement or the consummation of the transactions
contemplated hereby, which might reasonably be expected to have a Material
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Adverse Effect, on the continued operation of the business presently conducted
by the Companies.
(j) Directors and Officers. The directors and officers of each of the
Companies as of the date hereof are identified on Schedule 3.2(j).
(k) Taxes. With respect to this Section 3.2(k) only, the North American
Companies represent and warrant solely with respect to themselves and Holmes
(Far East) represents and warrants solely with respect to the Far East
Companies. Except as set forth on Schedule 3.2(k):
(i) Each of the Companies, and any consolidated, combined,
unitary or aggregate group for Tax purposes of which the Companies are
or has been a member (a "Consolidated Group") has timely filed all Tax
Returns required to be filed by it, has paid all Taxes shown thereon to
be due and has provided adequate reserves in its financial statements
for any Taxes that have not been Paid, whether or not shown as being
due on any returns, except where the failure to do so could not have a
Material Adverse Effect. All such Tax Returns are correct and complete
in all material respects. All inter-company pricing policies and
arrangements which have existed between any two or more of the
Companies have complied with the provisions of Section 482 of the Code
and with all applicable state and foreign laws. No interest payment
made by any of the Companies through and including the 1996 tax year is
subject to disallowance or limitation under Section 163(j) of the Code.
(ii) No material claim for unpaid Taxes has become a lien
against the property of the Companies or is being asserted against the
Companies.
(iii) No audit or inquiry of any Tax Return of the Companies
is being conducted by a Tax or revenue authority.
(iv) No extension of the statute of limitations on the
assessment of any Taxes has been granted by the Companies and is
currently in effect.
(v) No consent under Section 341(f) of the Code has been filed
with respect to the Companies.
(vi) None of the Companies is a party to any agreement or
arrangement that would result, separately or in the aggregate, in the
actual or deemed payment by the Companies of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(vii) No acceleration of the vesting schedule for any property
that is substantially unvested within the meaning of the regulations
under Section 83 of the Code will occur in connection with the
transactions contemplated by this Agreement.
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(viii) None of the Companies has been at any time a member of
any partnership or joint venture or the holder of a beneficial interest
in any trust for any period for which the statute of limitations for
any Tax has not expired.
(ix) None of the Companies has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of
the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code
(x) None of the Companies is doing business in or engaged in a
trade or business in any jurisdiction in which it has not filed all
material required Tax Returns.
(xi) The Companies have made all payments of estimated Taxes
required to be made under Section 6655 of the Code and any comparable
state, local or foreign Tax Provision.
(xii) All Taxes required to be withheld, collected or
deposited by or with respect to the Companies have been timely
withheld, collected or deposited, as the case may be, and, to the
extent required, have been paid to the relevant taxing authority.
(xiii) There are no requests for information currently
outstanding that could materially affect the Taxes of the Companies.
(xiv) There are no proposed reassessments of any property
owned by the Companies or other proposals that could reasonably be
expected to have a Material Adverse Effect on the amount of any Tax to
which the Companies would be subject.
(xv) No power of attorney that is currently in force has been
granted with respect to any matter relating to Taxes that could
reasonably be expected to have a Material Adverse Effect on the Tax
liability of the Companies.
(xvi) None of the Companies is liable for the Taxes of any
Person (other than the Companies) under Treasury Regulation Section
1.1502-6 or any similar provision under state or local law, any
guaranty, tax sharing or indemnification agreement, or similar
agreement or otherwise.
(xvii) None of the U.S. Companies has been a member of an
affiliated group filing a consolidated federal income tax return (other
than a group the common parent of which was Holmes).
(xviii) None of the U.S. Companies will be required, as a
result of (A) a change in accounting method for a tax period beginning
on or before the Closing Date, to include any adjustment under Code
Section 481(c) or any corresponding provision of state or local tax law
in taxable income for any tax period beginning on or after the Closing
Date,
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or (B) any "closing agreement", as described in Code Section 7121 (or
any corresponding provision of state or local tax law), to include any
item of income in or exclude any item of deduction from any tax period
beginning on or after the Closing Date.
(xix) The unpaid taxes of the Companies (A) did not, as of
December 31, 1996, exceed the reserve for tax liability (rather than
any reserve for deferred taxes established to reflect temporary
differences between book and tax bases of assets and liabilities) set
forth on the combined Balance Sheet of the Companies as of December 31,
1996 and (B) do not exceed that reserve as adjusted for the passage of
time through the Closing Date in accordance with the past custom and
practice of the Companies in filing their tax returns.
(xx) None of the Companies is, or since its inception have
ever been, (A) a controlled foreign corporation as that term is defined
under Section 957 of the Code, (B) a foreign investment company as that
term is defined under Section 1246 of the Code or (C) a foreign
personal holding company as that term is defined under Section 552 of
the Code.
As used herein, "Taxes" shall mean all taxes of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, back-up
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
value added, property or windfall profits taxes, customs, duties or similar
fees, assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any
governmental authority, domestic or foreign. As used herein, "Tax Return" shall
mean any return, report or statement required to be filed with any governmental
authority with respect to Taxes.
(l) Insurance. The Companies maintain policies of theft, fire,
liability (including products liability), workmen's compensation, life,
property, casualty and other insurance as set forth on Schedule 3.2(l). Such
policies are in full force and effect and are in such amounts and contain such
endorsements and exclusions as are usual or customary in the Companies' lines of
business. Neither the Sellers nor the Companies have received written notice of
cancellation of any of such policies.
(m) Intellectual Property. Schedule 3.2(m) contains a list of (i) all
material registered and unregistered patents, trademarks and service marks owned
or used by the Companies and all applications for registration thereof. Except
as set forth on Schedule 3.2(m), to the Companies' knowledge, (i) the Companies
own and possess all right, title and interest in and to, or have the right to
use pursuant to a valid and enforceable license, sublicense, agreement or other
permission, all of the Intellectual Property necessary for the operation of
their respective businesses as currently conducted or as currently proposed to
be conducted, except where the failure to own or possess such rights would not
have a Material Adverse Effect; (ii) no claim by any third party contesting the
validity, enforceability, use or ownership of any of the Intellectual Property
owned or used by the Companies has been made and is currently outstanding or
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threatened in writing; (iii) to the Companies' knowledge, the Companies have not
infringed or misappropriated rights of any third party; (iv) neither the Sellers
nor any of the Companies have received any written claim from any third party
that it has infringed or misappropriated any Intellectual Property Rights of any
third party; and (v) no Intellectual Property owned or used by the Companies is
subject to any outstanding judgment, injunction, order, decree or agreement
restricting the use thereof by any of the Companies or restricting the licensing
thereof by Sellers or any of the Companies to any third party or by any third
party to Sellers or any of the Companies in any respect which would have a
Material Adverse Effect. For purposes of this Agreement, "Intellectual Property"
means (a) all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all reissuances,
continuations, continuations- in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
(n) ERISA Matters.
(i) Schedule 3.2(n) lists and identifies each employee benefit
plan, program, or arrangement which any of the Companies maintains or
contributes to for the benefit of its current or former employees,
officers, or directors, or beneficiaries thereof, or for which any of
the Companies have any liability or contingent liability, including but
not limited to, any retirement, profit-sharing, deferred compensation,
incentive compensation, bonus, stock purchase, stock option, health,
welfare, death, disability, vacation, severance, change of control,
relocation, housing, or fringe benefit plan (individually a "Benefit
Plan", and collectively, the "Benefit Plans").
(ii) Except as set forth on Schedules 3.2(b) and 3.2(n), the
Benefit Plans are maintained in substantial compliance in both form and
operation with all applicable laws and regulations including, without
limitation, applicable reporting and disclosure requirements.
(iii) Except for the Holmes Products Corporation Savings and
Investment Plan ("401(k) Plan"), none of the Companies maintains, make
any contributions to, or has any liability or contingent liability for
any "employee pension benefit plan" as defined in
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section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). There have been no amendments to the 401(k) Plan
which are not the subject of a favorable determination letter from the
Internal Revenue Service.
(iv) Other than coverage mandated by applicable statute, none
of the Companies maintains, make contributions to, or has any liability
or contingent liability for any medical, dental, or life insurance
plan, program, or arrangement intended to provide benefits to retired
or former employees, officers, or directors of the U.S.
Companies, or any beneficiaries thereof.
(v) The medical plan maintained for employees of the U.S.
Companies is fully insured by an independent insurance carrier.
(vi) Each Benefit Plan maintained for the benefit of current
or former employees, officers, or directors of the U.S. Companies may
be amended or terminated by the U.S. Companies without the consent of
any participant or beneficiary upon no more than thirty (30) days'
notice to the affected participants or beneficiaries and without
obligation or liability (other than those obligations or liabilities
for which specific assets have been set aside in a trust or other
funding vehicle or which are adequately reserved for on the Companies'
Financial Statements).
(o) Labor Relations; Employees. Except as set forth on Schedule 3.2(o),
there are no collective bargaining agreements covering any of the employees of
the U.S. Companies, nor, except as would not have a Material Adverse Effect on
them, any pending or, to the knowledge of the U.S. Companies, threatened (i)
employment discrimination charges or complaints against or involving the U.S.
Companies before any federal, state or local board, department, commission or
agency, (ii) unfair labor practice charges or complaints, disputes or grievances
affecting the U.S. Companies, (iii) union representation petitions respecting
the employees of the U.S. Companies, or (iv) strikes, slow downs, work stoppages
or lockouts or threats thereof affecting the U.S. Companies. Except as set forth
on Schedule 3.2(o), to the Companies' knowledge, the Companies are in compliance
with all applicable Laws respecting employment and employment practices,
including provisions of such Laws relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other Taxes, except
where the failure to so comply would not have a Material Adverse Effect.
(p) Transactions with Affiliates. Except as set forth on Schedule
3.2(p) or in the Financial Statements, and except for any transaction
contemplated by this Agreement or any of the other documents executed in
connection with the transactions contemplated hereby, to the Companies'
knowledge, there are no loans, leases, royalty agreements or other continuing
transactions between the Companies, on the one hand, and any officer or director
of the Companies, the Sellers or any person related by blood, marriage or
adoption thereto, or any person or entity owning five percent or more of any
class of capital stock of any of the Companies.
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(q) Assumptions or Guaranties of Indebtedness of Other Persons. Except
as set forth on Schedule 3.2(q), no Company has assumed, guaranteed, endorsed or
otherwise become directly or contingently liable on (including, without
limitation, liability by way of agreement, contingent or otherwise, to purchase,
to provide funds for payment, to supply funds to or otherwise invest in any
debtor), any Indebtedness of any other person or entity other than Indebtedness
of any one or more of the other Companies.
(r) Books and Records. The books of account, ledgers, order books,
records and documents of the Companies accurately and completely reflect all
material information relating to the business of the Companies, and the nature,
acquisition, maintenance, location and collection of each of their material
assets.
(s) Environmental Matters. Except as set forth on Schedule 3.2(s), or
as would not have a Material Adverse Effect, with respect to the Companies and
such of the Premises as are occupied by them:
(i) To the Companies' knowledge, the Companies have not caused
or allowed, nor have the Companies contracted with any party for, the
generation, use, transportation, treatment, storage or disposal of, any
Hazardous Substances (as defined below) in connection with the
operation of their business (other than (A) cleaning and/or office
supplies used in the ordinary course of the Companies' business
operations, or (B) other substances used in the ordinary course of the
Companies' business operations that are used in compliance with
applicable law), in any manner that would give rise to material
liabilities, including any liability for response costs, corrective
action costs, personal injury, property damage, natural resources
damages or attorney fees, or any investigative, corrective or remedial
obligations, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") or the
Solid Waste Disposal Act, as amended ("SWDA") or any other
Environmental Laws which would have a Material Adverse Effect.
(ii) To the Companies' knowledge, neither this Agreement nor
the consummation of the transaction that is the subject of this
Agreement will result in any obligations for site investigation or
cleanup, or notification to or consent of government agencies or third
parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Laws applicable to any Premises located
in the United States ("U.S. Premises").
(iii) To the Companies' knowledge, the Companies, the
operation of their businesses, and the Premises are in material
compliance with all applicable Environmental Laws and orders or
directives of any governmental authorities having jurisdiction under
such Environmental Laws, including, without limitation, any
Environmental Laws or orders or directives with respect to any cleanup
or remediation of any release or threat of release of Hazardous
Substances.
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(iv) The U.S. Companies have not received any written notices
nor, to their knowledge, any oral notices, of any proceedings, claims
or lawsuits, from any person, entity or governmental authority arising
under any Environmental Laws out of the ownership or occupation of the
U.S. Premises or the conduct of their operations or business, nor do
the U.S. Companies know of any basis therefor.
(v) The U.S. Companies have obtained and are maintaining in
full force and effect, to their knowledge, all necessary permits,
licenses and approvals required to be obtained by them under any
Environmental Laws applicable to the U.S. Premises and the business
operations conducted by such Companies thereon, and are in compliance
with all such permits, licenses and approvals.
(vi) To the U.S. Companies' knowledge, such Companies have not
caused or allowed a release, or a threat of release, of any Hazardous
Substance at, under or from the U.S. Premises.
For purposes of this Section, the term "Environmental Laws" shall mean any
United States federal, state or local law, ordinance or regulation pertaining to
the protection of human health or the environment, including, without
limitation, CERCLA, the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Sections 11001, et seq., and the Resource Conservation and Recovery Act,
42 U.S.C. Sections 6901, et seq. or the comparable Laws of any other
jurisdiction. For purposes of this Section, the term "Hazardous Substances"
shall mean Hazardous Substances under CERCLA, oil and petroleum products,
asbestos, polychlorinated biphenyls and urea formaldehyde, and any other
materials classified as hazardous or toxic under any Environmental Laws.
(t) Intentionally Omitted.
(u) Suppliers and Customers. Except as set forth on the Schedule
3.2(u), no supplier, distributor, third-party contractor or customer
representing more than 5% of expected sales or purchases for 1997 has canceled
or otherwise terminated, or specifically threatened to cancel or otherwise
terminate, its relationship with any of the Companies or has during the last 12
months decreased materially, or specifically threatened in writing to materially
decrease or limit materially, its services, supplies or materials to any of the
Companies or its usage or purchase of the services or products of any of the
Companies.
(v) Undisclosed Liabilities. None of the Companies has any liability
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including any liability for taxes), except for
(i) liabilities set forth on the Financial Statements, (ii) liabilities which
have arisen since June 30, 1997 in the ordinary course of business, (iii)
liabilities disclosed on the Disclosure Schedule, (iv) liabilities not required
to be disclosed in the Disclosure
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Schedule, and (v) liabilities not required to be reflected on the face of a
balance sheet under GAAP.
(w) Product Liability. None of the Companies has any liability under
any pending or threatened claims for any injury to individuals or property as a
result of the ownership, possession, or use of any product manufactured, sold
leased, or delivered by any of the Companies, except as set forth on Schedule
3.2(w), or in the Audited Financial Statements or as are covered by insurance
(subject to the deductibles under the insurance policies described in Schedule
3.2(l) to the Disclosure Schedule).
(x) No Bribes. None of the Companies, nor, to the knowledge of the
Companies, any of their officers acting on their behalf, have made any payments
for political contributions (in excess of lawful amounts), or made or received
any bribes, kickback payments or similar payment.
(y) Brokers. Other than Goldman Sachs & Co., no broker, investment
banker, financial advisor or other person, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or an behalf of any Sellers.
(z) Disclosure. Neither this Agreement, the Disclosure Schedule nor any
other document, certificate, information or other items provided to the
Purchaser or its agents pursuant to this Agreement or the transaction
contemplated hereby contains any untrue statement of a material fact, or omits
to state any material fact, necessary to make the statements contained herein or
therein not misleading. All of the representations and warranties contained in
this Article III, insofar as they relate to the Far East Companies, are subject
to Section 4.8.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Sellers as follows:
4.1 Organization, Standing and Corporate Power. The Buyer is a limited
liability company duly organized and in good standing in the State of Delaware
and has the requisite power and authority to carry on its business as now being
conducted. The Buyer is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary. The Buyer has delivered to Holmes complete and correct copies of its
organizational documents.
4.2 Authority; Binding Effect; Noncontravention. The Buyer has all
requisite power and authority to enter into this Agreement and to consummate the
transactions contemplated by
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this Agreement. The execution and delivery of this Agreement by the Buyer and
the consummation by the Buyer of the transactions contemplated by this Agreement
have been duly authorized by all necessary action on the part of the Buyer. This
Agreement has been duly executed and delivered by and constitutes a valid and
binding obligation of the Buyer, enforceable against the Buyer in accordance
with its terms except as enforceability may be subject to bankruptcy,
insolvency, receivership, moratorium, reorganization, fraudulent conveyance,
equitable subordination and similar laws of general application, and the
application of equitable principles. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not,
conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with respect to any
obligation or to loss of a material benefit under, or result in the creation of
any lien upon any of the properties or assets of the Buyer under, (i) the
organizational documents of the Buyer, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to the Buyer or its properties or
assets or (iii) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to the Buyer or its
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any Governmental Entity
is required by or with respect to the Buyer in connection with the execution and
delivery of this Agreement by the Buyer or the consummation by the Buyer of any
of the transactions contemplated by this Agreement, except for the filing of a
premerger notification and report form under the HSR Act.
4.3 Brokers. No broker, investment banker, financial advisor or other
person, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or an behalf of the Buyer or its
affiliates.
4.4 Litigation. There is no suit, action or legal, administrative,
arbitration or other proceeding of any nature pending or, to the Buyer's
knowledge, threatened, against the Buyer which might reasonably be expected to
have a Material Adverse Effect on the legality or the validity of this Agreement
or the consummation transaction contemplated hereby.
4.5 Funding. Assuming performance by the lenders pursuant to the
commitment letters previously delivered by Buyer to Sellers, copies of which are
attached as Schedule 4.5, the Buyer will have sufficient cash or capital
resources, either on hand or pursuant to fully committed and undrawn facilities,
to fund performance of Buyer's obligations under this Agreement.
4.6 Investment Representation.
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(a) The Buyer is acquiring the shares of Common Stock
purchased from Holmes and from Kahn for the purpose of investment and not with
the view to the distribution or resale of all or a portion thereof in violation
of applicable Laws.
(b) The Buyer acknowledges that it had the opportunity to
discuss the Companies' business, management and financial affairs with the
Companies' management, to review the information made available by the Companies
in the "data room" at the offices of counsel to the Companies, to visit and
inspect the Companies' facilities, and to obtain any additional information
(financial or otherwise) necessary to verify the accuracy of representations and
warranties of the Companies and the other information set forth in this
Agreement, including the Disclosure Schedule hereto, or otherwise relative to
the financial data or business of the Companies'; provided, however, that
nothing in this Section 4.6 shall in any way be deemed to vitiate or limit
representations and warranties made by the Sellers or any of the Companies
herein, or the rights to indemnification provided to the Buyer herein.
4.7 Solvency. Immediately after the consummation of the transactions
contemplated by Article II, the fair value and present fair saleable value of
the assets of the Companies (on a consolidated basis) will exceed the sum of
their stated liabilities and identified contingent liabilities; and the
Companies (on a consolidated basis) will not, after giving effect to the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein, be (i) left with unreasonably small
capital with which to carry on their respective businesses as they are proposed
to be conducted, (ii) unable to pay their debts (contingent or otherwise) as
they mature or (iii) otherwise insolvent.
4.8 Business Risks in the Far East. The Buyer acknowledges (i) that it
is aware of and understands the nature of the current political, legal,
regulatory and contractual uncertainties related to the conduct of business in
the PRC, (ii) that there are substantial business risks engendered thereby, and
(iii) that there is the risk of volatile and arbitrary governmental actions
and/or regulation to which the Companies are or may be or become subject as a
result of their business activities in the PRC.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO CLOSING
5.1 Conduct of Business of the Companies. Except as set forth in the
Disclosure Schedule, during the period from the date of this Agreement to the
Closing (except as otherwise specifically required by the terms of this
Agreement), the Companies shall, and shall cause their subsidiaries to, act and
carry on their respective businesses in the usual, regular and ordinary course
of business consistent with past practice and use its and their respective
reasonable best efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
advertisers, distributors and others having business dealings with them and
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to preserve goodwill. Without limiting the generality of the foregoing, during
the period from the date of this Agreement to the Closing, the Companies shall
not, and shall not permit any of their subsidiaries to, without the prior
consent of the Buyer, which consent will not be unreasonably withheld:
(a) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends and
distributions by a direct or indirect wholly owned subsidiary to its parent;
(b) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock;
(c) purchase, redeem or otherwise acquire any shares of capital stock
of Holmes or any of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(d) authorize for issuance, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock or the capital stock of any of its
subsidiaries, any other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting securities
or convertible securities or any other securities or equity equivalents
(including without limitation stock appreciation rights);
(e) in the case of Holmes, amend its articles of organization, by-laws
or other comparable charter or organizational documents;
(f) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof material to the Companies;
(g) other than pursuant to any of the contracts referred to in Section
3.2(h), sell, lease, license, mortgage or otherwise encumber or subject to any
lien or otherwise dispose of any of its properties or assets other than any such
properties or assets the value of which do not exceed $200,000 individually and
$500,000 in the aggregate, except for (i) sales of inventory (ii) dispositions
of obsolete inventory or equipment or (iii) the sale or factoring of certain
accounts receivable of Holmes for credit risk purposes, in any such case in the
ordinary course of business consistent with past practice;
(h) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person other than any of the Companies, issue or sell
any debt securities or warrants or other rights to acquire any debt securities
of the Companies or any of their subsidiaries, guarantee any debt securities of
another person, enter into any "keep well" or other agreement to
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maintain any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except for
borrowings under existing credit facilities and for lease obligations, in each
case incurred in the ordinary course of business consistent with past practice;
(i) make any material loans, advances or capital contributions to, or
investments in, any other person, other than pursuant to any of the contracts
referred to in Section 3.2(h), or to any Company or any direct or indirect
wholly owned subsidiary of any Company;
(j) fail to make any capital expenditures, or fail to maintain any real
or personal property in a manner inconsistent with historic practice;
(k) pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction, (a) of liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as in
effect on the date hereof or (b) claims settled or compromised to the extent
permitted by Section 5.1(o), or waive, release, grant, or transfer any rights of
material value or modify or change in any material respect any existing license,
lease, contract or other document, other than in the ordinary course of business
consistent with past practice;
(l) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(m) enter into any collective bargaining agreement;
(n) change any material accounting principle used by it;
(o) settle or compromise any litigation (whether or not commenced prior
to the date of this Agreement) other than settlements or compromises of
litigation where the amount paid (after giving effect to insurance proceeds
actually received) in settlement or compromise is not material to the Companies;
or
(p) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.2 Changes in Employment Arrangements. Except as contemplated by the
transactions provided for in the Agreement, neither the Companies nor any of
their subsidiaries shall adopt or amend (except as may be required by law) any
bonus, profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund
or other arrangement (including any Company Plan) for the benefit or welfare of
any employee, director or former director or employee, other than increases for
individuals (other than officers and directors) in the ordinary course of
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business consistent with past practice or increase the compensation or fringe
benefits of any director, employee or former director or employee or pay any
benefit not required by any existing plan, arrangement or agreement.
5.3 Severance. Neither the Companies nor any of their subsidiaries
shall grant any new or modified severance or termination arrangement or increase
or accelerate any benefits payable under its severance or termination pay
policies in effect on the date hereof.
5.4 WARN. Neither the Companies nor any of their subsidiaries shall
effectuate a "plant closing" or "mass layoff", as those terms are defined in the
Worker Adjustment and Retraining Notification Act of 1988 ("WARN"), affecting in
whole or in part any site of employment, facility, operating unit or employee of
any of the Companies or any subsidiary, without notifying the Buyer or its
affiliates in advance and without complying with the notice requirements and
other provisions of WARN.
5.5 Tax Elections. Except in the ordinary course of business and
consistent with past practice, or to comply with newly promulgated or effective
Laws, neither the Companies nor any of their subsidiaries shall make any tax
election or settle or compromise any material federal, state, local or foreign
Tax liability, except with Buyer's consent, not to be unreasonably withheld.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Contribution of Shares. Immediately prior to the consummation of
the transactions contemplated by this Agreement and immediately following the
transaction contemplated by Section 6.1(a) above, each of Kahn and Asco
Investments shall contribute all of the then outstanding shares of Holmes (Far
East) to Holmes in consideration of the issuance to them of a number of shares
of Common Stock of Holmes to be mutually agreed upon.
6.2 Access. From and after the date of this Agreement and until the
Closing, the Buyer and its authorized representatives (including, without
limitation, its lenders and financing providers and its and their independent
public accountants, environmental consultants, attorneys and other advisors)
shall have access, during normal business hours and upon reasonable notice, to
the Premises and to all books, records, contracts and documents of the
Companies, and the Sellers shall furnish or cause to be furnished to the Buyer
or its authorized representatives all information with respect to the assets and
business of the Companies as the Buyer shall reasonably request. From and after
the date of this Agreement and until the Closing, the Sellers shall have
reasonable access to the financing books, projections and financing models of
the Buyer, and an opportunity to discuss such materials with representatives of
the Buyer, for the purpose of assuring themselves of the accuracy of the
representations and warranties contained in Section 4.7.
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6.3 Confidentiality. Except as permitted under the confidentiality
agreement dated April 15, 1996, the Buyer agrees not to disclose or disseminate
information regarding the Companies or the transactions contemplated hereby
prior to the Closing (except to those attorneys, accountants, investment bankers
and other consultants and advisors engaged by the Buyer to assist it in this
transaction). In addition, the Buyer agrees that it will not discuss the
proposed transaction with any employee, supplier or customer of the Companies,
without the prior consent of the Companies, which consent shall not be
unreasonably withheld or delayed. The Buyers and the Sellers will use reasonable
efforts to consult one another before issuing any press release or otherwise
making any public statements with respect to the transactions contemplated by
this Agreement; provided, however, that nothing contained herein shall be deemed
to prohibit Pentland Group plc from making any public disclosures or disclosures
to its shareholders required by law or by the listing regulations applicable to
its shares of capital stock.
6.4 Financing. The Sellers agree to cause the Companies to cooperate
reasonably with the Buyer's implementation of the financing described in
Schedule 4.5 hereof. The Sellers agree to cause the Companies to cooperate
reasonably with the Buyer in providing information as may be reasonably
requested for Buyer to prepare the appropriate private placement documents, in
connection with securing financing; provided, that (i) the Buyer shall indemnify
and hold the Companies and the Sellers harmless for any liability incurred by
the Companies and/or the Sellers as a result of the preparation or distribution
of any such documents or the sale of securities contemplated thereby and (ii)
unless the Closing occurs, the Buyer shall reimburse the Companies for any
reasonable out-of-pocket costs incurred by the Companies at the request of the
Buyer in connection with securing financing for the transaction described
herein. The Sellers and the Companies further acknowledge and agree that the
Buyer and their financial advisors will be required to disclose certain
information relating to the Companies as is customary for financings of such
type, and the Sellers and Companies consent to such disclosure. Notwithstanding
the foregoing, the Sellers will not be obligated, responsible or liable in any
respect, directly or indirectly, in respect of Buyer's financing, including in
respect of the placement or sale of securities or in respect of any
recapitalization of the Companies in connection with the transactions
contemplated by this Agreement.
6.5 Efforts. Subject to the terms and conditions hereof, each party
hereto shall use all commercially reasonable efforts to consummate the
transactions contemplated hereby as promptly as practicable. In furtherance of
the foregoing:
(a) The Sellers and the Buyer will as promptly as practicable prepare
and file with the Federal Trade Commission and the Department of Justice the
notification and report forms required for the transactions contemplated hereby
and any supplemental information that may be reasonably requested in connection
therewith pursuant to the HSR Act, which notification and report forms and
supplemental information will comply in all material respects with the
requirements of the HSR Act. The Buyer shall pay all filing fees required with
respect to the notification, report and other requirements of the HSR Act.
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(b) The Sellers and the Buyer will as promptly as practicable (A) make
the required filings with, and take all reasonable actions to obtain the
required authorizations, approvals, consents and other actions of, Governmental
Authorities and (B) take all reasonable actions (not including the expenditure
of money or the payment or delivery of other consideration) to obtain the
required consents of other persons with respect to the transactions contemplated
hereby.
6.6 Intra-Family Transfers of Shares. Prior to the Closing, Kahn, with
the consent of Buyer (which consent will not be unreasonably withheld), shall be
permitted to transfer Shares held by him or for his benefit to his spouse, a
child or any other relative, or to a trust of which Kahn or any relative of Kahn
is a settlor, trustee or beneficiary, or a family limited partnership, provided
that such person, trust, or family limited partnership executes and delivers to
the Buyer a copy of this Agreement and becomes an additional Seller for all
purposes hereunder.
6.7 Exclusivity. Until December 1, 1997, neither the Sellers, the
Companies, their respective affiliates nor any of their respective
representatives, officers, directors, agents, advisors or stockholders
(collectively, the "Holmes Group") shall initiate, solicit, entertain, negotiate
or discuss, directly or indirectly, any proposal or offer (an "Acquisition
Proposal") to acquire all or any significant part of the business and
properties, capital stock or capital stock equivalents of the Companies, whether
by merger, purchase of stock, purchase of assets, tender offer or otherwise, or
provide any non-public information to any third party in connection with an
Acquisition Proposal or enter into any agreement, arrangement or understanding
requiring it to abandon, terminate or fail to consummate the Acquisition. The
Sellers agree to (a) immediately notify the Buyer if any of the Holmes Group
receives any indications of interest, requests for information or offers in
respect of an Acquisition Proposal, (b) communicate to the Buyer in reasonable
detail the terms of any such indication, request or proposal and (c) provide the
Buyer with copies of all written communications relating to any such indication,
request or proposal.
6.8 Warrant. Immediately following the Closing, Holmes shall issue to
Pentland Group, plc, a warrant (the "Warrant") to purchase shares of Holmes
Common Stock, which shall be transferable by Pentland Group, plc only to its
affiliates. The number of shares of Holmes Common Stock for which the Warrant
shall be exercisable shall be equal to five percent (5%) of the number of shares
of Holmes Common Stock outstanding immediately following the Closing. The
exercise price for the Warrant shall be equal to the per share Cash Purchase
Price paid by the Buyer pursuant to Section 2.4, as adjusted by Section 2.6,
multiplied by the number of shares for which the Warrant is exercisable. The
Warrant shall be substantially in the form of Exhibit D hereto.
6.9 Supplemental Information. The Sellers may, on or before two (2)
business days prior to the Closing, supplement or amend the Disclosure Schedule
with respect to events occurring after the date hereof, including one or more
supplements or amendments to correct any matter which would constitute a breach
of any representation, warranty, agreement or covenant contained herein. Any
such supplement or amendment will, provided that the disclosure on such
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supplement or amendment does not have a Material Adverse Effect on the
Companies, upon acceptance by the Buyer (which acceptance shall not be
unreasonably withheld if the disclosure on such supplement or amendment does not
have a Material Adverse Effect on the Companies), be effective to cure and
correct for all purposes any breach of any representation, warranty, agreement
or covenant which would have otherwise existed and all references to the
Disclosure Schedule shall for all purposes after the Closing be deemed to be a
reference to the Disclosure Schedule as so supplemented or amended.
6.10 Indemnification. For six years after the Closing Date, the
Companies shall indemnify all present and former directors or officers of the
Companies and its subsidiaries ("Indemnified Parties") against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities (collectively, "Costs") incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or pertaining to
matters existing or occurring at or prior to the Closing Date, whether asserted
or claimed prior to, at or after the Closing Date, to the fullest extent as
would have been permitted in their respective articles of organization or
by-laws consistent with applicable law, to the extent such Costs have not been
paid for by insurance and shall, in connection with defending against any action
for which indemnification is available hereunder, reimburse such officers and
directors, from time to time upon receipt of sufficient supporting
documentation, for any reasonable costs and expenses reasonably incurred by such
officers and directors; provided that such reimbursement shall be conditioned
upon such officer's or director's agreement promptly to return such amounts to
the Companies if a court of competent jurisdiction shall ultimately determine
that indemnification of such officer or director is prohibited by applicable
law.
6.11 Termination of Employment Arrangements; Payment of Management
Bonuses. At or immediately prior to the Closing, the Employment Agreements
between Holmes and each of Kahn, Gregory White and Stanley Rosenzweig shall be
terminated, and Holmes shall cause to be paid all Management Bonuses.
6.12 Non-Competition Agreement. Pentland Group, plc and its Affiliates
shall enter into at the Closing a Non-Competition Agreement in the form of
Exhibit H hereto.
6.13 Payoff Letters. Two (2) business days prior to the Closing, the
Sellers shall deliver to the Buyer pay-off letters in respect of the Affiliated
Debt which will be in existence on the Closing Date stating the amount thereof
as of the Closing Date under the respective agreements and confirming that upon
receipt of such amount all Liens other than Permitted Liens in respect of such
Indebtedness will be released.
6.14 Cooperation Regarding Taxes.
(a) The Buyer, Holmes and the Sellers shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns and any
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audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such Tax Return,
audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Holmes and the Sellers agree (A) to retain all
books and records with respect to Tax matters pertinent to Holmes relating to
any taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by the Buyer or the Sellers,
any extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (B) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other party so requests,
Holmes or the Sellers, as the case may be, shall allow the other party to take
possession of such books and records.
(b) The Buyer, Holmes and the Sellers further agree, upon request, to
obtain or provide any certificate of facts or other document from them, any
governmental authority or any other Person, as the case may be, as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby).
6.15 Other. If Holmes is required, at any time, to pay any amounts to
the Internal Revenue Service or other governmental authority on account of, or
relating to, any payments to Asco Investments made pursuant to Section 2.2
hereof ("Required Payment"), Holmes shall control all matters relating to any
Required Payment, including all claims and proceedings relating to the contest,
settlement or refund of any Required Payment. Asco Investments shall fully
cooperate in the manner requested by Holmes in all such matters relating to any
Required Payment. If Holmes reasonably determines that Asco Investments is the
proper party to apply for a refund of any Required Payment, Asco Investments
shall apply for and prosecute such refund as directed and controlled by Holmes,
and shall promptly upon receipt pay or cause to be paid to Holmes the full
amount of any such refund. Asco Investments shall also pay to Holmes the amount
of such Required Payment not refunded to Asco Investments, if any, due to any
offset or reduction for other tax obligations due by Asco Investments to such
governmental authority.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligations. The obligations of each
party to consummate the Closing and the transactions contemplated by this
Agreement are subject to the satisfaction or waiver, on or prior to the Closing
Date, of each of the following conditions:
(a) Hart-Scott-Rodino Waiting Period. Any applicable waiting period
under the HSR Act shall have expired or been terminated.
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(b) No Litigation. No investigation, suit, action or other proceeding
shall be pending against the Sellers or the Companies before any court or
governmental agency which seeks to restrain, challenge or prohibit or obtain
damages or other relief in connection with the performance of this Agreement or
the consummation of the transactions contemplated hereby.
(c) Solvency Opinion. A solvency opinion addressed to the Sellers and
the Board of Directors of Holmes, in form and substance reasonably acceptable to
the parties, shall have been delivered.
(d) Financing. Holmes shall have received the proceeds of financing
pursuant to the commitment letters set forth on Schedule 4.5 hereto on terms and
conditions set forth therein (or on such other terms and conditions as the Buyer
and Holmes shall reasonably agree or are not materially more onerous) in amounts
sufficient to consummate the transactions contemplated by this Agreement,
including, without limitation (i) to pay the redemption price as contemplated by
Section 2.2, (ii) to refinance the Affiliated Debt, (iii) to pay any fees and
expenses in connection with the transactions contemplated by this Agreement or
the financing thereof, (iv) to pay the Management Bonus, the Additional Kahn
Bonus and the Closing Expenses and (v) to provide for the working capital needs
of the Company following the transactions contemplated hereby, including,
without limitation, letters of credit.
(e) Execution of Ancillary Agreements. The following agreements shall
have been executed and delivered by all parties thereto: (i) the Escrow
Agreement; (ii) the Stockholders' Agreement attached hereto as Exhibit E; (iii)
the Registration Rights Agreement attached hereto as Exhibit F; (iv) the
Employment Agreements attached hereto as Exhibit G; and (v) the Non- Competition
Agreement attached hereto as Exhibit H.
7.2 Conditions to the Buyer's Obligations. The obligations of the Buyer
to consummate the Closing and the transactions contemplated by this Agreement
are subject to the satisfaction or waiver by the Buyer, on or prior to the
Closing Date, of each of the following conditions:
(a) Representations and Warranties. All representations and warranties
of each of the Sellers and the Companies set forth in this Agreement shall have
been true and correct in all material respects when made and shall be true and
correct in all material respects on and as of the Closing Date as though made on
and as of the Closing Date, except to the extent that such representations and
warranties related solely to an earlier date (in which case such representation
and warranty shall be true as of such earlier date), provided that, solely for
the purposes of this Section 7.2(a), any supplemental disclosure pursuant to
Section 6.9 which has a Material Adverse Effect shall not be taken into
consideration. The Buyer shall have received a certificate signed on behalf of
the Sellers and the Companies to the effect set forth in this paragraph.
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(b) No Material Adverse Effect. No event, occurrence, fact, condition,
change or development shall have occurred that has constituted or resulted in,
or could reasonably be expected to constitute or result in, a Material Adverse
Effect.
(c) Compliance with Agreement. The Sellers shall have performed and
complied in all material respects with all of the obligations under this
Agreement which are to be performed or complied with by them on or prior to the
Closing Date. The Buyer shall have received a certificate signed on behalf of
the Sellers and the Companies to the effect set forth in this paragraph.
(d) Proceedings and Instruments Satisfactory. All material proceedings,
corporate or other, to be taken by the Sellers or the Companies on behalf of the
Sellers or the Companies in connection with the transactions contemplated by
this Agreement, and all documents incident thereto, shall in the Buyer's
reasonable discretion be satisfactory to the Buyer.
(e) Termination of Stockholders Agreement. The Stockholders Agreement
dated as of June 21, 1993, as amended, by and among Holmes, Holmes (Far East),
Holmes (HK) and certain of the Sellers (the "Stockholders Agreement"), shall
have been terminated by the parties to the Stockholders Agreement at or prior to
the Closing.
(f) Release of Liens. All Liens in respect of Affiliated Debt, other
than Permitted Liens in respect thereof, shall have been released as set forth
in the Payoff Letters delivered pursuant to Section 6.13 hereof.
(g) Consents. All consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Authority required in connection
with the execution, delivery and performance of this Agreement shall have been
obtained or made, except for any other documents required to be filed after the
Closing Date, and except where the failure to have obtained or made any such
consents, authorizations, orders, approval, filing or registration would not
have individually or in the aggregate a Material Adverse Effect. All material
consents required from third parties in order for the Companies to consummate
the transactions contemplated hereby shall have been obtained.
(h) Esteem Lease. The leases for facilities for Esteem Industries, Ltd.
in China shall have been delivered to the Buyer, which lease shall incorporate
the terms summarized on Exhibit I attached hereto.
(i) Intercompany Obligations. All obligations between the Companies, on
one hand, and the Sellers and their Affiliates, on the other hand, shall have
been paid, forgiven or otherwise discharged without any adverse effect on the
Companies, and the Buyer shall have received discharge letters or other
confirmation as to the foregoing.
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(j) Releases. The Sellers shall deliver to Holmes releases relating to
any claims against, or obligations owing from, the Companies, in form and
substance reasonably satisfactory to the Buyer.
(k) Opinion of Counsel. There shall have been delivered to Buyer an
opinion of counsel of Posternak, Blankstein & Lund, L.L.P., counsel to Kahn,
Holmes and Holmes (Far East), and an opinion of counsel of Mayer, Brown & Platt,
counsel to Pentland Group plc, each in form and substance reasonably acceptable
to Buyer.
(l) FIRPTA Certificate. Each of the Companies shall have provided to
the Buyer a statement, in a form reasonably satisfactory to the Buyer pursuant
to Section 1.897-2(h) of the Treasury Regulations, certifying that interests in
each of the Companies are not U.S. real property interests within the meaning of
Section 897(c)(1) of the Code and dated not more than 30 days prior to the
Closing Date.
(m) Affidavit. Pentland Group, plc and Asco Investments shall have
delivered to Holmes an affidavit in form reasonably acceptable to the Buyer
confirming that (i) neither Pentland Group plc nor Asco Investments is a United
States real property holding company and (ii) that neither Pentland Group plc
nor Asco Investments is an affiliate of Kahn, the Buyer or any other stockholder
of Holmes or intends to acquire more shares of Common Stock of Holmes (other
than upon exercise of the Warrant described in Section 6.8).
(n) Kahn Stock Purchase Agreement. The transactions contemplated by the
Kahn Stock Purchase Agreement shall have been consummated.
(o) PW Opinion. PW shall have delivered an opinion to Holmes, in form
and substance reasonably satisfactory to Buyer and Holmes, regarding the tax
treatment of the redemption described in Section 2.2 hereof, including an
unqualified opinion that no tax withholding is required by Holmes regarding such
redemption.
7.3 Conditions to Sellers' and Holmes' Obligations. The obligations of
Sellers and Holmes to consummate the Closing and the transactions contemplated
by this Agreement are subject to the satisfaction or waiver by Sellers and
Holmes, on or prior to the Closing Date, of each of the following conditions:
(a) Representations and Warranties. All representations and warranties
of the Buyer set forth in this Agreement shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects on and as of the Closing Date as though made on and as of the Closing
Date except to the extent that such representation and warranty relates solely
to an earlier date (in which case such representation and warranty shall be true
as of such earlier date). Holmes shall have received a certificate signed on
behalf of the Buyer to the effect set forth in this paragraph.
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(b) Compliance with Agreement. The Buyer shall have performed and
complied in all material respects with all of the obligations under this
Agreement which are to be performed or complied with by it on or prior to the
Closing Date. Holmes shall have received a certificate signed on behalf of the
Buyer to the effect set forth in this paragraph.
(c) Proceedings and Instruments Satisfactory. All material proceedings,
corporate or other, to be taken by the Buyer or on behalf of the Buyer in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall in Holmes reasonable discretion be
satisfactory.
(d) Total Purchase Price. The Buyer shall have paid the amounts set
forth in Section 2.4 hereof.
(e) Release of Credit Support.
(i) The letters of credit set forth on Schedule 2.8(a)
hereto, as updated as of the Closing Date, shall have been released
and discharged or backed by unconditional letters of credit issued
by banks and in form and substance reasonably acceptable to the
Sellers.
(ii) The Sellers, Pentland Group plc and any affiliate
thereof (other than the Companies) shall have been released and
discharged to their reasonable satisfaction from any obligations
under the comfort letters and other financial support letters set
forth on Schedule 2.8(b) hereto, as updated as of the Closing Date.
(f) Opinion of Counsel. There shall have been delivered to Sellers and
Holmes an opinion of Hutchins, Wheeler & Dittmar, counsel to the Buyer, in form
of and substance reasonably acceptable to the Sellers.
(g) Warrant. Holmes shall have issued the Warrant to Pentland.
(h) Certain Payments. At Closing, Holmes shall have paid, or made
provisions satisfactory to the payee for the payment of (i) all principal of,
interest on, premium, if any, expenses, commissions and other amounts owing on
account of all Affiliated Debt, (ii) the Management Bonus, (iii) Closing
Expenses, (iv) the Additional Kahn Bonus and (v) the amounts due Asco
Investments pursuant to Section 2.2 hereof.
(i) Tax Clearance Waiver. Pentland Group, plc shall have received such
tax clearances as are required in connection with the transactions provided for
in this Agreement from the applicable U.K. tax authorities.
ARTICLE VIII
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INDEMNIFICATION
8.1 Survival. The representations and warranties of the Companies, the
Sellers and the Buyer made in this Agreement or any agreement, certificate or
instrument contemplated hereby, any document relating hereto or thereto or
contained in any Exhibit to this Agreements shall survive the Closing,
regardless of any investigation made by or on behalf of any party, until the
earlier of (i) May 1, 1999 or (ii) 15 days after the receipt by the Buyer or
Holmes of audited financial statements of Holmes for the year ending December
31, 1998, notice of which shall be provided to the Sellers (such period being
referred to herein as "Survival Period"); provided, however, that
representations and warranties with respect to which a claim is made within the
applicable Survival Period shall survive until such claim is finally determined
and paid, solely for the purposes of such claim and for no other purpose. No
claim for indemnification may first be made under this Article VIII after the
expiration of the Survival Period; provided that such limitation shall not bar
an action based on fraud.
8.2 Indemnification by the Sellers. Each of the Sellers covenants and
agrees that, subject to the provisions of this Article VIII, the Escrow Funds
provided by it (including interest and dividends thereon to the extent held in
escrow) will be available to indemnify, defend, protect and hold harmless the
Buyer (and, from and after the Closing Date, Holmes), (and its directors,
officers, employees, agents and affiliates) at all times after the Closing Date
from and against any and all claims, liabilities, losses, damages, costs or
expenses (including reasonable legal fees, costs and expenses arising from or in
connection with any action, suit, proceeding or claim incident to any of the
foregoing) (collectively, "Losses") suffered by any one or more of the Companies
resulting from or arising out of: (i) any breach of or any inaccuracy in any
representation or warranty made by the Sellers pursuant to or in this Agreement
or any agreement, certificate or instrument contemplated hereby, any document
relating hereto or thereto or contained in any Exhibit to this Agreement (in
each case as such representation or warranty with respect to Companies other
than the Far East Companies would read if all qualifications as to materiality,
Material Adverse Effect and knowledge were deleted therefrom); (ii) any breach
of or any inaccuracy in any representation or warranty made by the Companies
pursuant to or in this Agreement or any agreement, certificate or instrument
contemplated hereby, any document relating hereto or thereto or contained in any
Exhibit to this Agreement (in each case as such representation or warranty would
read if all qualifications as to materiality, Material Adverse Effect and
knowledge were deleted therefrom); or (iii) any breach of or failure by such
Seller to perform any agreement, covenant or obligation of such Seller set forth
in this Agreement or any agreement or instrument contemplated hereby.
8.3 Indemnification of the Sellers. The Buyer, from the date hereof
until the Closing Date, and Holmes, at all times from and after the Closing
Date, covenants and agrees that, subject to the provisions of this Article VIII,
it will indemnify, defend, protect, and hold harmless the Sellers from and
against all Losses incurred by the Sellers as a result of or incident to (i) any
breach of or any inaccuracy in any representation or warranty made by the Buyer
pursuant to or in this Agreement or any Agreement, certificate or instrument
contemplated hereby, any
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document written hereto or thereto or contained in any Exhibit to this Agreement
(in each case as said representation or warranty would read if all
qualifications as to materiality, Material Adverse Effect and knowledge were
delivered therefrom); (ii) any breach of or any inaccuracy in any representation
or warranty made by the Buyer pursuant to or in this Agreement or any agreement,
certificate or (iii) any breach of or failure by the Buyer to perform any
agreement, covenant or obligation of the Buyer set forth in this Agreement or
any agreement or instrument contemplated hereby.
8.4 Third Person Claims. Promptly after the Buyer (or, from and after
the Closing Date, Holmes) has received notice of or has knowledge of any claim
by a person not a party to this Agreement ("Third Person") or the commencement
of any action or proceeding by a Third Person for which Holmes or the Buyer is
entitled to indemnification under this Article VIII, the Buyer and Holmes shall,
as a condition precedent to a claim with respect thereto being made against the
Escrow Funds, give the Sellers written notice of such claim or the commencement
of such action or proceeding specifying in reasonable detail the nature of such
claim or action; provided, however, that failure to give such notification shall
not affect the indemnification provided hereunder except to the extent the
Sellers shall have been actually prejudiced as a result of such failure. If the
Sellers notify Holmes within 30 days from the receipt of the foregoing notice
that they wish to defend against the claim by the Third Person and if the
reasonable estimated amount payable with respect to the claim, together with
amounts reasonably estimated to be payable with respect to all other claims made
against the Escrow Funds that have not been settled, is less than the remaining
balance of the Escrow Funds, then the Sellers shall have the right, at their
sole expense, to assume and control the defense of the claim by appropriate
proceedings with counsel reasonably acceptable to Holmes and the Buyer. If the
reasonably estimated amount payable with respect to the claim, together with
amounts reasonably estimated to be payable with respect to all other claims made
against the Escrow Funds that have not been settled, is greater than the
remaining balance of the Escrow Funds, then Holmes and the Buyer (on the one
hand) and the Sellers (on the other hand) shall cooperate in a joint defense of
the claim, with the party whose risk of loss with respect to such claim is
greater (taking into account the amount of the remaining Escrow Funds and the
amount by which the amounts reasonably estimated to be payable with respect to
the claim exceed such remaining Escrow Funds) being the lead counsel in the
defense. If the Sellers do assume the defense of such claim, Holmes and the
Buyer may participate in the defense, at their sole expense, provided that
counsel for the Sellers shall act as lead counsel in all matters pertaining to
the defense or settlement of such claims, suit or proceedings; provided,
however, that Holmes and the Buyer shall control the defense of, but the Sellers
may participate in the defense of (i) any Tax audit or proceeding that would
reasonably be expected to have a Material Adverse Effect for any taxable period
ending on or after the Closing Date and (ii) any claim or proceeding that in
Holmes' reasonable judgment would have a Material Adverse Effect apart from the
financial impact. Holmes shall be entitled to payment from the Escrow Funds for
the reasonable fees and expenses of its counsel in defending a claim for any
period during which the Sellers have not assumed the defense of any claim and
for any matter described in clause (i) or (ii) of the immediately preceding
sentence, provided it is otherwise entitled to indemnification hereunder.
Whether or not the Sellers shall
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have assumed the defense of any claim, neither Holmes, the Buyer nor the Sellers
shall make any settlement with respect to any such claim, suit or proceeding
without the prior consent of the other, which consent shall not be unreasonably
withheld or delayed. It is understood and agreed that in situations where
failure to settle a claim expeditiously could have an adverse effect on the
party wishing to settle, the failure of the party not controlling the defense to
act upon a request for consent to such settlement within ten (10) days of
receipt of notice thereof shall be deemed to constitute consent to such
settlement for purposes of this Section 8.4. Such notice shall prominently
specify (i) the material terms and conditions of such settlement, (ii) that
immediate attention thereto is requested and (iii) that consent to such
settlement will be deemed granted upon a failure to respond timely.
8.5 Limitation on Indemnification.
(a) Notwithstanding anything to the contrary contained in this
Agreement, the Sellers shall not have any obligation to indemnify Holmes or the
Buyer (i) for any single Loss which does not exceed $15,000 or (ii) for
Aggregate Losses until the aggregate amount of Losses incurred exceed
$1,000,000, in which event such Person shall be entitled to indemnification only
with respect to the amount of Losses in excess of $1,000,000 (provided that in
calculating whether the aggregate amount of Losses incurred exceeds $1 million,
all indemnified Losses which are less than $15,000 shall be disregarded). At
such time as the aggregate amount of Losses incurred as set forth in the
foregoing sentence is in excess of $1,000,000, the Sellers shall not be
obligated to indemnify Holmes or the Buyer for any single Loss which does not
exceed $30,000. The limitation set forth in this Section 8.5(a) shall not apply
to any Losses arising out of a breach of a representation or warranty contained
in Section 3.1(c).
(b) Notwithstanding the foregoing, neither Holmes nor the Buyer will be
entitled to indemnification with respect to:
(i) consequential damages, including, without limitation,
consequential damages consisting of business interruption or lost
profits;
(ii) any obligation, liability or matter to the extent
reserves or accruals for such matter are reflected in the Financial
Statements or are on the books and records of Holmes and are therefore
taken into account in determining the Working Capital Statement;
(iii) to the extent any obligation or liability or matter,
including with respect to environmental remediation and clean-up,
arises under Laws that arise or are promulgated or announced after the
Closing Date;
(iv) any obligation, liability or matter arising out of
information Buyer discloses to any authority which disclosure is not
required by Environmental Laws or other Laws
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or for which disclosure would not otherwise be reasonable business
practice, without consideration of indemnification under this Article
VIII;
(v) except if there is a breach of the representations and
warranties set forth in this Agreement with respect to any claim by or
liability to any employee employed by the Companies arising out of the
termination of such employee's employment with the Companies after the
Closing Date, any action by the Companies subsequent to the Closing
Date with respect to employment or termination of employees;
(vi) any claim which Buyer or Holmes is entitled to bring
under any applicable statute, rule, regulation or case law, to the
extent that such claim would exceed the amount to which Buyer or Holmes
is entitled to receive as indemnification under this Article VIII after
giving effect to the limitations contained herein;
(vii) any obligation of Holmes to pay any amounts to the
Internal Revenue Service or other governmental authority on account of
or relating to any payments to Asco Investments made pursuant to
Section 2.2 hereof; or
(viii) any claim by Holmes or the Buyer arising out of the
contribution of shares contemplated by Section 2.1 hereof or the
redemption of shares contemplated by Section 2.2 hereof.
(c) Notwithstanding the foregoing, the Sellers will not be entitled to
indemnification with respect to:
(i) consequential damages; or
(ii) with respect to any claim which the Sellers shall be
entitled to bring under any statute, rule, regulation or case law to
the extent that such claim would exceed the amount to which the Sellers
are entitled to receive as indemnification under this Article VIII
after giving effect to limitations contained herein.
(d) Any indemnification amounts payable under this Article VIII shall
be treated by the Buyer, Holmes, the Sellers and the Companies as an adjustment
to the Cash Purchase Price, and shall be calculated after giving effect to (i)
any proceeds received from insurance policies covering the damage, loss,
liability or expense that is the subject to the claim for indemnity and (ii) the
actual realized tax benefit to Holmes resulting from the damage, loss, liability
or expense that is the subject of the indemnity; provided that to the extent
that any tax benefit is realized in a tax year other than the year in which the
indemnity is paid, Holmes shall make a payment to the indemnitor in the amount
of such realized tax benefit in the year in which it is realized. For purposes
hereof, an actual realized tax benefit is an actual reduction in taxes payable
or a refund of taxes previously paid.
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(e) From and after the Closing, the Buyer shall cause the Companies to
maintain customary products liability, property, casualty, business interruption
and other insurance in respect of the Companies, in accordance with general
industry practices, provided, that such insurance coverage will not, in the
aggregate, be substantially less favorable to the Companies than the Companies'
insurance coverage prior to the Closing. Indemnification claims hereunder shall
be reduced by and to the extent that the Companies receive proceeds under
insurance policies, risk sharing pools, or similar arrangements specifically as
a result of, and in compensation for, the subject matter of an indemnification
claim.
(f) In the case of a breach of representation or warranty contained in
Section 3.1, the Buyer and/or Holmes shall only be entitled to indemnification
pursuant to Section 8.2 from the particular Seller whose breach gives rise to
such indemnification right and only for such Seller's remaining Allocable
Percentage of the then-existing Escrow Amount, and the other Seller shall not be
obligated to provide indemnification or contribution or otherwise be obligated
or liable therefor and any remaining portion of the Escrow Amount will not be
available to the Buyer in respect of such breach.
(g) Any indemnification of or recovery by the Buyer or Holmes for
Losses under Section 8.2 of this Agreement, any agreement or instrument
contemplated hereby, any document relating hereto or thereto or any Exhibit to
this Agreement arising on or after the Closing Date shall be limited solely to
the amount of the Escrow Amount then held by the Escrow Agent under the Escrow
Agreement.
(h) Notwithstanding anything to the contrary set forth in this
Agreement, the Buyer, Holmes and their respective affiliates will not, directly
or indirectly, in whole or in part, make whole, reimburse or otherwise
compensate Kahn with respect to claims payable out of the Escrow Amount for his
portion of any indemnification obligation hereunder.
8.6 Limitation on Tax Liability. The Sellers shall not be obligated or
liable for any taxes or tax-related indemnities, obligations or liabilities to
the extent that the same are attributable to any tax determinations, allocations
or positions which the Companies take after the Closing that are different than
those of the Companies prior the Closing, unless the Companies determine in good
faith that such determination, allocations or positions are required in order
for the Companies to be in compliance with applicable law or with United States
generally accepted accounting principles.
8.7 Civil Liability under RICO. The Buyer and the Sellers hereby waive
all rights to pursue civil remedies to which they may be entitled or may become
entitled with respect to this Agreement and the transactions contemplated hereby
against the other parties hereto under the Racketeer Influence and Corrupt
Organization Act of 1970, as amended, including specifically any rights to
treble damages which may be available to them pursuant to 18 U.S.C. Section
1964(c).
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8.8 Indemnification Exclusive Remedy. The sole recourse and exclusive
remedy for the Buyer or Holmes against the Sellers after the Closing Date for
the breach of any representations, warranties, covenants and agreements
contained in this Agreement, any agreement or instrument contemplated hereby,
any document relating hereto or thereto or any Exhibit to this Agreement, or
otherwise arising from the Buyer's acquisition of the Shares, shall be to assert
a claim for indemnification under the provisions of this Article VIII. The only
legal action which may be asserted by the Buyer or Holmes against the Sellers
with respect to any matter which is the subject of this Agreement shall be a
contract action to enforce, or to recover Losses for the breach of, this
Agreement, and any recovery by the Buyer or Holmes for any such Losses shall be
limited as provided in this Article VIII. Without limiting the generality of the
foregoing, no legal action based upon predecessor or successor liability,
contribution, tort or strict liability may be maintained by the Buyer against
the Sellers with respect to any matter that is the subject of this Agreement,
any agreement or instrument contemplated hereby, any document relating hereto or
thereto or any Exhibit to this Agreement, or otherwise arising from the Buyer's
or Holmes' acquisition of the Shares. Notwithstanding the provisions of this
Section 8.8, nothing herein shall be deemed to limit the ability of the Buyer or
Holmes to proceed against one or more of the Sellers based on criminal activity
or fraud.
ARTICLE IX
GENERAL PROVISIONS
9.1 Fees and Expenses. Except as otherwise provided herein, each party
shall be responsible for its own fees and expenses (including legal fees and
expenses) in connection with the execution and delivery of this Agreement and
the performance of its obligations hereunder; provided, however, that, if the
transactions contemplated hereby are consummated, any expenses incurred by the
Buyer shall be paid by Holmes; and provided, further, however, that any expenses
incurred in connection with the provisions of Section 2.6 hereof shall be borne
as contemplated in such section. If the transactions contemplated hereby are not
consummated, and all of the conditions set forth in Section 7.1 and 7.2 (other
than 7.2(n)) hereof have been satisfied, the expenses of Holmes in connection
with the financing contemplated by Section 4.5 hereof shall be borne by the
Buyer.
9.2 Termination. This Agreement may be terminated and abandoned at any
time prior to or on the Closing Date (i) by the mutual consent in writing of the
Sellers and the Buyer at any time, (ii) by either the Buyer or the Sellers if
the Closing shall not have occurred by 5:00 p.m., Eastern time, on December 1,
1997.
9.3 Amendment; Extension; Waiver. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties. The
parties agree that the Buyer and Kahn will not amend the Kahn Stock Purchase
Agreement without the consent of Asco Investments, which consent shall not be
unreasonably withheld. At any time prior to the Closing, the parties may (a)
extend the time for the performance of any of the obligations or
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other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights; it being understood that
this sentence shall not in any way effect Section 8.6 hereof.
9.4 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
IF TO THE SELLERS: Jordan A. Kahn
c/o Holmes Products Corp.
233 Fortune Blvd.
Granite Park
Milford, Massachusetts 01757
Fax: (508) 634-8374
and to: Asco Investments Ltd.
c/o Pentland Group plc
The Pentland Centre
Lakeside, Squires Lane
London N3 2QL
United Kingdom
Attn: General Counsel
Fax: 011-44-181-343-4876
with copies to: Donald H. Siegel, P.C.
Posternak, Blankstein & Lund, L.L.P.
100 Charles River Plaza
Boston, Massachusetts 02114
Fax: (617) 367-2315
and to: James B. Carlson, Esq.
Mayer, Brown & Platt
1675 Broadway, Suite 1900
New York, New York 10019-5820
Fax: (212) 262-1910
IF TO BUYER: Richard K. Lubin
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c/o Berkshire Partners LLC
One Boston Place, Suite 3300
Boston, Massachusetts 02108
Fax: (617) 227-6105
with a copy to: James Westra, Esquire
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Fax: (617) 951-1295
9.5 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
9.7 Entire Agreement. This Agreement and the other agreements referred
to herein constitute the entire agreement, and supersede all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement.
9.8 Control by Asco Investments. Any decision by Asco Investments and
Kahn with respect to the determination of any adjustment under Section 2.6
hereof or as to the assertion or defense of any claim for indemnification under
Article VIII (other than a claim for a breach of representation or warranty
contained in Section 3.1) shall be determined by Asco Investments on behalf of
itself and Kahn; provided that any such determination shall be made in good
faith and in a manner designed to treat Kahn and Asco Investments equitably, and
provided further that Kahn shall be consulted with respect to, and kept fully
apprised of, any such claim, and Kahn gives his consent to any such
determination, which consent shall not be unreasonably withheld.
9.9 Liquidation of Buyer. The parties acknowledge that the Buyer will
be liquidated immediately after the closing, and agree that following such
liquidation, all obligations of the Buyer, including without limitation those
under Article VIII, shall become obligations of the Companies, and that
thereafter neither the Buyer nor any of its shareholders, officers, directors or
agents shall have any obligation under this Agreement.
9.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
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MASSACHUSETTS, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS.
9.11 JURISDICTION OF DISPUTES; WAIVER OF JURY TRIAL. IN THE EVENT ANY
PARTY TO THIS AGREEMENT COMMENCES ANY LITIGATION, PROCEEDING OR OTHER LEGAL
ACTION IN CONNECTION WITH OR RELATING TO THIS AGREEMENT, ANY RELATED AGREEMENT
OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR THEREIN, THE PARTIES TO THIS
AGREEMENT HEREBY (A) AGREE UNDER ALL CIRCUMSTANCES ABSOLUTELY AND IRREVOCABLY TO
INSTITUTE ANY LITIGATION, PROCEEDING OR OTHER LEGAL ACTION IN A COURT OF
COMPETENT JURISDICTION LOCATED WITHIN THE EASTERN DISTRICT OF MASSACHUSETTS,
WHETHER A STATE OR FEDERAL COURT; (B) AGREE THAT IN THE EVENT OF ANY SUCH
LITIGATION, PROCEEDING OR ACTION, SUCH PARTIES WILL CONSENT AND SUBMIT TO THE
PERSONAL JURISDICTION OF ANY SUCH COURT DESCRIBED IN CLAUSE (A) OF THIS SECTION
AND TO SERVICE OF PROCESS UPON THEM IN ACCORDANCE WITH THE RULES AND STATUTES
GOVERNING SERVICE OF PROCESS (IT BEING UNDERSTOOD THAT NOTHING IN THIS SECTION
SHALL BE DEEMED TO PREVENT ANY PARTY FROM SEEKING TO REMOVE ANY ACTION TO A
FEDERAL COURT IN THE EASTERN DISTRICT OF MASSACHUSETTS; (C) AGREE TO WAIVE TO
THE FULL EXTENT PERMITTED BY LAW ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER
HAVE TO THE VENUE OF ANY SUCH LITIGATION, PROCEEDING OR ACTION IN ANY SUCH COURT
OR THAT ANY SUCH LITIGATION, PROCEEDING OR ACTION WAS BROUGHT IN ANY
INCONVENIENT FORUM; (D) AGREE AS AN ALTERNATIVE METHOD OF SERVICE TO SERVICE OF
PROCESS IN ANY LEGAL PROCEEDING BY MAILING OF COPIES THEREOF TO SUCH PARTY AT
ITS ADDRESS SET FORTH HEREIN FOR COMMUNICATIONS TO SUCH PARTY; (E) AGREE THAT
ANY SERVICE MADE AS PROVIDED HEREIN SHALL BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT; AND (F) AGREE THAT NOTHING HEREIN SHALL AFFECT THE RIGHTS OF ANY
PARTY TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. TO THE
EXTENT PERMITTED BY LAW EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY IN
ANY DISPUTE IN CONNECTION WITH OR RELATING TO THIS AGREEMENT, ANY RELATED
AGREEMENT OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR THEREIN, AND AGREE
TO TAKE ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO EFFECT SUCH WAIVER.
9.12 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties; provided, however, that the Buyer shall be
permitted to assign its rights to purchase shares of Common Stock from Holmes
pursuant to Section 2.4 hereof prior to the Closing, provided that any such
assignment shall not relieve the Buyer of its obligations hereunder. Subject to
the preceding sentence, this
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Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
9.13 Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that prior to the Closing the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement.
9.14 Limitation and Warranties. Buyer acknowledges that the detailed
representations and warranties by the Sellers and the Companies set forth in
this Agreement have been carefully negotiated and prepared by the parties. The
Sellers make no representations or warranties with respect to any projections,
forecasts or forward-looking information provided to the Buyer. There is no
assurance that any projected or forecasted results will be achieved. EXCEPT AS
TO THOSE MATTERS EXPRESSLY COVERED BY THE REPRESENTATIONS AND WARRANTIES SET
FORTH HEREIN, THE SELLERS DISCLAIM ALL REPRESENTATIONS AND WARRANTIES, WHETHER
EXPRESSED OR IMPLIED, AS TO ANY OTHER INFORMATION OR MATTERS. The Buyer
acknowledges that neither the Companies nor any Seller nor any other person or
entity has made any representation or warranty, express or implied, as to the
accuracy or completeness of any information which is not included or referred to
in this Agreement or the Disclosure Schedule, and no Seller nor any other person
or entity will have or will be subject to any liability under this Agreement to
the Buyer, any affiliate thereof or any other person or entity resulting from
the distribution of any such information to, or use of any information by, the
Buyer and any affiliate thereof or any of their agents, consultants,
accountants, counsel or other representatives. Without limitation of the
foregoing, to the extent that in the offering memoranda or summary prepared by
any Seller, the Companies or by any of their respective advisors or
representatives are or has been provided to the Buyer, the Buyer acknowledges
and agrees that no representation or warranties made as to the completeness or
accuracy of such memoranda or summaries.
9.15 U.S. Dollars. Unless otherwise specifically stated, all dollar
figures set forth herein are in United States dollars, and all financial
calculations and amounts called for or referred to herein shall be made in or
shall be deemed to refer to United States dollars. For purposes of this
Agreement, all translations from foreign currencies to United States dollars
shall be made using the exchange rates prevailing on the effective date of such
calculation.
9.16 Disclosure Schedule. Any fact or item in any portion of the
Disclosure Schedule shall be deemed to be disclosed with respect to this
Agreement generally and any other relevant portion, whether or not an explicit
cross-reference appears. No representation or warranty hereunder shall be deemed
to be inaccurate if the actual situation is disclosed in the Disclosure
Schedule. Neither the specification of any dollar amount in any representation,
warranty or covenant contained in this Agreement nor the inclusion of any
specific item in the Disclosure Schedule hereto is intended to imply that such
amount, or higher or lower amounts, or the item
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so included or other items, are or are not material, and no party shall use the
fact of the setting forth of any such amount or the inclusion of any such item
in any dispute or controversy between the parties as to whether any obligation,
item or matter not described herein or included in the Disclosure Schedule is or
is not material for purposes of this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Buyer, the Sellers and the Companies have each
caused this Agreement to be signed by their respective officers thereunto duty
authorized, all as of the date first written above.
ASCO INVESTMENTS LTD.
By: /s/ James B. Carlson
------------------------------
Name: James B. Carlson
Title: Attorney In Fact
/s/ Jordan A. Kahn
----------------------------------
Jordan A. Kahn
HOLMES PRODUCTS CORP.
By: /s/ Jordan A. Kahn
------------------------------
Jordan A. Kahn, President
HOLMES PRODUCTS (FAR EAST)
LIMITED
By: /s/ James B. Carlson
------------------------------
Name: James B. Carlson
Title: Attorney In Fact
BUYER:
HOLMES ACQUISITION LLC
By: /s/ Richard K. Lubin
------------------------------
49
<PAGE>
EXECUTION COPY
AMENDMENT NO. 1 TO
STOCK PURCHASE AND
REDEMPTION AGREEMENT
THIS AMENDMENT NO. 1 TO STOCK PURCHASE AND REDEMPTION
AGREEMENT (this "Amendment") is entered into as of this 25th day of November,
1997 by and among, Asco Investments Ltd., a Bahamas corporation ("Asco
Investments"), Jordan A. Kahn, a Massachusetts resident ("Kahn"), Holmes
Products Corp., a Massachusetts corporation ("Holmes"), Holmes Products (Far
East) Limited, a Bahamas corporation ("Holmes (Far East));" and Holmes
Acquisition LLC, a Delaware limited liability company (the "Buyer").
WHEREAS, Asco Investments, Holmes, Holmes (Far East), Kahn and the
Buyer are parties to a Stock Purchase and Redemption Agreement dated as of
October 27, 1997 (the "Agreement"); and
WHEREAS, the parties to the Agreement desire to amend the Agreement to
amend the provisions of Section 2.6 thereof (terms not otherwise defined herein
shall have the meaning given to such terms in the Agreement).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Section 2.6(b) of the Agreement is hereby deleted in its entirety
and is replaced in its entirety with the following:
"(b) Final Working Capital Adjustment.
(i) Not later than ninety (90) days after the Closing Date,
Holmes, together with Berkshire Partners LLC ("Berkshire"), shall
prepare and deliver to the Sellers a statement setting forth the
Companies' actual working capital as of the close of business on the
Closing Date (the "Working Capital Statement"), including a detailed
computation thereof, which statement shall be audited by Price
Waterhouse LLP, independent accountants to Holmes ("PW"), and shall be
accompanied by a report from such independent accountants confirming
that such Working Capital Statement was prepared in a manner consistent
with Holmes' historic accounting policies and in accordance with the
provisions of Exhibit C (collectively, "Historic Practices"), which
provisions shall be binding upon the accountants preparing the Working
Capital Statement. The Working Capital Statement will not reflect (i)
any items for which indemnification claims may be made pursuant to the
Agreement , (ii) any reduction in tax accruals in respect of or as a
result of the payment of the Management Bonus, the Additional Kahn
Bonus, any Closing Expenses, or any expenses paid by the Companies
which would have been Closing Expenses but for their payment prior to
the Closing Date, or (iii) any interest,
<PAGE>
fees or other expenses incurred by the Companies on behalf of Buyer on
or after the Closing Date or as a result of the transactions
contemplated by this Agreement. In addition, PW shall provide, together
with the Working Capital Statement, a calculation and statement of the
final amounts of Closing Expenses, Affiliated Debt, Additional Kahn
Bonus and Management Bonus (the "Closing Statement" and together with
the Working Capital Statement, the "Statements").
(ii) The Sellers shall have twenty (20) days following receipt
of the Statements within which to accept or reject the Statements.
Holmes shall make available to the Sellers all information, books and
records used in preparing both the Working Capital Estimate and the
Statements, including the work papers of PW. If the Sellers object to
the Statements, the Sellers shall provide Holmes and Berkshire with
written notice of such objection (the "Objection Notice"), setting
forth in reasonable detail the nature of its objection and the Sellers'
calculation of the Companies' working capital or amounts set forth in
the Closing Statement as of the close of business on the Closing Date.
If the Sellers do not object to the Statements within such twenty (20)
day period, they shall conclusively be deemed to have accepted such
Statements. If the Sellers object to the Statements, Holmes and the
Sellers shall negotiate in good faith for a period of fifteen (15) days
following receipt of the Objection Notice in an effort to resolve any
differences with respect thereto. If within such period Holmes and the
Sellers are unable to resolve such differences, the Statements shall be
referred to Arthur Andersen & Co. or such other accounting firm as is
acceptable to Holmes and Sellers ("AA") for review in accordance with
the Historic Practices and the review by AA shall be conclusive and
binding on Holmes and the Sellers. The fees and expenses of such
accounting firm shall be borne proportionately by the Sellers on the
one hand, and Holmes on the other, with the Sellers paying the
proportion of such fees and expenses equal to the ratio of (x) the
difference between the working capital amount determined by AA (the
"AA" Amount) and the working capital amount determined by the Sellers,
divided by (y) the difference between the amount determined by PW in
the Working Capital Statement and the working capital amount determined
by the Sellers; and with Holmes paying the balance of such fees and
expenses. The final Working Capital Statement, obtained either through
agreement of the parties or by decision of the neutral accounting firm,
is referred to herein as the "Final Working Capital Statement."
(iii) To the extent that the amount of the Companies' working
capital as reflected in the Final Working Capital Statement is greater
than the Base Amount (which Base Amount shall be adjusted by the
adjustments to the Cash Purchase Price made at the Closing pursuant to
Section 2.6(a)), Buyer shall pay to Holmes and Holmes shall pay to Asco
Investments an amount per share (based on the number of shares
purchased or redeemed) equal to the amount of such excess divided by
the total number of shares of Common Stock outstanding immediately
prior to the Closing. To the extent that the amount of the Companies'
working capital as reflected in the Final Working Capital Statement is
less than the Base Amount (which Base Amount shall be adjusted by the
2
<PAGE>
adjustments to the Cash Purchase Price made at the Closing pursuant to
Section 2.6(a)), Asco Investments shall pay to Holmes and Holmes shall
pay to Buyer an amount per share (based on the number of shares
purchased or redeemed) equal to the amount of such excess divided by
the total number of shares of Common Stock outstanding immediately
prior to the Closing. Any payment required to be made pursuant to
Section 2.6(b) shall be made in immediately available funds within
three (3) business days following acceptance of the Final Working
Capital Statement. In addition, to the extent that the actual amounts
of Closing Expenses, Indebtedness (including Affiliated Debt),
Additional Kahn Bonus and Management Bonus as set forth in the Final
Working Capital Statement and the Closing Statement differ from the
amounts paid as of the Closing Date, appropriate adjustments shall be
made in connection with the payments due in respect thereof and in the
calculation of the Cash Purchase Price.
(iv) The parties agree that the working capital adjustment
mechanism set forth in this Section 2.6(b) is not intended to be used
to indemnify any party for a breach of a representation, warranty or
covenant contained herein, that indemnification for any such breach
shall be available only to the extent set forth in Article VIII hereof,
and that no current liability, accrual or reserve shall be taken into
account as of the Closing Date on account of any such breach for the
purpose of making the working capital adjustment described in this
Section 2.6."
2. Except as specifically set forth above, the Agreement shall remain
in full force and effect, and the parties hereto ratify and confirm the
provisions thereof.
[Remainder of Page Intentionally Left Blank]
3
<PAGE>
IN WITNESS WHEREOF, the Buyer, the Sellers and the Companies have each
caused this Agreement to be signed by their respective officers thereunto duty
authorized, all as of the date first written above.
ASCO INVESTMENTS LTD.
By: /s/ James B. Carlson
-------------------------------
Name: James B. Carlson
Title: Attorney-In-Fact
/s/ Jordan A. Kahn
-----------------------------------
Jordan A. Kahn
HOLMES PRODUCTS CORP.
By: /s/ Jordan A. Kahn
-------------------------------
Jordan A. Kahn, President
HOLMES PRODUCTS (FAR EAST)
LIMITED
By: /s/ James B. Carlson
-------------------------------
Name: James B. Carlson
Title: Attorney-In-Fact
BUYER:
HOLMES ACQUISITION LLC
By: /s/ Richard K. Lubin
-------------------------------
4
Exhibit 10.3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into as of this 27th day of
October, 1997 by and between Jordan A. Kahn, a Massachusetts resident ("Kahn")
and Holmes Acquisition LLC, a Delaware limited liability company (the "Buyer").
WHEREAS, (i) Holmes Products Corp. ("Holmes") (together with its direct
and indirect majority-owned subsidiaries on a consolidated basis) and (ii)
Holmes Products (Far East) Limited (together with its direct and indirect
majority-owned subsidiaries on a consolidated basis), conduct a business of
designing, manufacturing and marketing home comfort and lighting appliances; and
WHEREAS, Holmes Products Corp., Holmes Products (Far East) Limited,
Asco Investment Ltd., Kahn and Buyer have this day entered into a Stock Purchase
and Redemption Agreement (the "Redemption Agreement"), pursuant to which Holmes
will sell stock to Buyer and redeem stock held by Asco Investments Ltd. (all
defined terms used herein and not otherwise defined have the meanings set forth
in the Redemption Agreement); and
WHEREAS, Kahn wishes to sell to Buyer and Buyer wishes to purchase from
Kahn, additional shares of Holmes Products Corp. common stock now owned by Kahn.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Stock Sale by Kahn. Upon the terms and subject to the conditions of
this Agreement, on the Closing Date, Kahn shall sell to the Buyer (together with
the assignees of Buyer), and the Buyer (together with the assignees of Buyer)
shall purchase from Kahn, such number of shares of Common Stock so that,
immediately following the consummation of the transactions contemplated hereby
and by the Redemption Agreement, Kahn shall retain twenty percent (20%) of the
issued and outstanding Common Stock. The purchase price per share of Common
Stock to be purchased by the Buyer hereunder shall be equal to the per share
purchase price for shares of common stock acquired by the Buyer from the Company
pursuant to, and as adjusted in accordance with, the Redemption Agreement. Of
the aggregate consideration to be paid by the Buyer to Kahn pursuant hereto, an
amount equal to $2,500,000 shall be deposited in escrow to be held and
distributed in accordance with the indemnification provisions of Article VIII of
the Redemption Agreement and the terms of the Escrow Agreement.
<PAGE>
1.2 Post-Closing Payments. If the Final Working Capital Statement
provided for in Section 1.6 of the Redemption Agreement requires the Buyer to
pay additional amounts to Kahn, the Buyer (together with the assignees of the
Buyer) shall pay such amounts to Kahn within three (3) business days following
acceptance of the Final Working Capital Statement. If the Final Working Capital
Statement provided for in Section 1.6 of the Redemption Agreement requires Kahn
to pay any amounts to the Buyer, Kahn shall pay any such amounts to the Buyer
(and the assignees of the Buyer) within three (3) business days following
acceptance of the Final Working Capital Statement.
1.3 Closing. The closing of the transactions contemplated by Sections
1.1 hereof (the "Closing") shall take place at 9:00 a.m., local time, on
December 1, 1997, at the offices of Hutchins, Wheeler & Dittmar, 101 Federal
Street, Boston, Massachusetts, or at such other time, date on or before December
1, 1997 or place as the parties may agree. The date on which the Closing occurs
is hereinafter referred to as the "Closing Date."
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF KAHN
Kahn hereby represents and warrants to the Buyer as follows:
2.1 Authority; Binding Effect. Kahn has taken prior to the date hereof,
all necessary action, and has obtained all necessary authorization, to enter
into and perform his obligations under this Agreement and all other agreements,
documents and instruments executed by him in connection herewith. This Agreement
and all other agreements, documents and instruments executed by Kahn in
connection herewith are and will be the valid and binding obligations of Kahn,
enforceable against him in accordance with their respective terms, except as
enforceability may be subject to bankruptcy, insolvency, receivership,
moratorium, reorganization, fraudulent conveyance, equitable subordination or
similar laws of general application, and the application of equitable
principles.
2.2 Non-Contravention. Neither the execution and delivery of this
Agreement nor any agreement executed in connection herewith by Kahn, nor the
consummation by him of the transactions contemplated hereby or thereby, will
constitute a violation of, or be a default under, or conflict with the terms of
any contract, lease, indenture, mortgage, agreement or instrument to which he is
a party or by which he is bound or to which any of his assets are subject, or
will violate or constitute a default under any applicable statute, rule,
regulation, order, ordinance, judgment or decree of any governmental, judicial
or arbitral body binding upon him.
2
<PAGE>
2.3 Title to Shares. Kahn owns beneficially the number of Shares of
Holmes set forth next to his name on Schedule 2.3, free and clear of all liens
and encumbrances of any nature. The sale by Kahn of the shares of Common Stock
pursuant to Article I hereof will not be subject to any preemptive or similar
rights, voting agreements, or to any rights of first refusal or other similar
rights in favor of any person or entity, except such rights as will have been
waived or terminated at or prior to the Closing.
2.4 Brokers. Except for Goldman Sachs & Co., no broker, investment
banker, financial advisor or other person, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or an behalf of Kahn.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Sellers as follows:
3.1 Organization, Standing and Corporate Power. The Buyer is a limited
liability company duly organized and in good standing in the State of Delaware
and has the requisite power and authority to carry on its business as now being
conducted. The Buyer is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary.
3.2 Authority; Binding Effect; Noncontravention. The Buyer has all
requisite power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by the Buyer and the consummation by the Buyer of the transactions
contemplated by this Agreement have been duly authorized by all necessary action
on the part of the Buyer. This Agreement has been duly executed and delivered by
and constitutes a valid and binding obligation of the Buyer, enforceable against
the Buyer in accordance with its terms except as enforceability may be subject
to bankruptcy, insolvency, receivership, moratorium, reorganization, fraudulent
conveyance, equitable subordination and similar laws of general application, and
the application of equitable principles. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not,
conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with respect to any
obligation or to loss of a material benefit under, or result in the creation of
any lien upon any of the properties or assets of the Buyer under, (i) the
organizational documents of the Buyer, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
3
<PAGE>
concession, franchise or license applicable to the Buyer or its properties or
assets or (iii) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to the Buyer or its
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any Governmental Entity
is required by or with respect to the Buyer in connection with the execution and
delivery of this Agreement by the Buyer or the consummation by the Buyer of any
of the transactions contemplated by this Agreement.
3.3 Litigation. There is no suit, action or legal, administrative,
arbitration or other proceeding of any nature pending or, to the Buyer's
knowledge, threatened, against the Buyer which might reasonably be expected to
have a Material Adverse Effect on the legality or the validity of this Agreement
or the consummation transaction contemplated hereby.
3.4 Source of Funds. None of the funds used by Buyer to purchase Shares
of Holmes from Kahn pursuant hereto will come directly or indirectly from
Holmes.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Intra-Family Transfers of Shares. Prior to the Closing, Kahn, with
the consent of Buyer (which consent will not be unreasonably withheld), shall be
permitted to transfer Shares held by him or for his benefit to his spouse, a
child or any other relative, or to a trust of which Kahn or any relative of Kahn
is a settlor, trustee or beneficiary, or a family limited partnership, provided
that such person, trust, or family limited partnership executes and delivers to
the Buyer a copy of this Agreement and agrees to be bound hereby to the same
extent as Kahn for all purposes hereunder.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to the Buyer's Obligations. The obligations of the Buyer
to consummate the Closing and the transactions contemplated by this Agreement
are subject to the satisfaction or waiver by the Buyer, on or prior to the
Closing Date, of each of the following conditions:
(a) Representations and Warranties. All representations and warranties
of Kahn set forth in this Agreement shall have been true and correct when made
and shall be true and correct on and as of the Closing Date as though made on
and as of the Closing Date. The Buyer shall have received a certificate signed
by Kahn to the effect set forth in this paragraph.
4
<PAGE>
(b) Closing of Redemption Agreement. The transactions contemplated by
the Redemption Agreement shall have been consummated.
(c) Opinion of Counsel. There shall have been delivered to Buyer an
opinion of counsel of Posternak, Blankstein & Lund, L.L.P., counsel to Kahn in
form and substance reasonably acceptable to Buyer.
5.2 Conditions to Kahn's Obligations. The obligations of Kahn to
consummate the Closing and the transactions contemplated by this Agreement are
subject to the satisfaction or waiver by Kahn, on or prior to the Closing Date,
of each of the following conditions:
(a) Representations and Warranties. All representations and warranties
of the Buyer set forth in this Agreement shall have been true and correct when
made and shall be true and correct on and as of the Closing Date as though made
on and as of the Closing Date except to the extent that such representation and
warranty relates solely to an earlier date (in which case such representation
and warranty shall be true as of such earlier date). Kahn shall have received a
certificate signed on behalf of the Buyer to the effect set forth in this
paragraph.
(b) Closing of Redemption Agreement. The transactions contemplated by
the Redemption Agreement shall have been consummated.
ARTICLE VI
GENERAL PROVISIONS
6.1 Termination. This Agreement may be terminated and abandoned at any
time prior to or on the Closing Date (i) by the mutual consent in writing of
Kahn and the Buyer at any time, (ii) by either the Buyer or Kahn if the Closing
shall not have occurred by 5:00 p.m., Eastern time, on December 1, 1997.
6.2 Amendment; Extension; Waiver. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties. At
any time prior to the Closing, the parties may (a) extend the time for the
performance of any of the obligations or other acts of the other parties, (b)
waive any inaccuracies in the representations and warranties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) waive
compliance with any of the agreements or conditions contained in this Agreement.
Any agreement on the part of a party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
6.3 Notices. All notices, requests, claims, demands and other
communications under
5
<PAGE>
this Agreement shall be in writing and shall be deemed given if delivered
personally or sent by overnight courier providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
IF TO KAHN: Jordan A. Kahn
c/o Holmes Products Corp.
233 Fortune Blvd.
Granite Park
Milford, Massachusetts 01757
Fax: (508) 634-8374
with a copy to: Donald H. Siegel, P.C.
Posternak, Blankstein & Lund, L.L.P.
100 Charles River Plaza
Boston, Massachusetts 02114
Fax: (617) 367-2315
IF TO BUYER: Richard K. Lubin
c/o Berkshire Partners LLC
One Boston Place, Suite 3300
Boston, Massachusetts 02108
Fax: (617) 227-6105
with a copy to: James Westra, Esquire
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Fax: (617) 951-1295
6.4 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
6.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
6.6 Entire Agreement. This Agreement, the Redemption Agreement and the
other agreements referred to herein constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement.
6
<PAGE>
6.7 Liquidation of Buyer. The parties acknowledge that the Buyer will
be liquidated immediately after the Closing.
6.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS.
6.9 JURISDICTION OF DISPUTES; WAIVER OF JURY TRIAL. IN THE EVENT ANY
PARTY TO THIS AGREEMENT COMMENCES ANY LITIGATION, PROCEEDING OR OTHER LEGAL
ACTION IN CONNECTION WITH OR RELATING TO THIS AGREEMENT, ANY RELATED AGREEMENT
OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR THEREIN, THE PARTIES TO THIS
AGREEMENT HEREBY (A) AGREE UNDER ALL CIRCUMSTANCES ABSOLUTELY AND IRREVOCABLY TO
INSTITUTE ANY LITIGATION, PROCEEDING OR OTHER LEGAL ACTION IN A COURT OF
COMPETENT JURISDICTION LOCATED WITHIN THE EASTERN DISTRICT OF MASSACHUSETTS,
WHETHER A STATE OR FEDERAL COURT; (B) AGREE THAT IN THE EVENT OF ANY SUCH
LITIGATION, PROCEEDING OR ACTION, SUCH PARTIES WILL CONSENT AND SUBMIT TO THE
PERSONAL JURISDICTION OF ANY SUCH COURT DESCRIBED IN CLAUSE (A) OF THIS SECTION
AND TO SERVICE OF PROCESS UPON THEM IN ACCORDANCE WITH THE RULES AND STATUTES
GOVERNING SERVICE OF PROCESS (IT BEING UNDERSTOOD THAT NOTHING IN THIS SECTION
SHALL BE DEEMED TO PREVENT ANY PARTY FROM SEEKING TO REMOVE ANY ACTION TO A
FEDERAL COURT IN THE EASTERN DISTRICT OF MASSACHUSETTS; (C) AGREE TO WAIVE TO
THE FULL EXTENT PERMITTED BY LAW ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER
HAVE TO THE VENUE OF ANY SUCH LITIGATION, PROCEEDING OR ACTION IN ANY SUCH COURT
OR THAT ANY SUCH LITIGATION, PROCEEDING OR ACTION WAS BROUGHT IN ANY
INCONVENIENT FORUM; (D) AGREE AS AN ALTERNATIVE METHOD OF SERVICE TO SERVICE OF
PROCESS IN ANY LEGAL PROCEEDING BY MAILING OF COPIES THEREOF TO SUCH PARTY AT
ITS ADDRESS SET FORTH HEREIN FOR COMMUNICATIONS TO SUCH PARTY; (E) AGREE THAT
ANY SERVICE MADE AS PROVIDED HEREIN SHALL BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT; AND (F) AGREE THAT NOTHING HEREIN SHALL AFFECT THE RIGHTS OF ANY
PARTY TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. TO THE
EXTENT PERMITTED BY LAW EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY IN
ANY DISPUTE IN CONNECTION WITH OR RELATING TO THIS AGREEMENT, ANY RELATED
AGREEMENT OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR THEREIN, AND AGREE
TO TAKE ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO EFFECT SUCH WAIVER.
7
<PAGE>
6.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties; provided, however, that the Buyer shall be
permitted to assign its rights to purchase shares of Common Stock from Kahn
pursuant to Sections 1.1 and 1.2 hereof prior to the Closing, provided that any
such assignment shall not relieve the Buyer of its obligations hereunder.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
6.11 Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that prior to the Closing the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement.
[Remainder of Page Intentionally Left Blank]
8
<PAGE>
IN WITNESS WHEREOF, the Buyer and Kahn have each caused this Agreement
to be signed by their respective officers thereunto duty authorized, all as of
the date first written above.
/s/ Jordan A. Kahn
---------------------------
Jordan A. Kahn
BUYER:
HOLMES ACQUISITION LLC
By: /s/ Richard K. Lubin
-----------------------
Name: Richard K. Lubin
Title: Managing Member
9
EXECUTION COPY
EXECUTIVE EMPLOYMENT AND
NON-COMPETITION AGREEMENT
AGREEMENT, dated as of the 25th day of November, 1997, by and between
Holmes Products Corp., a Massachusetts corporation (the "Company"), and Jordan
A. Kahn, a resident of Wellesley, Massachusetts (the "Executive").
WHEREAS, the Company desires to engage the services of the Executive
and the Executive desires to be employed by the Company;
WHEREAS, the Company desires to be assured that the unique and expert
services of the Executive will be substantially available to the Company, and
that the Executive is willing and able to render such services on the terms and
conditions hereinafter set forth; and
WHEREAS, the Company desires to be assured that the confidential
information and good will of the Company will be preserved for the exclusive
benefit of the Company;
NOW, THEREFORE, in consideration of such employment and the mutual
covenants and promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and the Executive agree as follows:
Section 1. Employment. The Company hereby employs the Executive as its
President and Chief Executive Officer, and the Executive hereby accepts such
employment under and subject to the terms and conditions hereinafter set forth.
The Executive further agrees to serve as a member of the Board of Directors (the
"Board") of the Company if elected or appointed to such office in accordance
with the Company's By-Laws.
Section 2. Term. Unless sooner terminated as provided in Section 7, the
term of employment under this Agreement shall begin on the date hereof and shall
conclude on December 31, 2000 (the "Term"). This Agreement shall be renewed for
additional consecutive one year terms ("Renewal Terms") unless either party
shall give to the other written notice not less than sixty (60) days prior to
the end of the Term or any Renewal Term that it or he does not wish to renew
this Agreement.
Section 3. Duties. The Executive shall perform services in a managerial
capacity subject to the general supervision of the Board. The Executive hereby
agrees to devote his full business time and best efforts to the faithful
performance of such duties and to the promotion and forwarding of the business
and affairs of the Company for the Term or any Renewal Term; provided that the
Executive shall be permitted to devote time to Jordan Kahn Company, Inc. so long
as such time does not affect the Executive's performance of his duties to the
Company hereunder.
<PAGE>
Section 4. Salary Compensation. In consideration of the services
rendered by the Executive under this Agreement, the Company shall pay the
Executive a base salary (the "Base Salary") at the rate of Four Hundred Thousand
Dollars ($400,000) per calendar year. The Base Salary shall be paid in such
installments and at such times as the Company pays its regularly salaried
executive employees, and the Board may review the Base Salary annually in a
manner consistent with the Company's policies and may change the Base Salary
from time to time in its sole discretion.
Section 5. Bonus Compensation. The Executive shall be entitled to
receive an annual performance bonus equal to up to 50% of the Base Salary, based
on achievement of certain performance criteria as more fully set forth on
Exhibit A hereto. In the sole discretion of the Board, the Executive may be
granted a performance bonus in excess of 50% of the Base Salary if the targets
set forth on Exhibit A are surpassed. Such bonus shall be payable within ten
(10) business days following the Company's receipt of its audited financial
statements for the previous year (it being acknowledged that the bonus will be
determined based on such audited financial statements).
Section 6. Benefits. In addition to the compensation detailed in
Section 4 and 5 of this Agreement and these benefits listed on Exhibit B hereto,
the Executive shall be entitled to the following additional benefits:
Section 6.01. Paid Vacation. The Executive shall be entitled to four
(4) weeks paid vacation per calendar year, such vacation to extend for such
periods and shall be taken at such intervals as shall be appropriate and
consistent with the proper performance of the Executive's duties hereunder.
Section 6.02. Insurance Coverage. During the Term or Renewal Terms, the
Company shall provide the Executive with group health and life insurance
protection to the same extent that it makes such protection available to its
other executive employees.
Section 6.03. Automobile. In recognition of the necessity of the use of
an automobile for the efficient and expeditious performance of the Executive's
duties and obligations on behalf of the Company, the Company, at its cost, shall
supply to the Executive for such use an automobile of such make and model
suitable for the Executive and upon such terms and conditions as the Board shall
determine from time to time.
Section 6.04. Reimbursement of Expenses. The Company shall reimburse
the Executive for all reasonable expenses actually incurred by the Executive in
connection with the business affairs of the Company and the performance of his
duties hereunder. The Executive shall comply with such reasonable limitations
and reporting requirements with respect to such expenses as the Board may
establish from time to time.
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Section 7. Termination. This Agreement shall be terminated at the end
of the Term or any Renewal Term, or earlier as follows:
Section 7.01. Death. This Agreement shall terminate upon the death of
the Executive, except that the compensation provided in Section 4 shall continue
through the end of the month in which the Executive's death occurs.
Section 7.02. Permanent Disability. In the event of any physical or
mental disability of the Executive rendering the Executive unable to perform his
duties hereunder for a period of at least one hundred twenty (120) consecutive
days and the further determination that the disability is permanent with regard
to the Executive's ability to return to work in his full capacity, this
Agreement shall terminate automatically. Any determination of disability shall
be made by the Board in consultation with a qualified physician or physicians
selected by the Board and reasonably acceptable to the Executive. The failure of
the Executive to submit to a reasonable examination by such physician or
physicians shall act as an estoppel to any objection by the Executive to the
determination of disability by the Board.
Section 7.03. By the Company For Cause. The employment of the Executive
may be terminated by the Company for Cause (as defined below) at any time
effective upon written notice to the Executive. For purposes hereof, the term
"Cause" shall mean that the Board has determined that any one or more of the
following has occurred:
(a) The Executive shall have been convicted of, or shall have
pleaded guilty or nolo contendere to, any felony (other than a
conviction arising solely under a statutory provision imposing criminal
liability on Executive on a per se basis due to the position held by
Executive, so long as any act or omission of Executive with respect to
such matter was not taken or omitted in contravention of any applicable
policy or directive of the Board);
(b) The Executive shall have willfully failed or refused to
perform his duties hereunder (other than as a result of illness or
disability) and such failure or refusal shall have continued for a
period of ten (10) days following written notice from the Board, it
being understood that the Company's failure to achieve its business
plan or projections shall not itself be considered a failure or refusal
to perform duties;
(c) the Executive shall have breached any provision of Section
9 or 10 hereof; or
(d) the Executive shall have committed any fraud,
embezzlement, misappropriation of funds, breach of fiduciary duty or
other act of dishonesty against the Company.
Section 7.04. By the Company without Cause. The Company may terminate
the
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Executive's employment at any time without Cause effective upon written notice
to the Executive.
Section 7.05. By the Executive Voluntarily. The Executive may terminate
this Agreement at any time effective upon at least sixty (60) days' prior
written notice to the Company.
Section 7.06. By the Executive for Good Reason. The Executive may
terminate this Agreement effective upon written notice to the Company for Good
Reason. Any such termination shall be treated as a termination by the Company
without Cause. For this purpose, the term "Good Reason" shall mean: (i) the
assignment to the Executive of any duties inconsistent in any substantial
respect with the Executive's position, authority or responsibilities as
contemplated by Section 1 of this Agreement; (ii) a change of more than forty
(40) miles in the location of the Company's offices where the Executive is
located; or (iii) any material reduction in any of the benefits described in
Sections 4, 5 or 6 of this Agreement.
Section 8. Termination Payments and Benefits.
Section 8.01. Voluntary Termination, Termination For Cause. Upon any
termination of this Agreement: (1) voluntarily by the Executive or (2) by the
Company for Cause as provided in Section 7.03, all payments, salary and other
benefits hereunder shall cease at the effective date of termination.
Section 8.02. Termination without Cause, for Good Reason. In the event
that this Agreement is terminated by the Company without Cause, or by the
Executive for Good Reason, the Executive shall receive as a termination
settlement an amount equal to the Executive's salary as is in effect at the
effective date of termination for the longer of (i) the remaining Term or (ii)
twelve (12) months from the effective date of termination (the "Termination
Payment"), pursuant to the Company's normal payroll practices. In addition, the
Executive shall receive that portion of the performance bonus payable pursuant
to Section 5 hereof equal to that percentage of the calendar year during with
the Executive was employed by the Company, payable when such bonus would
otherwise normally be paid by the Company. In addition to the Termination
Payment, the Executive shall continue to receive the insurance benefits
described in Section 6.02 for a period of twelve (12) months following the
effective date of termination. The Executive shall have no obligation to
mitigate the amount of the Termination Payment provided for herein by seeking
other employment or otherwise.
Section 8.03. Termination due to Permanent Disability. In the event
that this Agreement is terminated due to the Permanent Disability of the
Executive, the Executive shall receive an amount equal to the Executive's salary
as is in effect at the effective date of termination for a period of twelve (12)
months from the effective date of termination, pursuant to the Company's normal
payroll practices; provided, however, that the such payments by the Company
shall be
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reduced by the amount of any disability insurance payments made to the Executive
pursuant to insurance provided under Section 6.02 above.
Section 8.04. Public Statement of Termination. In the event the
Executive's employment terminates for any reason, the Company and the Executive
shall agree upon a public statement pertaining to the Executive's termination of
employment, and the terms of said statement shall not be subject to subsequent
modification by either party unless required by law; provided, however, that in
the event the Company and the Executive are unable in good faith to agree on
such a statement, the Company may make public statements as are necessary to
comply with the law.
Section 8.05. No Other Benefits. Except as specifically provided in
this Section 8, the Executive shall not be entitled to any compensation,
severance or other benefits from the Company or any of its subsidiaries or
affiliates upon the termination of this Agreement for any reason whatsoever.
Section 9. Proprietary Information; Inventions in the Field.
Section 9.01. Proprietary Information. In the course of his service to
the Company, the Executive will have access to confidential specifications,
know-how, strategic or technical data, marketing research data, product research
and development data, manufacturing techniques, confidential customer lists,
sources of supply and trade secrets, all of which are confidential and may be
proprietary and are owned or used by the Company, or any of its subsidiaries or
affiliates. Such information shall hereinafter be called "Proprietary
Information" and shall include any and all items enumerated in the preceding
sentence and coming within the scope of the business of the Company or any of
its subsidiaries or affiliates as to which the Executive may have access,
whether conceived or developed by others or by the Executive alone or with
others during the period of his service to the Company, whether or not conceived
or developed during regular working hours. Proprietary Information shall not
include any records, data or information which are in the public domain during
the period of service by the Executive provided the same are not in the public
domain as a consequence of disclosure directly or indirectly by the Executive in
violation of this Agreement.
Section 9.02. Fiduciary Obligations. The Executive agrees that
Proprietary Information is of critical importance to the Company and a violation
of this Section 9.02 and Section 9.03 would seriously and irreparably impair and
damage the Company's business. The Executive agrees that he shall keep all
Proprietary Information in a fiduciary capacity for the sole benefit of the
Company.
Section 9.03. Non-Use and Non-Disclosure. The Executive shall not
during the Term, any Renewal Term or at any time thereafter (a) disclose,
directly or indirectly, any Proprietary Information to any person other than the
Company or authorized employees thereof at the time of such disclosure, or such
other persons to whom the Executive has been specifically instructed to
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make disclosure by the Board and in all such cases only to the extent required
in the course of the Executive's service to the Company or (b) use any
Proprietary Information, directly or indirectly, for his own benefit or for the
benefit of any other person or entity. At the termination of his employment, the
Executive shall deliver to the Company all notes, letters, documents and records
which may contain Proprietary Information which are then in his possession or
control and shall destroy any and all copies and summaries thereof.
Section 9.04. Assignment of Inventions. The Executive agrees to assign
and transfer to the Company or its designee, without any separate remuneration
or compensation, his entire right, title and interest in and to all Inventions
in the Field (as defined below), together with all United States and foreign
rights with respect thereto, and at the Company's expense to execute and deliver
all appropriate patent and copyright applications for securing United States and
foreign patents and copyrights on Inventions in the Field and to perform all
lawful acts, including giving testimony, and to execute and deliver all such
instruments that may be necessary or proper to vest all such Inventions in the
Field and patents and copyrights with respect thereto in the Company, and to
assist the Company in the prosecution or defense of any interference which may
be declared involving any of said patent applications, patents, copyright
applications or copyrights. For the purposes of this Agreement, the words
"Inventions in the Field" shall include any discovery, process, design,
development, improvement, application, technique, or invention, whether
patentable or copyrightable or not and whether reduced to practice or not,
conceived or made by the Executive, individually or jointly with others (whether
on or off the Company's premises or during or after normal working hours) while
in the employ of the Company, and which was or is directly or indirectly related
to the business of the Company or any of its subsidiaries or affiliates, or
which resulted or results from or was suggested by any work performed by any
employee or agent thereof during the Term or any Renewal Term or for one year
after termination of this Agreement for any reason.
Section 10. Restrictions on Activities of the Executive
Section 10.01. Acknowledgments. The Executive agrees that he is being
employed hereunder in a key management capacity with the Company and that the
Company is engaged in a highly competitive business and that the success of the
Company's business in the marketplace depends upon its goodwill and reputation
for quality and dependability. The Executive further agrees that reasonable
limits may be placed on his ability to compete against the Company as provided
herein so as to protect and preserve the legitimate business interests and good
will of the Company.
Section 10.02. General Restrictions.
(a) During the Term and any Renewal Term and for the
Non-Competition Period (as defined below), the Executive will not (anywhere in
the world where the Company or any of its subsidiaries or affiliates then
conducts business) engage or participate in, directly or indirectly, as
principal, agent, employee, employer, consultant, investor or partner, or assist
in the
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management of, or own any stock or any other ownership interest in, any business
which is Competitive with the Company (as defined below). For purposes of this
Agreement, a business shall be considered "Competitive with the Company" only if
it designs, manufactures and markets home comfort and lighting appliances.
Notwithstanding the foregoing, (i) nothing in this Section 10 shall prohibit the
Executive from participating in the business operated by the Jordan Kahn
Company, Inc., provided that such company shall not distribute any products
which are manufactured or sold by a company which is Competitive with the
Company and (ii) the Executive may own, directly or indirectly, less than 1% of
the capital stock of any public corporation.
(b) For purposes of this Agreement, the "Non-Competition
Period" shall mean the longer of (i) December 31, 2000 and (ii) a period of
twelve (12) consecutive months after the Executive's employment terminates.
Section 10.03. Employees, Customers and Suppliers.
(a) During the Term, any Renewal Term and the Non-Solicitation
Period (as defined below), the Executive will not solicit, or attempt to
solicit, any officer, director, consultant, executive or employee of the Company
or any of its subsidiaries or affiliates to leave his or her engagement with the
Company or such subsidiary or affiliate nor will he call upon, solicit, divert
or attempt to solicit or divert from the Company or any of its affiliates or
subsidiaries any of their customers or suppliers, or potential customers or
suppliers, of whose names he was aware during the term of his employment with
the Company; provided, however, that nothing in this Section 10.03 shall be
deemed to prohibit the Executive from calling upon or soliciting a customer or
supplier during the Non-Solicitation Period if such action relates solely to a
business which is not Competitive with the Company; and provided, further,
however, that nothing in this Section 10.03 shall be deemed to prohibit the
Executive from soliciting or hiring any employee of the Company or any of its
subsidiaries or affiliates, if such employee is a member of the Executive's
immediate family.
(b) For purposes of this Agreement, the "Non-Solicitation
Period" shall mean the longer of (i) December 31, 2000 and (ii) a period of
twenty-four (24) consecutive months after the Executive's employment terminates.
Section 10.04. THE EXECUTIVE REPRESENTS AND WARRANTS THAT THE
KNOWLEDGE, SKILLS AND ABILITIES HE POSSESSES AT THE TIME OF COMMENCEMENT OF
EMPLOYMENT HEREUNDER ARE SUFFICIENT TO PERMIT HIM, IN THE EVENT OF TERMINATION
OF HIS EMPLOYMENT HEREUNDER, TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF
WITHOUT VIOLATING ANY PROVISION OF SECTION 9 OR 10 HEREOF, FOR EXAMPLE, BY USING
SUCH KNOWLEDGE, SKILLS AND ABILITIES, OR SOME OF THEM, IN THE SERVICE OF A
NON-COMPETITOR. THE EXECUTIVE FURTHER REPRESENTS AND WARRANTS THAT HIS ABILITY
SO TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF DOES
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NOT DEPEND UPON HIS ABILITY TO OBTAIN COMPENSATION FOR HIS SERVICES AT, OR IN
EXCESS OF, THE LEVEL AT WHICH HE IS COMPENSATED BY THE COMPANY.
Section 11. Remedies. It is specifically understood and agreed that any
breach of the provisions of Section 9 or 10 of this Agreement is likely to
result in irreparable injury to the Company and that the remedy at law alone
will be an inadequate remedy for such breach, and that in addition to any other
remedy it may have, the Company shall be entitled to enforce the specific
performance of this Agreement by the Executive and to seek both temporary and
permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages.
Section 12. Severable Provisions. The provisions of this Agreement are
severable and the invalidity of any one or more provisions shall not affect the
validity of any other provision. In the event that a court of competent
jurisdiction shall determine that any provision of this Agreement or the
application thereof is unenforceable in whole or in part because of the duration
or scope thereof, the parties hereto agree that said court in making such
determination shall have the power to reduce the duration and scope of such
provision to the extent necessary to make it enforceable, and that the Agreement
in its reduced form shall be valid and enforceable to the full extent permitted
by law.
Section 13. Notices. All notices hereunder, to be effective, shall be
in writing and shall be delivered by hand or mailed by certified mail, postage
and fees prepaid, as follows:
If to the Company: Holmes Products Corp.
233 Fortune Boulevard
Milford, MA 01757
Attn: Chief Operating Officer
If to the Executive: 21 Pierce Road
Wellesley, MA 02181
or to such other address as a party may notify the other pursuant to a notice
given in accordance with this Section 13.
Section 14. Miscellaneous.
Section 14.01. Modification. This Agreement constitutes the entire
Agreement between the parties hereto with regard to the subject matter hereof,
superseding all prior understandings and agreements, whether written or oral.
This Agreement may not be amended or revised except by a writing signed by the
parties.
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Section 14.02. Assignment and Transfer. This Agreement shall not be
terminated by the merger or consolidation of the Company with any corporate or
other entity or by the transfer of all or substantially all of the assets of the
Company to any other person, corporation, firm or entity. The provisions of this
Agreement shall be binding on and shall inure to the benefit of any such
successor in interest to the Company. Neither this Agreement nor any of the
rights, duties or obligations of the Executive shall be assignable by the
Executive, nor shall any of the payments required or permitted to be made to the
Executive by this Agreement be encumbered, transferred or in any way
anticipated.
Section 14.03. Captions. Captions herein have been inserted solely for
convenience of reference and in no way define, limit or describe the scope or
substance of any provision of this Agreement.
Section 14.04. Governing Law. This Agreement shall be construed under
and enforced in accordance with the laws of the Commonwealth of Massachusetts.
[The remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a sealed instrument as of the day and year first above written.
HOLMES PRODUCTS CORP.
By: /s/ Jordan A. Kahn
-----------------------
Name:
Title:
/s/ Jordan A. Kahn
---------------------------
Jordan A. Kahn
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EXHIBIT A
PERFORMANCE BONUS CRITERIA
The Executive shall be entitled to an annual bonus ranging between 15%
and 50% of the Executive's Base Salary for such year, based on the achievement
by the Company of between 90% and 100% of certain operating targets, which will
be determined by the Board.
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EXHIBIT B
BENEFITS
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EXECUTION COPY
EXECUTIVE EMPLOYMENT AND
NON-COMPETITION AGREEMENT
AGREEMENT, dated as of the 25th day of November, 1997, by and between
Holmes Products Corp., a Massachusetts corporation (the "Company"), and Stanley
Rosenzweig, a resident of Brookline, Massachusetts (the "Executive").
WHEREAS, the Company desires to engage the full-time services of the
Executive and the Executive desires to be so employed by the Company;
WHEREAS, the Company desires to be assured that the unique and expert
services of the Executive will be available solely to the Company on such
full-time basis, and that the Executive is willing and able to render such
services on the terms and conditions hereinafter set forth; and
WHEREAS, the Company desires to be assured that the confidential
information and good will of the Company will be preserved for the exclusive
benefit of the Company;
NOW, THEREFORE, in consideration of such employment and the mutual
covenants and promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and the Executive agree as follows:
Section 1. Employment. The Company hereby employs the Executive as its
Chief Operating Officer, and the Executive hereby accepts such employment under
and subject to the terms and conditions hereinafter set forth. The Executive
further agrees to serve as a member of the Board of Directors (the "Board") of
the Company if elected or appointed to such office in accordance with the
Company's By-Laws.
Section 2. Term. Unless sooner terminated as provided in Section 7, the
term of employment under this Agreement shall begin on the date hereof and shall
conclude on December 31, 2000 (the "Term"). This Agreement shall be renewed for
additional consecutive one year terms ("Renewal Terms") unless either party
shall give to the other written notice not less than sixty (60) days prior to
the end of the Term or any Renewal Term that it or he does not wish to renew
this Agreement.
Section 3. Duties. The Executive shall perform services in a managerial
capacity subject to the general supervision of the Board. The Executive hereby
agrees to devote his full business time and best efforts to the faithful
performance of such duties and to the promotion and forwarding of the business
and affairs of the Company for the Term or any Renewal Term.
Section 4. Salary Compensation. In consideration of the services
rendered by the Executive under this Agreement, the Company shall pay the
Executive a base salary (the "Base Salary") at the rate of Two Hundred Fifty
Thousand Dollars ($250,000) per calendar year. The Base Salary shall be paid in
such installments and at such times as the Company pays its
<PAGE>
regularly salaried executive employees, and the Board may review the Base Salary
annually in a manner consistent with the Company's policies and may change the
Base Salary from time to time in its sole discretion.
Section 5. Bonus Compensation. The Executive shall be entitled to
receive a bonus for fiscal 1997 as described on Exhibit A attached hereto. For
years after 1997, the Executive shall be entitled to receive an annual
performance bonus equal to up to 50% of the Base Salary, based on achievement of
certain performance criteria as more fully set forth on Exhibit A hereto. In the
sole discretion of the Board, the Executive may be granted a performance bonus
in excess of 50% of the Base Salary if the targets set forth on Exhibit A are
surpassed. The bonuses described in this Section 5 shall be payable within ten
(10) business days following the Company's receipt of its audited financial
statements for the previous year (it being acknowledged that such bonuses will
be determined based on such audited financial statements).
Section 6. Benefits. In addition to the compensation detailed in
Section 4 and 5 of this Agreement and those benefits listed on Exhibit B hereto,
the Executive shall be entitled to the following additional benefits:
Section 6.01. Paid Vacation. The Executive shall be entitled to
vacation according to Company policy, such vacation to extend for such periods
and shall be taken at such intervals as shall be appropriate and consistent with
the proper performance of the Executive's duties hereunder.
Section 6.02. Insurance Coverage. During the Term or Renewal Terms, the
Company shall provide the Executive with group health and life insurance
protection to the same extent that it makes such protection available to its
other executive employees.
Section 6.03. Automobile. In recognition of the necessity of the use of
an automobile for the efficient and expeditious performance of the Executive's
duties and obligations on behalf of the Company, the Company, at its cost, shall
supply to the Executive for such use an automobile of such make and model and
upon such terms and conditions as the Board shall determine from time to time.
Section 6.04. Reimbursement of Expenses. The Company shall reimburse
the Executive for all reasonable expenses actually incurred by the Executive in
connection with the business affairs of the Company and the performance of his
duties hereunder. The Executive shall comply with such reasonable limitations
and reporting requirements with respect to such expenses as the Board may
establish from time to time.
Section 7. Termination. This Agreement shall be terminated at the end
of the Term or any Renewal Term, or earlier as follows:
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Section 7.01. Death. This Agreement shall terminate upon the death of
the Executive, except that the compensation provided in Section 4 shall continue
through the end of the month in which the Executive's death occurs.
Section 7.02. Permanent Disability. In the event of any physical or
mental disability of the Executive rendering the Executive unable to perform his
duties hereunder for a period of at least one hundred twenty (120) consecutive
days and the further determination that the disability is permanent with regard
to the Executive's ability to return to work in his full capacity, this
Agreement shall terminate automatically. Any determination of disability shall
be made by the Board in consultation with a qualified physician or physicians
selected by the Board and reasonably acceptable to the Executive. The failure of
the Executive to submit to a reasonable examination by such physician or
physicians shall act as an estoppel to any objection by the Executive to the
determination of disability by the Board.
Section 7.03. By The Company For Cause. The employment of the Executive
may be terminated by the Company for Cause (as defined below) at any time
effective upon written notice to the Executive. For purposes hereof, the term
"Cause" shall mean that the Board has determined that any one or more of the
following has occurred:
(a) The Executive shall have been convicted of, or shall have
pleaded guilty or nolo contendere to, any felony (other than a
conviction arising solely under a statutory provision imposing criminal
liability on Executive on a per se basis due to the position held by
Executive, so long as any act or omission of Executive with respect to
such matter was not taken or omitted in contravention of any applicable
policy or directive of the Board;
(b) The Executive shall have willfully failed or refused to
perform his duties hereunder (other than as a result of illness or
disability) and such failure or refusal shall have continued for a
period of ten (10) days following written notice from the Board, it
being understood that the Company's failure to achieve its business
plan or projections shall not itself be considered a failure or refusal
to perform duties;
(c) the Executive shall have breached any provision of Section
9 or 10 hereof; or
(d) the Executive shall have committed any fraud,
embezzlement, misappropriation of funds, breach of fiduciary duty or
other act of dishonesty against the Company.
Section 7.04. By the Company without Cause. The Company may terminate
the Executive's employment at any time without Cause effective upon written
notice to the Executive.
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Section 7.05. By the Executive Voluntarily. The Executive may terminate
this Agreement at any time effective upon at least sixty (60) days' prior
written notice to the Company.
Section 7.06. By the Executive for Good Reason. The Executive may
terminate this Agreement effective upon written notice to the Company for Good
Reason. Any such termination shall be treated as a termination by the Company
without Cause. For this purpose, the term "Good Reason" shall mean: (i) the
assignment to the Executive of any duties inconsistent in any substantial
respect with the Executive's position, authority or responsibilities as
contemplated by Section 1 of this Agreement; (ii) a change of more than forty
(40) miles in the location of the Company's offices where the Executive is
located; or (iii) any material reduction in any of the benefits described in
Sections 4, 5 or 6 of this Agreement.
Section 8. Termination Payments and Benefits.
Section 8.01. Voluntary Termination, Termination For Cause. Upon any
termination of this Agreement: (1) voluntarily by the Executive or (2) by the
Company for Cause as provided in Section 7.03, all payments, salary and other
benefits hereunder shall cease at the effective date of termination.
Section 8.02. Termination without Cause, For Good Reason. In the event
that this Agreement is terminated by the Company without Cause or by the
Executive for Good Reason, the Executive shall receive as a termination
settlement an amount equal to twelve (12) month's salary as is in effect at the
effective date of termination (the "Termination Payment"), pursuant to the
Company's normal payroll practices. In addition, the Executive shall receive
that portion of the performance bonus payable pursuant to Section 5 hereof equal
to that percentage of the calendar year during with the Executive was employed
by the Company, payable when such bonus would otherwise normally be paid by the
Company. In addition to the Termination Payment, the Executive shall continue to
receive the insurance benefits described in Section 6.02 for a period of twelve
(12) months following the effective date of termination. The Executive shall
have no obligation to mitigate the amount of the Termination Payment provided
for herein by seeking other employment or otherwise.
Section 8.03. Termination due to Permanent Disability. In the event
that this Agreement is terminated due to the Permanent Disability of the
Executive, the Executive shall receive the Termination Payment; provided,
however, that the Termination Payment by the Company shall be reduced by the
amount of any disability insurance payments made to the Executive pursuant to
insurance provided under Section 6.02 above.
Section 8.04. Public Statement of Termination. In the event the
Executive's employment terminates for any reason, the Company and the Executive
shall agree upon a public statement pertaining to the Executive's termination of
employment, and the terms of said statement shall not be subject to subsequent
modification by either party unless required by law; provided,
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however, that in the event the Company and the Executive are unable in good
faith to agree on such a statement, the Company may make public statements as
are necessary to comply with the law.
Section 8.05. No Other Benefits. Except as specifically provided in
this Section 8, the Executive shall not be entitled to any compensation,
severance or other benefits from the Company or any of its subsidiaries or
affiliates upon the termination of this Agreement for any reason whatsoever.
Section 9. Proprietary Information; Inventions in the Field.
Section 9.01. Proprietary Information. In the course of his service to
the Company, the Executive will have access to confidential specifications,
know-how, strategic or technical data, marketing research data, product research
and development data, manufacturing techniques, confidential customer lists,
sources of supply and trade secrets, all of which are confidential and may be
proprietary and are owned or used by the Company, or any of its subsidiaries or
affiliates. Such information shall hereinafter be called "Proprietary
Information" and shall include any and all items enumerated in the preceding
sentence and coming within the scope of the business of the Company or any of
its subsidiaries or affiliates as to which the Executive may have access,
whether conceived or developed by others or by the Executive alone or with
others during the period of his service to the Company, whether or not conceived
or developed during regular working hours. Proprietary Information shall not
include any records, data or information which are in the public domain during
the period of service by the Executive provided the same are not in the public
domain as a consequence of disclosure directly or indirectly by the Executive in
violation of this Agreement.
Section 9.02. Fiduciary Obligations. The Executive agrees that
Proprietary Information is of critical importance to the Company and a violation
of this Section 9.02 and Section 9.03 would seriously and irreparably impair and
damage the Company's business. The Executive agrees that he shall keep all
Proprietary Information in a fiduciary capacity for the sole benefit of the
Company.
Section 9.03. Non-Use and Non-Disclosure. The Executive shall not
during the Term, any Renewal Term or at any time thereafter (a) disclose,
directly or indirectly, any Proprietary Information to any person other than the
Company or authorized employees thereof at the time of such disclosure, or such
other persons to whom the Executive has been specifically instructed to make
disclosure by the Board and in all such cases only to the extent required in the
course of the Executive's service to the Company or (b) use any Proprietary
Information, directly or indirectly, for his own benefit or for the benefit of
any other person or entity. At the termination of his employment, the Executive
shall deliver to the Company all notes, letters, documents and records which may
contain Proprietary Information which are then in his possession or control and
shall destroy any and all copies and summaries thereof.
- 5 -
<PAGE>
Section 9.04. Assignment of Inventions. The Executive agrees to assign
and transfer to the Company or its designee, without any separate remuneration
or compensation, his entire right, title and interest in and to all Inventions
in the Field (as defined below), together with all United States and foreign
rights with respect thereto, and at the Company's expense to execute and deliver
all appropriate patent and copyright applications for securing United States and
foreign patents and copyrights on Inventions in the Field and to perform all
lawful acts, including giving testimony, and to execute and deliver all such
instruments that may be necessary or proper to vest all such Inventions in the
Field and patents and copyrights with respect thereto in the Company, and to
assist the Company in the prosecution or defense of any interference which may
be declared involving any of said patent applications, patents, copyright
applications or copyrights. For the purposes of this Agreement, the words
"Inventions in the Field" shall include any discovery, process, design,
development, improvement, application, technique, or invention, whether
patentable or copyrightable or not and whether reduced to practice or not,
conceived or made by the Executive, individually or jointly with others (whether
on or off the Company's premises or during or after normal working hours) while
in the employ of the Company, and which was or is directly or indirectly related
to the business of the Company or any of its subsidiaries or affiliates, or
which resulted or results from or was suggested by any work performed by any
employee or agent thereof during the Term or any Renewal Term or for one year
after termination of this Agreement for any reason.
Section 10. Restrictions on Activities of the Executive
Section 10.01. Acknowledgments. The Executive agrees that he is being
employed hereunder in a key management capacity with the Company and that the
Company is engaged in a highly competitive business and that the success of the
Company's business in the marketplace depends upon its goodwill and reputation
for quality and dependability. The Executive further agrees that reasonable
limits may be placed on his ability to compete against the Company as provided
herein so as to protect and preserve the legitimate business interests and good
will of the Company.
Section 10.02. General Restrictions.
(a) During the Term and any Renewal Term and for the
Non-Competition Period (as defined below), the Executive will not (anywhere in
the world where the Company or any of its subsidiaries or affiliates then
conducts business) engage or participate in, directly or indirectly, as
principal, agent, employee, employer, consultant, investor or partner, or assist
in the management of, or own any stock or any other ownership interest in, any
business which is Competitive with the Company (as defined below). For purposes
of this Agreement, a business shall be considered "Competitive with the Company"
only if it designs, manufactures and markets home comfort and lighting
appliances. Notwithstanding the foregoing, the Executive may own, directly or
indirectly, less than 1% of the capital stock of any public corporation.
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<PAGE>
(b) For purposes of this Agreement, the "Non-Competition
Period" shall mean the longer of (i) December 31, 2000 and (ii) a period of
twelve (12) consecutive months after the Executive's employment terminates.
Section 10.03. Employees, Customers and Suppliers.
(a) During the Term, any Renewal Term and the Non-Solicitation
Period (as defined below), the Executive will not solicit, or attempt to
solicit, any officer, director, consultant, executive or employee of the Company
or any of its subsidiaries or affiliates to leave his or her engagement with the
Company or such subsidiary or affiliate nor will he call upon, solicit, divert
or attempt to solicit or divert from the Company or any of its affiliates or
subsidiaries any of their customers or suppliers, or potential customers or
suppliers, of whose names he was aware during the term of his employment with
the Company; provided, however, that nothing in this Section 10.04 shall be
deemed to prohibit the Executive from calling upon or soliciting a customer or
supplier during the Non-Solicitation Period if such action relates solely to a
business which is not Competitive with the Company.
(b) For purposes of this Agreement, the "Non-Solicitation
Period" shall mean the longer of (i) December 31, 2000 and (ii) a period of
twenty-four (24) consecutive months after the Executive's employment terminates.
Section 10.04. THE EXECUTIVE REPRESENTS AND WARRANTS THAT THE
KNOWLEDGE, SKILLS AND ABILITIES HE POSSESSES AT THE TIME OF COMMENCEMENT OF
EMPLOYMENT HEREUNDER ARE SUFFICIENT TO PERMIT HIM, IN THE EVENT OF TERMINATION
OF HIS EMPLOYMENT HEREUNDER, TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF
WITHOUT VIOLATING ANY PROVISION OF SECTION 9 OR 10 HEREOF, FOR EXAMPLE, BY USING
SUCH KNOWLEDGE, SKILLS AND ABILITIES, OR SOME OF THEM, IN THE SERVICE OF A
NON-COMPETITOR. THE EXECUTIVE FURTHER REPRESENTS AND WARRANTS THAT HIS ABILITY
SO TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF DOES NOT DEPEND UPON HIS ABILITY
TO OBTAIN COMPENSATION FOR HIS SERVICES AT, OR IN EXCESS OF, THE LEVEL AT WHICH
HE IS COMPENSATED BY THE COMPANY.
Section 11. Remedies. It is specifically understood and agreed that any
breach of the provisions of Section 9 or 10 of this Agreement is likely to
result in irreparable injury to the Company and that the remedy at law alone
will be an inadequate remedy for such breach, and that in addition to any other
remedy it may have, the Company shall be entitled to enforce the specific
performance of this Agreement by the Executive and to seek both temporary and
permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages.
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<PAGE>
Section 12. Severable Provisions. The provisions of this Agreement are
severable and the invalidity of any one or more provisions shall not affect the
validity of any other provision. In the event that a court of competent
jurisdiction shall determine that any provision of this Agreement or the
application thereof is unenforceable in whole or in part because of the duration
or scope thereof, the parties hereto agree that said court in making such
determination shall have the power to reduce the duration and scope of such
provision to the extent necessary to make it enforceable, and that the Agreement
in its reduced form shall be valid and enforceable to the full extent permitted
by law.
Section 13. Notices. All notices hereunder, to be effective, shall be
in writing and shall be delivered by hand or mailed by certified mail, postage
and fees prepaid, as follows:
If to the Company: Holmes Products Corp.
233 Fortune Boulevard
Milford, MA 01757
Attn: President
If to the Executive: 68 Dudley Road
Brookline, MA 02146
or to such other address as a party may notify the other pursuant to a notice
given in accordance with this Section 13.
Section 14. Miscellaneous.
Section 14.01. Modification. This Agreement constitutes the entire
Agreement between the parties hereto with regard to the subject matter hereof,
superseding all prior understandings and agreements, whether written or oral.
This Agreement may not be amended or revised except by a writing signed by the
parties.
Section 14.02. Assignment and Transfer. This Agreement shall not be
terminated by the merger or consolidation of the Company with any corporate or
other entity or by the transfer of all or substantially all of the assets of the
Company to any other person, corporation, firm or entity. The provisions of this
Agreement shall be binding on and shall inure to the benefit of any such
successor in interest to the Company. Neither this Agreement nor any of the
rights, duties or obligations of the Executive shall be assignable by the
Executive, nor shall any of the payments required or permitted to be made to the
Executive by this Agreement be encumbered, transferred or in any way
anticipated.
Section 14.03. Captions. Captions herein have been inserted solely for
convenience of reference and in no way define, limit or describe the scope or
substance of any provision of this Agreement.
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<PAGE>
Section 14.04. Governing Law. This Agreement shall be construed under
and enforced in accordance with the laws of the Commonwealth of Massachusetts.
[The remainder of this page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a sealed instrument as of the day and year first above written.
HOLMES PRODUCTS CORP.
By: /s/ Jordan A. Kahn
------------------------------
Jordan A. Kahn, President
/s/ Stanley Rosenzweig
----------------------------------
Stanley Rosenzweig
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<PAGE>
EXHIBIT A
PERFORMANCE BONUS CRITERIA
For 1997 only, the Executive shall be entitled to a bonus equal to 2%
of the pre-tax profit of the "Holmes Group" for 1997[, such pre-tax profit shall
be calculated without giving effect to the transaction.]
For years following 1997, the Executive shall be entitled to an annual
bonus ranging between 15% and 50% of the Executive's Base Salary for such year,
based on the achievement by the Company of between 90% and 100% of certain
operating targets, which will be determined by the Board.
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<PAGE>
EXHIBIT B
BENEFITS
- 12 -
EXECUTION COPY
EXECUTIVE EMPLOYMENT AND
NON-COMPETITION AGREEMENT
AGREEMENT, dated as of the 25th day of November, 1997, by and between
Holmes Products Corp., a Massachusetts corporation (the "Company"), and Gregory
F. White, a resident of Wayland, Massachusetts (the "Executive").
WHEREAS, the Company desires to engage the full-time services of the
Executive and the Executive desires to be so employed by the Company;
WHEREAS, the Company desires to be assured that the unique and expert
services of the Executive will be available solely to the Company on such
full-time basis, and that the Executive is willing and able to render such
services on the terms and conditions hereinafter set forth; and
WHEREAS, the Company desires to be assured that the confidential
information and good will of the Company will be preserved for the exclusive
benefit of the Company;
NOW, THEREFORE, in consideration of such employment and the mutual
covenants and promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and the Executive agree as follows:
Section 1. Employment. The Company hereby employs the Executive as its
Executive Vice President - Sales and Marketing, and the Executive hereby accepts
such employment under and subject to the terms and conditions hereinafter set
forth. The Executive further agrees to serve as a member of the Board of
Directors (the "Board") of the Company if elected or appointed to such office in
accordance with the Company's By-Laws.
Section 2. Term. Unless sooner terminated as provided in Section 7, the
term of employment under this Agreement shall begin on the date hereof and shall
conclude on December 31, 2000 (the "Term"). This Agreement shall be renewed for
additional consecutive one year terms ("Renewal Terms") unless either party
shall give to the other written notice not less than sixty (60) days prior to
the end of the Term or any Renewal Term that it or he does not wish to renew
this Agreement.
Section 3. Duties. The Executive shall perform services in a managerial
capacity subject to the general supervision of the Board. The Executive hereby
agrees to devote his full business time and best efforts to the faithful
performance of such duties and to the promotion and forwarding of the business
and affairs of the Company for the Term or any Renewal Term.
Section 4. Salary Compensation. In consideration of the services
rendered by the Executive under this Agreement, the Company shall pay the
Executive a base salary (the "Base Salary") at the rate of Two Hundred Thousand
Dollars ($200,000) per calendar year. The Base Salary shall be paid in such
installments and at such times as the Company pays its regularly
<PAGE>
salaried executive employees, and the Board may review the Base Salary annually
in a manner consistent with the Company's policies and may change the Base
Salary from time to time in its sole discretion.
Section 5. Bonus Compensation. The Executive shall be entitled to
receive a bonus for fiscal 1997 as described on Exhibit A attached hereto. For
years after 1997, the Executive shall be entitled to receive an annual
performance bonus equal to up to 50% of the Base Salary, based on achievement of
certain performance criteria as more fully set forth on Exhibit A hereto. In the
sole discretion of the Board, the Executive may be granted a performance bonus
in excess of 50% of the Base Salary if the targets set forth on Exhibit A are
surpassed. The bonuses referred to in this Section 5 shall be payable within ten
(10) days following the Company's receipt of its audited financial statements
for the previous year (it being acknowledged that such bonuses will be
determined based on such audited financial statements).
Section 6. Benefits. In addition to the compensation detailed in
Section 4 and 5 of this Agreement and those benefits listed on Exhibit B hereto,
the Executive shall be entitled to the following additional benefits:
Section 6.01. Paid Vacation. The Executive shall be entitled to paid
vacation according to Company policy, such vacation to extend for such periods
and shall be taken at such intervals as shall be appropriate and consistent with
the proper performance of the Executive's duties hereunder.
Section 6.02. Insurance Coverage. During the Term or Renewal Terms, the
Company shall provide the Executive with group health and life insurance
protection to the same extent that it makes such protection available to its
other executive employees.
Section 6.03. Automobile Allowance. In recognition of the necessity of
the use of an automobile for the efficient and expeditious performance of the
Executive's duties and obligations on behalf of the Company, the Company shall
provide the Executive with $850 per month as an automobile allowance.
Section 6.04. Reimbursement of Expenses. The Company shall reimburse
the Executive for all reasonable expenses actually incurred by the Executive in
connection with the business affairs of the Company and the performance of his
duties hereunder. The Executive shall comply with such reasonable limitations
and reporting requirements with respect to such expenses as the Board may
establish from time to time.
Section 7. Termination. This Agreement shall be terminated at the end
of the Term or any Renewal Term, or earlier as follows:
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<PAGE>
Section 7.01. Death. This Agreement shall terminate upon the death of
the Executive, except that the compensation provided in Section 4 shall continue
through the end of the month in which the Executive's death occurs.
Section 7.02. Permanent Disability. In the event of any physical or
mental disability of the Executive rendering the Executive unable to perform his
duties hereunder for a period of at least one hundred twenty (120) consecutive
days and the further determination that the disability is permanent with regard
to the Executive's ability to return to work in his full capacity, this
Agreement shall terminate automatically. Any determination of disability shall
be made by the Board in consultation with a qualified physician or physicians
selected by the Board and reasonably acceptable to the Executive. The failure of
the Executive to submit to a reasonable examination by such physician or
physicians shall act as an estoppel to any objection by the Executive to the
determination of disability by the Board.
Section 7.03. By The Company For Cause. The employment of the Executive
may be terminated by the Company for Cause (as defined below) at any time
effective upon written notice to the Executive. For purposes hereof, the term
"Cause" shall mean that the Board has determined that any one or more of the
following has occurred:
(a) The Executive shall have been convicted of, or shall have
pleaded guilty or nolo contendere to, any felony (other than a
conviction arising solely under a statutory provision imposing criminal
liability on Executive on a per se basis due to the position held by
Executive, so long as any act or omission of Executive with respect to
such matter was not taken or omitted in contravention of any applicable
policy or directive of the Board);
(b) The Executive shall have willfully failed or refused to
perform his duties hereunder (other than as a result of illness or
disability) and such failure or refusal shall have continued for a
period of ten (10) days following written notice from the Board, it
being understood that the Company's failure to achieve its business
plan or projections shall not itself be considered a failure or refusal
to perform duties;
(c) the Executive shall have breached any provision of Section
9 or 10 hereof; or
(d) the Executive shall have committed any fraud,
embezzlement, misappropriation of funds, breach of fiduciary duty or
other act of dishonesty against the Company.
Section 7.04. By the Company without Cause. The Company may terminate
the Executive's employment at any time without Cause effective upon written
notice to the Executive.
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<PAGE>
Section 7.05. By the Executive Voluntarily. The Executive may terminate
this Agreement at any time effective upon at least sixty (60) days' prior
written notice to the Company.
Section 7.06. By the Executive for Good Reason. The Executive may
terminate this Agreement effective upon written notice to the Company for Good
Reason. Any such termination shall be treated as a termination by the Company
without Cause. For this purpose, the term "Good Reason" shall mean: (i) the
assignment to the Executive of any duties inconsistent in any substantial
respect with the Executive's position, authority or responsibilities as
contemplated by Section 1 of this Agreement; (ii) a change of more than forty
(40) miles in the location of the Company's offices where the Executive is
located; or (iii) any material reduction in any of the benefits described in
Sections 4, 5 or 6 of this Agreement.
Section 8. Termination Payments and Benefits.
Section 8.01. Voluntary Termination, Termination For Cause. Upon any
termination of this Agreement: (1) voluntarily by the Executive or (2) by the
Company for Cause as provided in Section 7.03, all payments, salary and other
benefits hereunder shall cease at the effective date of termination.
Section 8.02. Termination without Cause, for Good Reason. In the event
that this Agreement is terminated by the Company without Cause, or by the
Executive for Good Reason, the Executive shall receive as a termination
settlement an amount equal to twelve (12) month's salary as is in effect at the
effective date of termination (the "Termination Payment"), pursuant to the
Company's normal payroll practices. In addition, the Executive shall receive
that portion of the performance bonus payable pursuant to Section 5 hereof equal
to that percentage of the calendar year during with the Executive was employed
by the Company, payable when such bonus would otherwise normally be paid by the
Company. In addition to the Termination Payment, the Executive shall continue to
receive the insurance benefits described in Section 6.02 for a period of twelve
(12) months following the effective date of termination. The Executive shall
have no obligation to mitigate the amount of the Termination Payment provided
for herein by seeking other employment or otherwise.
Section 8.03. Termination due to Permanent Disability. In the event
that this Agreement is terminated due to the Permanent Disability of the
Executive, the Executive shall receive the Termination Payment; provided,
however, that the Termination Payment by the Company shall be reduced by the
amount of any disability insurance payments made to the Executive pursuant to
insurance provided under Section 6.02 above.
Section 8.04. Public Statement of Termination. In the event the
Executive's employment terminates for any reason, the Company and the Executive
shall agree upon a public statement pertaining to the Executive's termination of
employment, and the terms of said statement shall not be subject to subsequent
modification by either party unless required by law; provided,
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<PAGE>
however, that in the event the Company and the Executive are unable in good
faith to agree on such a statement, the Company may make public statements as
are necessary to comply with the law.
Section 8.05. No Other Benefits. Except as specifically provided in
this Section 8, the Executive shall not be entitled to any compensation,
severance or other benefits from the Company or any of its subsidiaries or
affiliates upon the termination of this Agreement for any reason whatsoever.
Section 9. Proprietary Information; Inventions in the Field.
Section 9.01. Proprietary Information. In the course of his service to
the Company, the Executive will have access to confidential specifications,
know-how, strategic or technical data, marketing research data, product research
and development data, manufacturing techniques, confidential customer lists,
sources of supply and trade secrets, all of which are confidential and may be
proprietary and are owned or used by the Company, or any of its subsidiaries or
affiliates. Such information shall hereinafter be called "Proprietary
Information" and shall include any and all items enumerated in the preceding
sentence and coming within the scope of the business of the Company or any of
its subsidiaries or affiliates as to which the Executive may have access,
whether conceived or developed by others or by the Executive alone or with
others during the period of his service to the Company, whether or not conceived
or developed during regular working hours. Proprietary Information shall not
include any records, data or information which are in the public domain during
the period of service by the Executive provided the same are not in the public
domain as a consequence of disclosure directly or indirectly by the Executive in
violation of this Agreement.
Section 9.02. Fiduciary Obligations. The Executive agrees that
Proprietary Information is of critical importance to the Company and a violation
of this Section 9.02 and Section 9.03 would seriously and irreparably impair and
damage the Company's business. The Executive agrees that he shall keep all
Proprietary Information in a fiduciary capacity for the sole benefit of the
Company.
Section 9.03. Non-Use and Non-Disclosure. The Executive shall not
during the Term, any Renewal Term or at any time thereafter (a) disclose,
directly or indirectly, any Proprietary Information to any person other than the
Company or authorized employees thereof at the time of such disclosure, or such
other persons to whom the Executive has been specifically instructed to make
disclosure by the Board and in all such cases only to the extent required in the
course of the Executive's service to the Company or (b) use any Proprietary
Information, directly or indirectly, for his own benefit or for the benefit of
any other person or entity. At the termination of his employment, the Executive
shall deliver to the Company all notes, letters, documents and records which may
contain Proprietary Information which are then in his possession or control and
shall destroy any and all copies and summaries thereof.
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<PAGE>
Section 9.04. Assignment of Inventions. The Executive agrees to assign
and transfer to the Company or its designee, without any separate remuneration
or compensation, his entire right, title and interest in and to all Inventions
in the Field (as defined below), together with all United States and foreign
rights with respect thereto, and at the Company's expense to execute and deliver
all appropriate patent and copyright applications for securing United States and
foreign patents and copyrights on Inventions in the Field and to perform all
lawful acts, including giving testimony, and to execute and deliver all such
instruments that may be necessary or proper to vest all such Inventions in the
Field and patents and copyrights with respect thereto in the Company, and to
assist the Company in the prosecution or defense of any interference which may
be declared involving any of said patent applications, patents, copyright
applications or copyrights. For the purposes of this Agreement, the words
"Inventions in the Field" shall include any discovery, process, design,
development, improvement, application, technique, or invention, whether
patentable or copyrightable or not and whether reduced to practice or not,
conceived or made by the Executive, individually or jointly with others (whether
on or off the Company's premises or during or after normal working hours) while
in the employ of the Company, and which was or is directly or indirectly related
to the business of the Company or any of its subsidiaries or affiliates, or
which resulted or results from or was suggested by any work performed by any
employee or agent thereof during the Term or any Renewal Term or for one year
after termination of this Agreement for any reason.
Section 10. Restrictions on Activities of the Executive
Section 10.01. Acknowledgments. The Executive agrees that he is being
employed hereunder in a key management capacity with the Company and that the
Company is engaged in a highly competitive business and that the success of the
Company's business in the marketplace depends upon its goodwill and reputation
for quality and dependability. The Executive further agrees that reasonable
limits may be placed on his ability to compete against the Company as provided
herein so as to protect and preserve the legitimate business interests and good
will of the Company.
Section 10.02. General Restrictions.
(a) During the Term and any Renewal Term and for the
Non-Competition Period (as defined below), the Executive will not (anywhere in
the world where the Company or any of its subsidiaries or affiliates then
conducts business) engage or participate in, directly or indirectly, as
principal, agent, employee, employer, consultant, investor or partner, or assist
in the management of, or own any stock or any other ownership interest in, any
business which is Competitive with the Company (as defined below). For purposes
of this Agreement, a business shall be considered "Competitive with the Company"
only if it designs, manufactures and markets home comfort and lighting
appliances. Notwithstanding the foregoing, the Executive may own, directly or
indirectly, less than 1% of the capital stock of any public corporation.
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<PAGE>
(b) For purposes of this Agreement, the "Non-Competition
Period" shall mean the longer of (i) December 31, 2000 and (ii) a period of
twelve (12) consecutive months after the Executive's employment terminates.
Section 10.03. Employees, Customers and Suppliers.
(a) During the Term, any Renewal Term and the Non-Solicitation
Period (as defined below), the Executive will not solicit, or attempt to
solicit, any officer, director, consultant, executive or employee of the Company
or any of its subsidiaries or affiliates to leave his or her engagement with the
Company or such subsidiary or affiliate nor will he call upon, solicit, divert
or attempt to solicit or divert from the Company or any of its affiliates or
subsidiaries any of their customers or suppliers, or potential customers or
suppliers, of whose names he was aware during the term of his employment with
the Company; provided, however, that nothing in this Section 10.04 shall be
deemed to prohibit the Executive from calling upon or soliciting a customer or
supplier during the Non-Solicitation Period if such action relates solely to a
business which is not Competitive with the Company.
(b) For purposes of this Agreement, the "Non-Solicitation
Period" shall mean the longer of (i) December 31, 2000 and (ii) a period of
twenty-four (24) consecutive months after the Executive's employment terminates.
Section 10.04. THE EXECUTIVE REPRESENTS AND WARRANTS THAT THE
KNOWLEDGE, SKILLS AND ABILITIES HE POSSESSES AT THE TIME OF COMMENCEMENT OF
EMPLOYMENT HEREUNDER ARE SUFFICIENT TO PERMIT HIM, IN THE EVENT OF TERMINATION
OF HIS EMPLOYMENT HEREUNDER, TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF
WITHOUT VIOLATING ANY PROVISION OF SECTION 9 OR 10 HEREOF, FOR EXAMPLE, BY USING
SUCH KNOWLEDGE, SKILLS AND ABILITIES, OR SOME OF THEM, IN THE SERVICE OF A
NON-COMPETITOR. THE EXECUTIVE FURTHER REPRESENTS AND WARRANTS THAT HIS ABILITY
SO TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF DOES NOT DEPEND UPON HIS ABILITY
TO OBTAIN COMPENSATION FOR HIS SERVICES AT, OR IN EXCESS OF, THE LEVEL AT WHICH
HE IS COMPENSATED BY THE COMPANY.
Section 11. Remedies. It is specifically understood and agreed that any
breach of the provisions of Section 9 or 10 of this Agreement is likely to
result in irreparable injury to the Company and that the remedy at law alone
will be an inadequate remedy for such breach, and that in addition to any other
remedy it may have, the Company shall be entitled to enforce the specific
performance of this Agreement by the Executive and to seek both temporary and
permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages.
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<PAGE>
Section 12. Severable Provisions. The provisions of this Agreement are
severable and the invalidity of any one or more provisions shall not affect the
validity of any other provision. In the event that a court of competent
jurisdiction shall determine that any provision of this Agreement or the
application thereof is unenforceable in whole or in part because of the duration
or scope thereof, the parties hereto agree that said court in making such
determination shall have the power to reduce the duration and scope of such
provision to the extent necessary to make it enforceable, and that the Agreement
in its reduced form shall be valid and enforceable to the full extent permitted
by law.
Section 13. Notices. All notices hereunder, to be effective, shall be
in writing and shall be delivered by hand or mailed by certified mail, postage
and fees prepaid, as follows:
If to the Company: Holmes Products Corp.
233 Fortune Boulevard
Milford, MA 01757
Attn: President
If to the Executive: 278 Old Connecticut Path
Wayland, MA 01778
or to such other address as a party may notify the other pursuant to a notice
given in accordance with this Section 13.
Section 14. Miscellaneous.
Section 14.01. Modification. This Agreement constitutes the entire
Agreement between the parties hereto with regard to the subject matter hereof,
superseding all prior understandings and agreements, whether written or oral.
This Agreement may not be amended or revised except by a writing signed by the
parties.
Section 14.02. Assignment and Transfer. This Agreement shall not be
terminated by the merger or consolidation of the Company with any corporate or
other entity or by the transfer of all or substantially all of the assets of the
Company to any other person, corporation, firm or entity. The provisions of this
Agreement shall be binding on and shall inure to the benefit of any such
successor in interest to the Company. Neither this Agreement nor any of the
rights, duties or obligations of the Executive shall be assignable by the
Executive, nor shall any of the payments required or permitted to be made to the
Executive by this Agreement be encumbered, transferred or in any way
anticipated.
Section 14.03. Captions. Captions herein have been inserted solely for
convenience of reference and in no way define, limit or describe the scope or
substance of any provision of this Agreement.
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<PAGE>
Section 14.04. Governing Law. This Agreement shall be construed under
and enforced in accordance with the laws of the Commonwealth of Massachusetts.
[The remainder of this page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a sealed instrument as of the day and year first above written.
HOLMES PRODUCTS CORP.
By: /s/ Jordan A. Kahn
----------------------------
Jordan A. Kahn, President
/s/ Gregory F. White
--------------------------------
Gregory F. White
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<PAGE>
EXHIBIT A
PERFORMANCE BONUS CRITERIA
For 1997 only, the Executive shall be entitled to a bonus equal to 1%
of the pre-tax profit of the "Holmes Group" for 1997[, such pre-tax profit shall
be calculated without giving effect to the transaction.]
For years after 1997, the Executive shall be entitled to an annual
bonus ranging between 15% and 50% of the Executive's Base Salary for such year,
based on the achievement by the Company of between 90% and 100% of certain
operating targets, which will be determined by the Board.
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<PAGE>
EXHIBIT B
BENEFITS
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EXECUTION COPY
EXECUTIVE EMPLOYMENT AND
NON-COMPETITION AGREEMENT
AGREEMENT, dated as of the 26th day of November, 1997, by and between
Holmes Products (Far East) Ltd., a Bahamian corporation (the "Company"), and Liu
Woon Fai, a resident of Hong Kong (the "Executive").
WHEREAS, the Company desires to engage the full-time services of the
Executive and the Executive desires to be so employed by the Company;
WHEREAS, the Company desires to be assured that the unique and expert
services of the Executive will be available solely to the Company on such
full-time basis, and that the Executive is willing and able to render such
services on the terms and conditions hereinafter set forth; and
WHEREAS, the Company desires to be assured that the confidential
information and good will of the Company will be preserved for the exclusive
benefit of the Company;
NOW, THEREFORE, in consideration of such employment and the mutual
covenants and promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and the Executive agree as follows:
Section 1. Employment. The Company hereby employs the Executive as its
Managing Director, Far East Operations, and the Executive hereby accepts such
employment under and subject to the terms and conditions hereinafter set forth.
Section 2. Term. Unless sooner terminated as provided in Section 7, the
term of employment under this Agreement shall begin on the date hereof and shall
conclude on December 31, 2000 (the "Term"). This Agreement shall be renewed for
additional consecutive one year terms ("Renewal Terms") unless either party
shall give to the other written notice not less than sixty (60) days prior to
the end of the Term or any Renewal Term that it or he does not wish to renew
this Agreement.
Section 3. Duties. The Executive shall perform services in a managerial
capacity subject to the general supervision of the Board of Directors of the
Company (the "Board"). The Executive hereby agrees to devote his full business
time and best efforts to the faithful performance of such duties and to the
promotion and forwarding of the business and affairs of the Company for the Term
or any Renewal Term.
Section 4. Salary Compensation. In consideration of the services
rendered by the Executive under this Agreement, the Company shall pay the
Executive a base salary (the "Base Salary") at the rate of Two Hundred Thousand
Dollars ($200,000) per calendar year. The Base
<PAGE>
Salary shall be paid in such installments and at such times as the Company pays
its regularly salaried executive employees, and the Board may review the Base
Salary annually in a manner consistent with the Company's policies and may
change the Base Salary from time to time in its sole discretion.
Section 5. Bonus Compensation. The Executive shall be entitled to
receive an annual performance bonus equal to up to 50% of the Base Salary, based
on achievement of certain performance criteria as more fully set forth on
Exhibit A hereto. In the sole discretion of the Board, the Executive may be
granted a performance bonus in excess of 50% of the Base Salary if the targets
set forth on Exhibit A are surpassed. Such bonus shall be payable within ten
(10) days following the Company's receipt of its audited financial statements
for the previous year (it being acknowledged that the bonus will be determined
based on such audited financial statements).
Section 6. Benefits. In addition to the compensation detailed in
Section 4 and 5 of this Agreement and those benefits listed on Exhibit B hereto,
the Executive shall be entitled to the following additional benefits:
Section 6.01. Paid Vacation. The Executive shall be entitled to paid
vacation pursuant to Company policy, such vacation to extend for such periods
and shall be taken at such intervals as shall be appropriate and consistent with
the proper performance of the Executive's duties hereunder.
Section 6.02. Insurance Coverage. During the Term or Renewal Terms, the
Company shall provide the Executive with group health and life insurance
protection to the same extent that it makes such protection available to its
other executive employees.
Section 6.03. Living Allowance. The Company shall pay the Executive an
amount equal to $2,083.33 per month as a living allowance.
Section 6.04. Reimbursement of Expenses. The Company shall reimburse
the Executive for all reasonable expenses actually incurred by the Executive in
connection with the business affairs of the Company and the performance of his
duties hereunder. The Executive shall comply with such reasonable limitations
and reporting requirements with respect to such expenses as the Board may
establish from time to time.
Section 7. Termination. This Agreement shall be terminated at the end
of the Term or any Renewal Term, without prejudice to either party's rights
under this Agreement, or earlier as follows:
Section 7.01. Death. This Agreement shall terminate upon the death of
the Executive, except that the compensation provided in Section 4 shall continue
through the end of the month in which the Executive's death occurs.
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<PAGE>
Section 7.02. Permanent Disability. In the event of any physical or
mental disability of the Executive rendering the Executive unable to perform his
duties hereunder for a period of at least one hundred twenty (120) consecutive
days and the further determination that the disability is permanent with regard
to the Executive's ability to return to work in his full capacity, this
Agreement shall terminate automatically. Any determination of disability shall
be made by the Board in consultation with a qualified physician or physicians
selected by the Board and reasonably acceptable to the Executive. The failure of
the Executive to submit to a reasonable examination by such physician or
physicians shall act as an estoppel to any objection by the Executive to the
determination of disability by the Board.
Section 7.03. By The Company For Cause. The employment of the Executive
may be terminated by the Company for Cause (as defined below) at any time
effective upon written notice to the Executive. For purposes hereof, the term
"Cause" shall mean that the Board has determined that any one or more of the
following has occurred:
(a) The Executive shall have been convicted of, or shall have
pleaded guilty or nolo contendere to, any felony;
(b) The Executive shall have willfully failed or refused to
perform his duties hereunder and such failure or refusal shall have
continued for a period of ten (10) days following written notice from
the Board, it being understood that the Company's failure to achieve
its business plan or projections shall not itself be considered a
failure or refusal to perform duties;
(c) the Executive shall have breached any provision of Section
9 or 10 hereof; or
(d) the Executive shall have committed any fraud,
embezzlement, misappropriation of funds, breach of fiduciary duty or
other act of dishonesty against the Company.
Section 7.04. By the Company without Cause. Subject to Section 8, the
Company may terminate the Executive's employment at any time without Cause
effective upon written notice to the Executive.
Section 7.05. By the Executive Voluntarily. Subject to Section 8, the
Executive may terminate this Agreement at any time effective upon at least sixty
(60) days' prior written notice to the Company.
Section 7.06. By the Executive for Good Reason. The Executive may
terminate this Agreement effective upon written notice to the Company for Good
Reason. Any such termination shall be treated as a termination by the Company
without Cause. For this purpose, the term "Good Reason" shall mean: (i) the
assignment to the Executive of any duties that are in
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<PAGE>
violation of laws or regulations or are inconsistent in any substantial respect
with the Executive's position, authority or responsibilities as contemplated by
Section 1 of this Agreement; (ii) a change of more than forty (40) miles in the
location of the Company's offices where the Executive is located; or (iii) any
material reduction in any of the benefits described in Sections 4, 5 or 6 of
this Agreement.
Section 8. Termination Payments and Benefits.
Section 8.01. Voluntary Termination, Termination For Cause. Upon any
termination of this Agreement: (1) voluntarily by the Executive or (2) by the
Company for Cause as provided in Section 7.03, all payments, salary and other
benefits hereunder shall cease at the effective date of termination.
Section 8.02. Termination without Cause, for Good Reason. In the event
that this Agreement is terminated by the Company without Cause, or by the
Executive for Good Reason, the Executive shall receive from the Company as a
termination settlement an amount equal to twelve (12) month's base salary and
living expenses under Section 6.03 as is in effect at the effective date of
termination (the "Termination Payment"), pursuant to the Company's normal
payroll practices. In addition, the Executive shall receive that portion of the
performance bonus payable pursuant to Section 5 hereof equal to that percentage
of the calendar year during with the Executive was employed by the Company,
payable when such bonus would otherwise normally be paid by the Company. In
addition to the Termination Payment, the Executive shall continue to receive the
insurance benefits described in Section 6.02 for a period of twelve (12) months
following the effective date of termination. The Executive shall have no
obligation to mitigate the amount of the Termination Payment provided for herein
by seeking other employment or otherwise.
Section 8.03. Public Statement of Termination. In the event the
Executive's employment terminates for any reason, the Company and the Executive
shall agree upon a public statement pertaining to the Executive's termination of
employment, and the terms of such statements agreed to by the parties shall not
be subject to subsequent modification by either party unless required by law;
provided, however, that in the event the Company and the Executive are unable in
good faith to agree on such a statement, the Company or the Executive may make
public statements as are necessary to comply with the law.
Section 8.04. No Other Benefits. Except as specifically provided in
this Section 8, the Executive shall not be entitled to any compensation,
severance or other benefits from the Company or any of its subsidiaries or
affiliates upon the termination of this Agreement for any reason whatsoever.
Section 9. Proprietary Information; Inventions in the Field.
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<PAGE>
Section 9.01. Proprietary Information. In the course of his service to
the Company, the Executive will have access to confidential specifications,
know-how, strategic or technical data, marketing research data, product research
and development data, manufacturing techniques, confidential customer lists,
sources of supply and trade secrets, all of which are confidential and may be
proprietary and are owned or used by the Company, or any of its subsidiaries or
affiliates. Such information shall hereinafter be called "Proprietary
Information" and shall include any and all items enumerated in the preceding
sentence and coming within the scope of the business of the Company or any of
its subsidiaries or affiliates as to which the Executive may have access,
whether conceived or developed by others or by the Executive alone or with
others during the period of his service to the Company, whether or not conceived
or developed during regular working hours. Proprietary Information shall not
include any records, data or information which are in the public domain during
the period of service by the Executive provided the same are not in the public
domain as a consequence of disclosure directly or indirectly by the Executive in
violation of this Agreement.
Section 9.02. Fiduciary Obligations. The Executive agrees that
Proprietary Information is of critical importance to the Company and a violation
of this Section 9.02 and Section 9.03 would seriously and irreparably impair and
damage the Company's business. The Executive agrees that he shall keep all
Proprietary Information in a fiduciary capacity for the sole benefit of the
Company.
Section 9.03. Non-Use and Non-Disclosure. The Executive shall not
during the Term, any Renewal Term or at any time thereafter (a) disclose,
directly or indirectly, except as may be required by applicable law or
regulations or rules of any regulatory authorities, any Proprietary Information
to any person other than the Company or authorized employees thereof at the time
of such disclosure, or such other persons to whom the Executive has been
specifically instructed to make disclosure by the Board and in all such cases
only to the extent required in the course of the Executive's service to the
Company or (b) use any Proprietary Information, directly or indirectly, for his
own benefit or for the benefit of any other person or entity, other than the
Company, its parent or subsidiaries or pursuant to the express instructions of
the Board. At the termination of his employment, the Executive shall deliver to
the Company all notes, letters, documents and records which may contain
Proprietary Information which are then in his possession or control and shall
destroy any and all copies and summaries thereof.
Section 9.04. Assignment of Inventions. The Executive agrees to assign
and transfer to the Company or its designee, without any separate remuneration
or compensation, his entire right, title and interest in and to all Inventions
in the Field (as defined below), together with all United States and foreign
rights with respect thereto, and at the Company's expense to execute and deliver
all appropriate patent and copyright applications for securing United States and
foreign patents and copyrights on Inventions in the Field and to perform all
lawful acts, including giving testimony, and to execute and deliver all such
instruments that may be necessary or proper to vest all such Inventions in the
Field and patents and copyrights with respect thereto in the Company, and to
assist the Company in the prosecution or defense of any interference which
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<PAGE>
may be declared involving any of said patent applications, patents, copyright
applications or copyrights. For the purposes of this Agreement, the words
"Inventions in the Field" shall include any discovery, process, design,
development, improvement, application, technique, or invention, whether
patentable or copyrightable or not and whether reduced to practice or not,
conceived or made by the Executive, individually or jointly with others (whether
on or off the Company's premises or during or after normal working hours) while
in the employ of the Company, and which was or is directly or indirectly related
to the business of the Company or any of its subsidiaries or affiliates, or
which resulted or results from or was suggested by any work performed by any
employee or agent thereof during the Term or any Renewal Term or for one year
after termination of this Agreement for any reason.
Section 10. Restrictions on Activities of the Executive
Section 10.01. Acknowledgments. The Executive agrees that he is being
employed hereunder in a key management capacity with the Company and that the
Company is engaged in a highly competitive business and that the success of the
Company's business in the marketplace depends upon its goodwill and reputation
for quality and dependability. The Executive further agrees that reasonable
limits may be placed on his ability to compete against the Company as provided
herein so as to protect and preserve the legitimate business interests and good
will of the Company.
Section 10.02. General Restrictions.
(a) During the Term and any Renewal Term and for the
Non-Competition Period (as defined below), the Executive will not (anywhere in
the world where the Company or any of its subsidiaries or affiliates then
conducts business) engage or participate in, directly or indirectly, as
principal, agent, employee, employer, consultant, investor or partner, or assist
in the management of, or own any stock or any other ownership interest in, any
business which is Competitive with the Company (as defined below). For purposes
of this Agreement, a business shall be considered "Competitive with the Company"
only if it designs, manufactures and markets home comfort and lighting
appliances. Notwithstanding the foregoing, the Executive may own, directly or
indirectly, less than 1% of the capital stock of any public corporation.
(b) For purposes of this Agreement, the "Non-Competition
Period" shall mean the longer of (i) December 31, 2000 and (ii) a period of
twelve (12) consecutive months after the Executive's employment terminates.
Section 10.03. Employees, Customers and Suppliers.
(a) During the Term, any Renewal Term and the Non-Solicitation
Period (as defined below), the Executive will not solicit, or attempt to
solicit, any officer, director, consultant, executive or employee of the Company
or any of its subsidiaries or affiliates to leave his or her engagement with the
Company or such subsidiary or affiliate nor will he call upon,
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<PAGE>
solicit, divert or attempt to solicit or divert from the Company or any of its
affiliates or subsidiaries any of their customers or suppliers, or potential
customers or suppliers, of whose names he was aware during the term of his
employment with the Company; provided, however, that nothing in this Section
10.04 shall be deemed to prohibit the Executive from calling upon or soliciting
a customer or supplier during the Non-Solicitation Period if such action relates
solely to a business which is not Competitive with the Company.
(b) For purposes of this Agreement, the "Non-Solicitation
Period" shall mean the longer of (i) December 31, 2000 and (ii) a period of
twenty-four (24) consecutive months after the Executive's employment terminates.
Section 10.04. THE EXECUTIVE REPRESENTS AND WARRANTS THAT THE
KNOWLEDGE, SKILLS AND ABILITIES HE POSSESSES AT THE TIME OF COMMENCEMENT OF
EMPLOYMENT HEREUNDER ARE SUFFICIENT TO PERMIT HIM, IN THE EVENT OF TERMINATION
OF HIS EMPLOYMENT HEREUNDER, TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF
WITHOUT VIOLATING ANY PROVISION OF SECTION 9 OR 10 HEREOF, FOR EXAMPLE, BY USING
SUCH KNOWLEDGE, SKILLS AND ABILITIES, OR SOME OF THEM, IN THE SERVICE OF A
NON-COMPETITOR. THE EXECUTIVE FURTHER REPRESENTS AND WARRANTS THAT HIS ABILITY
SO TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF DOES NOT DEPEND UPON HIS ABILITY
TO OBTAIN COMPENSATION FOR HIS SERVICES AT, OR IN EXCESS OF, THE LEVEL AT WHICH
HE IS COMPENSATED BY THE COMPANY.
Section 11. Remedies. It is specifically understood and agreed that any
breach of the provisions of Section 9 or 10 of this Agreement is likely to
result in irreparable injury to the Company and that the remedy at law alone
will be an inadequate remedy for such breach, and that in addition to any other
remedy it may have, the Company shall be entitled to enforce the specific
performance of this Agreement by the Executive and to seek both temporary and
permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages.
Section 12. Severable Provisions. The provisions of this Agreement are
severable and the invalidity of any one or more provisions shall not affect the
validity of any other provision. In the event that a court of competent
jurisdiction shall determine that any provision of this Agreement or the
application thereof is unenforceable in whole or in part because of the duration
or scope thereof, the parties hereto agree that said court in making such
determination shall have the power to reduce the duration and scope of such
provision to the extent necessary to make it enforceable, and that the Agreement
in its reduced form shall be valid and enforceable to the full extent permitted
by law.
Section 13. Notices. All notices hereunder, to be effective, shall be
in writing and shall be delivered by hand or mailed by registered mail, postage
and fees prepaid, as follows:
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<PAGE>
If to the Company: Holmes Products Corp.
233 Fortune Boulevard
Milford, MA 01757
Attn: President
If to the Executive: _____________________________
_____________________________
_____________________________
or to such other address as a party may notify the other pursuant to a notice
given in accordance with this Section 13.
Section 14. Miscellaneous.
Section 14.01. Modification. This Agreement constitutes the entire
Agreement between the parties hereto with regard to the subject matter hereof,
superseding all prior understandings and agreements, whether written or oral.
This Agreement may not be amended or revised except by a writing signed by the
parties.
Section 14.02. Assignment and Transfer. This Agreement shall not be
terminated by the merger or consolidation of the Company with any corporate or
other entity or by the transfer of all or substantially all of the assets of the
Company to any other person, corporation, firm or entity. The provisions of this
Agreement shall be binding on and shall inure to the benefit of any such
successor in interest to the Company. Neither this Agreement nor any of the
rights, duties or obligations of the Executive shall be assignable by the
Executive, nor shall any of the payments required or permitted to be made to the
Executive by this Agreement be encumbered, transferred or in any way
anticipated.
Section 14.03. Captions. Captions herein have been inserted solely for
convenience of reference and in no way define, limit or describe the scope or
substance of any provision of this Agreement.
Section 14.04. Governing Law. This Agreement shall be construed under
and enforced in accordance with the laws of Hong Kong.
[The remainder of this page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a sealed instrument as of the day and year first above written.
HOLMES PRODUCTS (FAR EAST)
LIMITED
By: /s/ Jordan A. Kahn
------------------------
Name:
Title:
/s/ Liu Woon Fai
----------------------------
Liu Woon Fai
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<PAGE>
EXHIBIT A
PERFORMANCE BONUS CRITERIA
The Executive shall be entitled to an annual bonus ranging between 15%
and 50% of the Executive's Base Salary for such year, based on the achievement
by the Company of between 90% and 100% of certain operating targets, which will
be determined by the Board.
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<PAGE>
EXHIBIT B
BENEFITS
Company car, as agreed between Executive and the Company, including expenses
therefor.
Jockey Club membership at $125 U.S. per month
Three (3) weeks vacation per year
Medical and life insurance coverage
Ability to participate in Company's existing retirement plan
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EXECUTION COPY
HOLMES PRODUCTS CORP.
STOCKHOLDERS' AGREEMENT
Dated as of November 26, 1997
<PAGE>
HOLMES PRODUCTS CORP.
STOCKHOLDERS' AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I Definitions.................................................1
ARTICLE II Covenants and Conditions....................................8
Section 2.1 Restrictions on Transfers; Right of First Refusal...........8
Section 2.2 Call by the Company........................................12
Section 2.3 Take Along.................................................14
Section 2.4 Come Along.................................................15
Section 2.5 Corporate Governance.......................................16
Section 2.6 Preemptive Rights..........................................18
ARTICLE III Miscellaneous..............................................19
Section 3.1 Remedies...................................................20
Section 3.2 Entire Agreement; Amendment; Waiver........................20
Section 3.3 Severability...............................................20
Section 3.4 Notices....................................................21
Section 3.5 Binding Effect; Assignment.................................22
Section 3.6 Governing Law..............................................22
Section 3.7 Termination................................................22
Section 3.8 Recapitalizations, Exchanges, Etc..........................22
Section 3.9 Action Necessary to Effectuate the Agreement...............23
Section 3.10 Purchase for Investment; Legend on Certificate.............23
Section 3.11 Effectiveness of Transfers.................................24
Section 3.12 Additional Stockholders....................................25
Section 3.13 No Waiver..................................................25
Section 3.14 Counterpart................................................25
Section 3.15 Headings...................................................25
Section 3.16 Number; Gender.............................................25
Section 3.17 Consent to Jurisdiction....................................25
Section 3.18 Costs and Expenses.........................................26
Section 3.19 Arbitration ...............................................26
EXHIBIT A Schedule of Stockholders
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<PAGE>
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (this "Agreement") is entered into as of
the 26th day of November, 1997, by and among Holmes Products Corp., a
Massachusetts corporation (the "Company"), those persons listed as Berkshire
Stockholders on the signature pages hereof (collectively, the "Berkshire
Stockholders"), those persons listed as the Management Stockholders on the
signature pages hereof (the "Management Stockholders"), Asco Investments Ltd., a
Bahamas corporation ("Asco"), and those "Other Stockholders" who acquire shares
of capital stock of the Company as described in Section 3.12 hereof. The
Berkshire Stockholders, the Management Stockholders, Asco and the Other
Stockholders are sometimes collectively referred to herein as the
"Stockholders."
WHEREAS, upon consummation of the transactions contemplated by (i) that
certain Stock Purchase and Redemption Agreement dated as of October 27, 1997
(the "Purchase Agreement") by and among the Company, Holmes Acquisition LLC and
the other parties named therein, and (ii) that certain Stock Purchase Agreement
dated as of October 27, 1997 by and between Jordan A. Kahn and Holmes
Acquisition LLC, the Stockholders will own the number of shares of common stock,
$.01 par value per share (the "Common Stock"), of the Company set forth opposite
their respective names on Exhibit A hereto;
WHEREAS, each of the Stockholders desires to enter into this Agreement
for the purpose of regulating certain aspects of the Stockholders' relationships
with regard to the Company and certain restrictions on the Common Stock owned by
the Stockholders; and
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
Definitions
For the purposes of this Agreement, the following terms shall be
defined as follows:
"Affiliate" shall mean a specified person, corporation or other entity
which, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, the corporation or other
entity specified and when used with respect to the Company or any Subsidiary of
the Company, shall include any holder of at least 5% of the capital stock, or
any officer or director, of the Company.
"Assignment Notice" shall have the meaning as set forth in Section
2.1(c).
"Associate" (i) when used to indicate a relationship with any Person
shall mean, (a) any corporation or organization of which such Person is an
officer or partner or is, directly or
<PAGE>
indirectly, the beneficial owner of ten percent (10%) or more of any class of
equity securities, (b) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar fiduciary capacity and (c) any relative of such Person who has
the same home as such Person, is a parent, aunt or uncle, sibling, spouse,
in-law, child, niece or nephew or grandchild of such Person, or the spouse of
any of them, or (ii) when used to indicate a relationship with the Company,
shall also mean a director or officer of the Company or any Subsidiary. Neither
the Company nor any of its Subsidiaries shall be deemed an Associate of any
Stockholder.
"Berkshire Representatives" shall have the meaning as set forth in
Section 2.5.
"Berkshire Stockholder" shall have the meaning as set forth in the
first paragraph of this Agreement.
"Board" or "Board of Directors" shall mean the Board of Directors of
the Company as the same shall be constituted from time to time.
"Call Event" shall have the meaning as set forth in Section 2.2(a).
"Call Group" shall have the meaning as set forth in Section 2.2(a).
"Call Notice" shall have the meaning as set forth in Section 2.2(a).
"Call Option" shall have the meaning as set forth in Section 2.2(a).
"Call Price" shall have the meaning as set forth in Section 2.2(c).
"Call Securities" shall have the meaning as set forth in Section
2.2(b).
"Cause" shall have the meaning as set forth below, except with respect
to any Management Stockholder who is employed by the Company or one of its
Subsidiaries pursuant to an effective written employment agreement between the
Company and/or one of its Subsidiaries and such Management Stockholder, in which
event the definition of "Cause" as set forth in such employment agreement shall
be deemed to be the definition of "Cause" herein solely for such Management
Stockholder and only for so long as such employment agreement remains effective.
In all other events, the term "Cause" shall mean that the Board of
Directors of the Company has determined, in its reasonable judgment, that any
one or more of the following has occurred:
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<PAGE>
(i) the Management Stockholder shall have been convicted of,
or shall have pleaded guilty or nolo contendere to, any felony or any
crime involving dishonesty or moral turpitude;
(ii) the Management Stockholder shall have committed any
fraud, embezzlement, misappropriation of funds, breach of fiduciary
duty or act of dishonesty;
(iii) the Management Stockholder shall have failed to perform
his duties and responsibilities to the Company and its Affiliates
(other than by reason of disability);
(iv) the Management Stockholder shall have breached in any
respect any of the provisions of this Agreement or any other agreement
between the Management Stockholder and the Company;
(v) the Management Stockholder shall have engaged in conduct
likely to make the Company or any of its Affiliates subject to civil or
criminal liabilities other than those arising from the Company's normal
business activities; or
(vi) a failure by the Management Stockholder to take, or
refrain from taking, any action as directed by of the Board of
Directors of the Company.
"Change in Control" shall mean any transaction in which (i) any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time owned shares representing less than fifty
percent (50%) of the voting power at elections for the Board of Directors of the
Company, shall acquire, whether by purchase, exchange, tender offer, merger,
consolidation or otherwise, such additional shares of the Company's Capital
Stock in one or more transactions, or series of transactions, such that
following such transaction or transactions, such person or group and affiliates
beneficially own fifty percent (50%) or more of the voting power at elections
for the Board of Directors of the Company or any successor or (ii) all or
substantially all of the assets of the Company are sold other than in the
ordinary course of business.
"Closing" shall have the meaning set forth in Section 2.1(e).
"Common Stock" shall mean the Company's common stock, $.01 par value,
that the Company may be authorized to issue from time to time, any other
securities of the Company into which such Common Stock may hereafter be changed
or for which such Common Stock may be exchanged after giving effect to the terms
of such change or exchange (by way of reorganization, recapitalization, merger,
consolidation or otherwise) and shall also include any common stock of the
Company hereafter authorized and any capital stock of the Company of any other
class hereafter authorized which is not preferred as to dividends or
distribution of
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<PAGE>
assets in liquidation over any other class of capital stock of the Company and
which has ordinary voting power for the election of directors of the Company.
"Common Stock Equivalents" shall mean all shares of Common Stock (i)
owned or (ii) issuable upon exercise of Performance Options (to the extent
earned and vested) and Time Options (to the extent vested), held by each
Stockholder.
"Company" shall mean Holmes Products Corp., a Massachusetts
corporation, and its successors and assigns.
"Designated Employee" or "Designated Employees" shall have the meaning
as set forth in Section 2.2(e).
"Determination Date" shall mean the earliest date on which the Company
shall have consummated (i) a Public Offering or (ii) a sale of all or
substantially all of the capital stock, assets or business of the Company.
"Disability" shall mean permanent disability within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, unless
otherwise defined in a separate written employment agreement between the Company
and/or one of its Subsidiaries and the person whose disability is in question.
"Fair Market Value" shall mean, the fair value per share of the
applicable Shares as of the applicable date on the basis of a sale of such
Shares in an arms length private sale between a willing buyer and a willing
seller, neither acting under compulsion. In determining such Fair Market Value,
no discount shall be taken for constituting a minority interest and no upward
adjustment or discount shall be taken relating to the fact that the Shares in
question are subject to the restrictions and entitled to the rights provided
hereunder. Such Fair Market Value shall be determined in good faith by the Board
of Directors of the Company.
"Good Reason" shall have the meaning as set forth below except with
respect to any Management Stockholder who is employed by the Company or one of
its Subsidiaries pursuant to an effective written employment agreement between
the Company and/or one of its Subsidiaries and such Management Stockholder in
which event the definition of "Good Reason" as set forth in such employment
agreement shall be deemed to be the definition of "Good Reason" herein solely
for such Management Stockholder and only for so long as such employment
agreement remains effective.
In all other events, the term "Good Reason" shall mean (i) a change of
more than forty (40) miles in the location of the Company's offices where the
employee is located or (ii) a material change in the nature or scope of the
employee's authorities, status, powers, functions, duties, responsibilities, or
reporting relationships that is determined by the employee in good faith to be
adverse to those existing before such change;
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"Investment Price" shall mean an amount per Share equal to the price
per Share paid for such Share at the time of initial purchase thereof (subject
to appropriate adjustments for stock splits, recapitalizations and the like).
"Involuntary Transfer" shall have the meaning as set forth in Section
2.1(i).
"Management Representatives" shall have the meaning as set forth in
Section 2.5.
"New Securities" shall have the meaning as set forth in Section 2.6(b).
"Offer Price" shall have the meaning as set forth in Section 2.1(a).
"Offered Shares" shall have the meaning as set forth in Section 2.1(a)
"Offered Shares Electing Stockholders" shall have the meaning as set
forth in Section 2.1(c).
"Option Period" shall have the meaning as set forth in Section 2.1(b).
"Outside Representatives" shall have the meaning as set forth in
Section 2.5.
"Performance Options" shall mean, collectively, the options, granted to
certain Management Stockholders under the Company's 1997 Stock Option Plan, to
purchase shares of the Company's Common Stock, the number of earned shares of
which is subject to the attainment of certain performance targets as determined
by the Board of Directors of the Company, on the terms set forth therein.
"Permitted Transfer" shall mean:
(a) a Transfer of Shares by any Stockholder who is a natural
person to (A) such Stockholder's spouse, children, grandchildren,
parents or siblings, (B) a trust for the benefit of any of them or (C)
a limited partnership or limited liability company whose sole partners
or members, as the case may be, are any of the persons described in
clause (A) or clause (B);
(b) a Transfer of Shares by a Stockholder upon death to such
Stockholder's legal representatives, heirs or legatees, provided that
such Stockholder immediately prior to death was not an employee of the
Company so that such Stockholder's Shares are subject to the provisions
of Section 2.2 of this Agreement;
(c) a Transfer of Shares by (i) the initial Berkshire
Stockholders to any affiliate of Berkshire Partners LLC or any of the
employees, partners, members or affiliates of any such affiliate or
(ii) between any Berkshire Stockholders;
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(d) a Transfer of Shares from any Stockholder which is a
corporation or partnership to any Affiliate of such Stockholder; or
(e) solely with respect to Gregory F. White and Stanley
Rosenzweig, a bona fide pledge of shares, Performance and/or Time
Options to another Stockholder or Affiliate of a Stockholder or any
other lender reasonably acceptable to the Company; provided that such
pledge is made to secure a loan used to acquire capital stock of the
Company and that such lender shall agree as a condition of such pledge
that it will become a party to this Agreement in connection with any
foreclosure upon such pledge.
No Permitted Transfer shall be effective unless and until the
transferee of the Shares so transferred, if such transferee is not
already a party to this Agreement, executes and delivers to the Company
an executed counterpart of this Agreement in accordance with the terms
of Section 3.12 hereof. No Permitted Transfer shall conflict with or
result in any violation of a judgment, order, decree, statute, law,
ordinance, rule or regulation.
"Permitted Transferee" shall mean any person or entity who shall have
acquired and who shall hold shares pursuant to a Permitted Transfer described
above.
"Person" shall mean an individual, corporation, partnership, trust, or
unincorporated association, or a government or any agency or political
subdivision thereof.
"Pro Rata Fraction" shall mean, with respect to any given Stockholder,
the number of Shares, vested Time Options and vested and earned Performance
Options owned by such Stockholder in relation to the total number of Shares,
vested Time Options and vested and earned Performance Options owned by all of
the Stockholders.
"Public Offering" shall mean the first issuance of shares of Common
Stock by the Company pursuant to a public distribution in which the Common Stock
of the Company shall be listed and traded on a national exchange or on the
NASDAQ National Market System.
"Schedule" shall refer to the Schedule of Stockholders attached hereto
as Exhibit A.
"Seller" shall have the meaning as set forth in Section 2.3(a).
"Shares" shall mean all (i) shares of Common Stock held by Stockholders
from time to time, (ii) shares of Common Stock subsequently held by Permitted
Transferees who acquire them in one or more Permitted Transfers, or (iii)
securities of the Company issued in exchange for, upon reclassification of, or
as a distribution in respect of, any of the foregoing.
"Stockholder" shall have the meaning as set forth in the first
paragraph of this Agreement.
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"Subsidiary" with respect to any entity (the "parent") shall mean any
corporation, firm, association or trust of which such parent, at the time in
respect of which such term is used, (i) owns directly or indirectly more than
fifty percent (50%) of the equity or beneficial interest, on a consolidated
basis, and (ii) 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 for the election of directors, trustees, managers or other
officials having powers analogous to that 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.
"Take Along Group" shall have the meaning as set forth in Section
2.3(a).
"Third Party" shall mean any person other than the Company.
"Time Options" shall mean, collectively, the time vested options,
granted to certain Management Stockholders under the Company's 1997 Stock Option
Plan, to purchase shares of the Company's Common Stock on the terms set forth
therein.
"Transfer" shall mean to transfer, sell, assign, pledge, hypothecate,
give, create a security interest in or lien on, place in trust (voting or
otherwise), assign or in any other way encumber or dispose of, directly or
indirectly and whether or not by operation of law or for value, any Shares.
"Transfer Notice" shall have the meaning as set forth in Section
2.1(a).
"Transferring Stockholder" shall have the meaning as set forth in
Section 2.1(g).
"Voluntary Termination" shall include a voluntary termination of
employment with the Company by a Management Stockholder in the absence of a Good
Reason, except as otherwise specified in an effective written agreement between
the Company and/or one of its Subsidiaries and such Management Stockholder. The
term Voluntary Termination shall not include termination of employment due to
death or permanent disability.
ARTICLE II
Covenants and Conditions
2.1 Restrictions on Transfers; Right of First Refusal. No Stockholder
may Transfer all or any part of the Shares owned by any of them to anyone other
than a Permitted Transferee except in accordance with the following procedures:
(a) If at any time a Stockholder desires to Transfer Shares to
anyone other than a Permitted Transferee (each, an "Offeror"), such
Offeror shall give notice of
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such offer (the "Transfer Notice") to the Company. The Transfer Notice
shall state the terms and conditions of such offer, including the name
of the prospective purchaser, the proposed purchase price per share of
such Shares (the "Offer Price"), payment terms (including a description
of any proposed non-cash consideration), the type of disposition and
the number of such Shares to be transferred ("Offered Shares"). The
Transfer Notice shall further state (i) that the Company may acquire,
in accordance with the provisions of this Agreement, any of the Offered
Shares for the price and upon the other terms and conditions, including
deferred payment (if applicable), set forth therein, and (ii) that the
Company may not purchase any of such Offered Shares unless the Company
purchases all of such Offered Shares.
(b) For a period of thirty (30) business days after receipt of
the Transfer Notice (the "Option Period"), the Company may, by notice
in writing to the Offeror delivering such Transfer Notice, elect in
writing to purchase all, but not less than all, of the Offered Shares
at the Offer Price. The closing of the purchase of Offered Shares
pursuant to Section 2.1(b) or Section 2.1(c), as the case may be, shall
take place at the principal office of the Company on the tenth (10th)
day after the expiration of the Option Period. At such Closing, the
Company shall deliver to the Offeror against delivery of certificates
duly endorsed and stock powers representing the Offered Shares being
acquired by the Company, the Offer Price, on the same terms as set
forth in the Transfer Notice (including any non-cash consideration
described therein), payable in respect of the Offered Shares being
purchased by the Company. All of the foregoing deliveries will be
deemed to be made simultaneously and none shall be deemed completed
until all have been completed. Notwithstanding any other provisions of
this Agreement, if the Offeror is an affiliate of Berkshire Partners
LLC ("Berkshire"), before Berkshire may consummate any Transfer
pursuant to Section 2.1(b) or Section 2.1(c), Berkshire shall comply
with the provisions of Section 2.4 hereof solely with respect to the
other Berkshire Stockholders.
(c) Notwithstanding anything set forth in this Section 2.1 to
the contrary, prior to the termination of the Option Period, the Board
of Directors may, in its sole discretion, elect to assign the Company's
right to purchase the Offered Shares pursuant to this Section 2.1 to
the Stockholders, provided that the Company and any of the Stockholders
to whom the Company assigns its right to purchase shall collectively
purchase all, but not less than all, of the Offered Shares. If the
Offeror is a Management Stockholder, the assignment in the previous
sentence shall be made first, to the other Management Stockholders and,
if such other Management Stockholders do not elect to purchase all of
the Offered Shares, second to the other Stockholders, in either case as
set forth herein. If the Board so elects, the Company shall give notice
of such assignment to each Stockholder (the "Assignment Notice"),
indicating the number of Shares each such Stockholder is entitled to
purchase (including the right to over-allotment of Offered Shares, if
any), the Offer Price of such Shares, and any other relevant payment
terms. Within five (5) days of the Assignment Notice, those
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Stockholders who intend to purchase the Offered Shares pursuant to this
Section 2.1(c) (the "Offered Shares Electing Stockholders") shall
notify the Company in writing of such intention, indicating the number
of Offered Shares (including over-allotments, if any) they intend to
purchase. The right to purchase such Offered Shares shall be allocated
to the Stockholders based upon each Stockholder's Pro Rata Fraction;
provided, however, that if any Stockholder does not elect to purchase
the number of Offered Shares which such Stockholder may purchase
pursuant to this Section 2.1(c), then the Offered Shares Electing
Stockholders may elect to purchase the remaining Offered Shares. The
right to purchase the remaining Offered Shares shall be allocated to
the Offered Shares Electing Stockholders based on each such Offered
Shares Electing Stockholder's Pro Rata Fraction of all Offered Shares
Electing Stockholders.
(d) If the Company or the Stockholders, as the case may be, do
not elect to purchase all of the Offered Shares, all, but not less than
all, of the Offered Shares may be Transferred, but only in accordance
with Sections 2.1(e) and 2.1(f) and the terms of the Transfer Notice,
within sixty (60) days after expiration of the Option Period, after
which, if the Offered Shares have not been Transferred, all
restrictions contained herein shall again be in full force and effect.
(e) Five (5) days prior to the closing of the purchase of any
Offered Shares pursuant to Section 2.1(d) hereof (the "Closing"), the
Offeror shall notify the Company of the disposition of the Offered
Shares, including the name of each purchaser and the number of shares
bought by each purchaser. The Closing shall take place no later than
sixty (60) days after the expiration of the Option Period. At such
Closing, each purchaser of Offered Shares shall deliver to the Offeror
against delivery of certificates duly endorsed and stock powers
representing the Offered Shares being acquired by such purchaser, the
Offer Price, on the same terms as set forth in the Transfer Notice
(including any non-cash consideration described therein), payable in
respect of the Offered Shares being purchased by such purchaser. All of
the foregoing deliveries will be deemed to be made simultaneously and
none shall be deemed completed until all have been completed.
(f) Any Transfer of Shares pursuant to this Section 2.1 shall
remain subject to the Transfer restrictions of this Agreement and each
intended transferee pursuant to this Section shall execute and deliver
to the Company a counterpart of this Agreement, which shall evidence
such transferee's agreement that the Shares intended to be transferred
shall continue to be subject to this Agreement and that as to such
Shares the transferee shall be bound by the restrictions of this
Agreement as a Stockholder hereunder.
(g) Any Stockholder who is the subject of an Involuntary
Transfer (as defined below) (the "Transferring Stockholder"), shall
notify the Company in writing within ten (10) days of such Involuntary
Transfer but the failure to give such notice
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shall not affect the rights of the parties hereunder. Upon the
Company's receipt of such notice, the Company shall treat the
Involuntary Transfer as an offer under this Section 2.1. The Company
shall act upon the deemed offer under this Section within the time
periods and following the applicable procedures set forth in this
Section 2.1, with the date of the deemed offer being the later of the
date of the Company's receipt of written notice setting forth the
existence of such an Involuntary Transfer and the date of such
Involuntary Transfer, such later date being the date of notification
for the purpose of Section 2.1.
(h) The purchase price for the Shares being transferred as a
result of an Involuntary Transfer under Sections 2.1(g) shall be fair
market value, as fair market value is agreed to by the Company and the
transferee in each such Involuntary Transfer, or if no such agreement
is reached, as determined by an independent appraiser selected by the
Company and reasonably acceptable to the transferee in such Involuntary
Transfer. All costs of any appraisal under this Section 2.1(h) shall be
paid by the transferee.
(i) For purposes of this Agreement, the term "Involuntary
Transfer" shall mean any involuntary sale, transfer, encumbrance or
other disposition (other than as a result of the death of the
Stockholder) by or in which any Stockholder shall be deprived or
divested of any right, title or interest in or to any Shares, including
without limitation, any levy of execution, transfer in connection with
bankruptcy, reorganization, insolvency or similar proceedings or any
transfer to a public officer or agency pursuant to any abandoned
property or escheat law. A Transfer pursuant to Section 2.2 hereof
shall not be deemed to be an Involuntary Transfer.
(j) The provisions of this Section 2.1 shall not apply to a
Transfer of Shares which (i) is a Permitted Transfer (ii) is pursuant
to Section 2.2 or (iii) is pursuant to Section 2.3.
2.2 Call by the Company.
(a) If the employment of a Management Stockholder by the
Company or any of its Subsidiaries shall terminate (a "Call Event") for
any reason then the Company shall have the right to purchase (the "Call
Option"), by delivery of a written notice (the "Call Notice") to such
terminated Management Stockholder no later than ninety (90) days after
the date of such Call Event, and such Management Stockholder and such
Management Stockholder's Permitted Transferees (the "Call Group") shall
be required to sell all (but not less than all) of the Call Securities
(as defined below) at a price per share equal to the Call Price (as
defined below) of such Call Securities as of the date the Call Notice
is delivered.
(b) For purposes of this Section 2.2, the term "Call
Securities" shall mean:
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(i) if the Management Stockholder's employment with
the Company or any of its Subsidiaries is terminated for
Cause, all of the Shares, vested Time Options and vested and
earned Performance Options which are owned by the members of
the Call Group on the date of such Call Event; or
(ii) if the Management Stockholder's employment with
the Company or any of its subsidiaries is terminated other
than for Cause, all of the Shares (except, with respect only
to Jordan A. Kahn, Stanley Rosenzweig and Gregory F. White,
that number of Shares (which number shall be adjusted to
reflect stock splits, stock dividends, recapitalizations and
the like) owned as of the date hereof), vested Time Options
and vested and earned Performance Options which are owned by
the members of the Call Group on the date of such Call Event.
(c) For purposes of this Section 2.2, the term "Call Price"
shall mean
(i) with respect to Shares,
(A) in the event of a termination of a
Management Stockholder's employment (i) by the Company without
Cause, (ii) by virtue of death or Disability or (iii) by
Voluntary Termination after the fifth anniversary of the date
hereof (or with respect to Mr. Kahn, the third anniversary of
the date hereof), the Fair Market Value of such Shares; and
(B) in the event of a termination of a
Management Stockholder's employment (i) by the Company for
Cause or (ii) by Voluntary Termination prior to the fifth
anniversary of the date hereof (or with respect to Mr. Kahn,
the third anniversary of the date hereof), the lower of (x)
the Investment Price of such Shares and (y) the Fair Market
Value of such Shares.
(ii) with respect to any vested Time Options, the
difference between (x) the Call Price, as determined above for
the Shares acquirable upon exercise of such option, payable in
respect of such Shares minus (y) the exercise price of such
vested Time Options. Notwithstanding the foregoing, any Time
Option will terminate to the extent set forth in the option
agreement pursuant to which such Time Option was granted.
(iii) with respect to
(A) any vested and earned Performance
Options, the difference between (x) the Call Price, as
determined above for the Shares acquirable upon exercise of
such option, payable in respect of such Shares minus (y) the
exercise price of such vested and earned Performance Options;
and
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(B) any vested Performance Options which are
called pursuant to this section prior to a Determination Date
(so that it is not known how many, if any, of such vested
Performance Options will be earned), the difference between
(x) the Call Price, as determined above for the Shares
acquirable upon exercise of such option, payable in respect of
such Shares minus (y) the exercise price of such vested and
earned Performance Options; provided that Fair Market Value
for such purpose shall be equal to the lesser of (A) the Fair
Market Value of the Shares acquirable upon exercise of such
option as of the date of the Call Event and (B) the Fair
Market Value of the Shares acquirable upon exercise of such
option as of the Determination Date.
(d) The closing of any purchase of Call Securities by the
Company pursuant to Section 2.2(a) shall take place at the principal
office of the Company no later than the 180th day after the Call Event,
or solely with respect to Performance Options for which a Determination
Date has not yet occurred, no later than the 5th day after the
Determination Date. At such closing, the Company shall deliver to the
Call Group consideration in an amount equal to the aggregate Call Price
payable in respect of such Call Securities against delivery of (i)
original stock certificates and stock powers duly endorsed in favor of
the Company representing the Call Securities and (ii) an executed
agreement, in form reasonably satisfactory to the Company, evidencing
the cancellation of any vested Time Options and vested and earned
Performance Options purchased at such closing. The Company, at its
option, may pay the consideration for such Call Securities in the form
of a bank or certified check or wire transfer. If the Call Event is due
to the termination of the Management Stockholder's for Cause and the
Company is unable to exercise its Call Option by payment of the Call
Price in cash because such payment would cause the Company or any
Subsidiary to be in violation of applicable law or in default under or
otherwise in violation of the terms of, or limited by the ceiling in
the availability or credit advances under, any loan, credit or
investment agreements or promissory notes to which the Company or any
Subsidiary is a party (a "Default"), the Company may exercise such Call
Option, at its sole election, and pay the Call Price by delivery of a
five year promissory note issued by the Company, bearing interest at a
fixed rate of interest per annum equal to the applicable federal rate
on the date of issuance for notes of that maturity, such interest to be
payable quarterly in arrears, which note shall be prepayable without
premium or penalty, and subordinated to all other funded debt of the
Company and its Subsidiaries on terms reasonably satisfactory to the
holders of such funded debt (each a "Company Note", and collectively,
the "Company Notes"). If the Company shall issue a Company Note as
payment of the Call Price, the Company shall not be obligated to make
any payment of principal or interest due under a Company Note if the
Company or any Subsidiary is at the time of the delivery of such
payment, or would be upon delivery of such payment and as a consequence
thereof, in Default. In the event the Company cannot make payments of
principal and interest due under a Company Note because it is in
Default, the Company will undertake to make payment of principal and
interest due under such
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Company Note at such time as the Company is no longer in Default and
would not be so in Default by virtue of the delivery of such Company
Note or any payment of principal and interest due under such Company
Note as contemplated herein.
(e) Notwithstanding anything set forth in this Section 2.2 to
the contrary, prior to the exercise by the Company of its Call Option
to purchase Call Securities pursuant to this Section 2.2, the Board of
Directors of the Company may designate one or more new or existing
employees of the Company or any Subsidiary (individually a "Designated
Employee" and collectively, the "Designated Employees") or another
Stockholder who shall have the right, but not the obligation, to
exercise the Call Option and to acquire, in lieu of the Company, some
or all (as determined by the Company) of the Call Securities that the
Company is entitled to purchase from the Call Group hereunder, on the
same terms and conditions as set forth in Section 2.2(d) which apply to
the purchase of Call Securities by the Company. Concurrently with any
such purchase of Call Securities by any such Designated Employee, such
Designated Employee shall execute a counterpart of this Agreement,
whereupon such Designated Employee shall be deemed a "Management
Stockholder" and shall have the same rights and be bound by the same
obligations as the other Management Stockholders hereunder.
(f) If neither the Company nor any Designated Employee or
other Stockholder elects to exercise the Call Option and deliver a Call
Notice within 90 days of a Call Event, then the Call Option provided in
this Section 2.2 shall terminate but the Management Stockholder and his
Permitted Transferees shall continue to hold such Call Securities
pursuant to all of the other provisions of this Agreement and other
applicable agreements (including without limitation, any restrictions
on the vesting of stock options).
2.3 Take Along.
(a) If any of the Stockholders, individually or collectively
(referred to herein as the "Take-Along Group"), determine to sell or
exchange (in a business combination or otherwise) more than 50% of the
then outstanding Shares (including vested Time Options and vested and
earned Performance Options) in one or a series of bona fide arms-length
transactions to a Third Party, then upon five (5) days written notice
by the Take Along Group to each other Stockholder, 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 Take Along Group (such notice being referred to as the
"Sale Request"), each other Stockholder (each, a "Seller") shall be
obligated to, and shall sell, transfer and deliver, or cause to be
sold, transferred and delivered, to such Third Party on the same terms
as the Take Along Group, that number of Shares owned by such Seller as
shall equal the product of (A) a fraction, the numerator of which is
the number of Common Stock Equivalents proposed
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to be transferred by the Take Along Group as of the date of such Sale
Request and the denominator of which is the aggregate number of Common
Stock Equivalents actually owned as of the date of such Sale Request by
the Take Along Group, multiplied by (B) the number of Common Stock
Equivalents actually owned as of the date of such Sale Request by such
Seller. Each Seller shall (i) deliver certificates for all of its
Shares at the closing of the proposed Transfer, free and clear of all
claims, liens and encumbrances and (ii) if stockholder approval of the
transaction is required, vote his Shares in favor thereof.
(b) The provisions of this Section 2.3 shall not apply to a
Permitted Transfer.
2.4 Come Along. Except as provided in Section 2.4(c) hereof, no
Stockholder shall Transfer the outstanding Shares of the Company to a Third
Party who is not a Permitted Transferee without complying with the terms and
conditions set forth in Section 2.4(a) and 2.4(b) below; provided, however, that
this Section 2.4 shall not in any way limit or affect the restrictions of
Section 2.1.
(a) Any Stockholder, when desiring to Transfer Shares (the
"Transferor"), shall give not less than fifteen (15) days prior written
notice of such intended Transfer to each other Stockholder and to the
Company. Such notice (the "Participation Notice") shall set forth the
terms and conditions of such proposed Transfer, including the name of
the prospective transferee, the number of Shares proposed to be
transferred (the "Participation Securities") by the Transferor, the
purchase price per share proposed to be paid therefor and the payment
terms and type of transfer to be effectuated. Within ten (10) days
following the delivery of the Participation Notice by the Transferor to
each other Stockholder and to the Company, each Stockholder desiring to
participate in such proposed Transfer (each, a "Participating Offeree")
shall, by notice in writing to the Transferor 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 Transferor) up to
that number of Common Stock Equivalents owned by such Participating
Offeree as shall equal the product of (i) a fraction, the numerator of
which is the number of Common Stock Equivalents owned by such
Participating Offeree as of the date of such proposed Transfer and the
denominator of which is the number of Common Stock Equivalents actually
owned as of the date of such Participation Notice by the Transferor and
by all Participating Offerees multiplied by (ii) the number of
Participation Securities. The amount of Participation Securities to be
sold by the Transferor shall be reduced to the extent necessary to
provide for such sales of Shares by Participating Offerees.
(b) At the closing of any proposed Transfer in respect of
which a Participation Notice has been delivered, the Transferor,
together with all Participating Offerees, shall deliver to the proposed
transferee certificates evidencing the Shares to
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be sold thereto duly endorsed with stock powers and shall receive in
exchange therefor the consideration to be paid or delivered by the
proposed transferee in respect of such Shares as described in the
Participation Notice.
(c) The provisions of this Section 2.4 shall not apply to (i)
any Permitted Transfer, (ii) any Transfer pursuant to Section 2.2 or
(iii) any Transfer pursuant to Section 2.3.
2.5 Corporate Governance.
(a) At each annual meeting of the Stockholders and at each
special meeting of the Stockholders called for the purpose of electing
directors of the Company, and at any time at which stockholders of the
Company shall have the right to, or shall, vote for directors of the
Company, then, and in each event, the Stockholders hereby agree to
attend each meeting in person or by proxy and hereby agree to vote
stock of the Company and shares of the Company now owned or hereafter
acquired by him, her or it (whether at a meeting or by written consent
in lieu thereof) (i) so that the Company's Board of Directors shall be
designated as set forth herein, (ii) to fix the number of members of
the Board at seven (7) and (iii) to elect and thereafter to continue in
office as a Director of the Company the following: (i) two (2)
Directors shall be persons nominated by the Berkshire Stockholders (who
shall initially be Richard K. Lubin and Randy Peeler) (collectively the
"Berkshire Representatives"); (ii) three (3) Directors shall be persons
nominated by the Management Shareholders (who shall initially be Jordan
A. Kahn, Stanley Rosenzweig and Gregory F. White) (collectively, the
"Management Representatives") and (iii) two (2) Directors shall be
persons who are not employees or officers of the Company, one of whom
shall be nominated by the Berkshire Stockholders (subject to the
reasonable approval of the Management Stockholders) and one of whom
shall be nominated by the Management Stockholders (subject to the
reasonable approval of the Berkshire Stockholders) (collectively the
"Outside Representatives"). A vacancy in either of the directorships to
be occupied by a Berkshire Representative shall be filled only by vote
or written consent of a majority in interest of the Berkshire
Stockholders; a vacancy in any of the directorships to be held by the
Management Representatives shall be filled only by vote or written
consent of Management Stockholders holding at least eighty percent
(80%) in interest of the Shares held by all Management Stockholders;
and a vacancy in the directorships to be held by the Outside
Representatives shall be filled only by vote or written consent of the
Stockholders who nominated such Outside Representative (subject to
approval as set forth in clause (iii) above).
(b) Board Expansion. So long as either (i) the Berkshire
Stockholders shall own at least forty percent (40%) of the Shares
(including vested Time Options and vested and earned Performance
Options) or (ii) the Berkshire Stockholders collectively own more
Shares (including vested Time Options and vested and earned Performance
- 15 -
<PAGE>
Options) than the Management Stockholders or any other single
stockholder, the Berkshire Stockholders may at any time require, by
written notice to the other Stockholders (the "Increase Notice"), that
the number of directors constituting the Board of Directors be
increased by two (2). The Berkshire Stockholders shall have the right
to designate such additional directors. If the Increase Notice is given
by the Berkshire Stockholders, the nomination of the Outside
Representatives as set forth in Section 2.5(a)(iii) above shall no
longer require the approval of the other stockholders. Each Stockholder
agrees that such Stockholder and its Permitted Transferees shall take
all action as may be necessary or appropriate, including without
limitation, the voting of all Shares owned by them, to so increase the
number of directors constituting the Board of Directors and to elect
the directors so designated by the Berkshire Stockholders.
(c) Committees. Each committee of the Board shall be composed
so that the representation thereon of Berkshire Representatives and
Management Representatives shall be in the same proportion, as nearly
as may be, as the representation of such directors on the whole Board;
provided, however, that no Management Representative shall sit on the
audit committee or any committee charged with the consideration of
matters related to compensation, employee stock options, or the like;
and provided, further, that the Berkshire Representatives shall at all
times constitute a majority of all the directors on the compensation
committee.
(d) Indemnification. The Company will maintain indemnification
for officers and directors substantially similar to that which exists
as of the date hereof.
2.6 Preemptive Rights.
(a) Preemptive Right. The Company hereby grants to each
Stockholder so long as it shall own any Shares, the right to purchase
up to a pro rata portion of New Securities (as defined in paragraph (b)
below) which the Company, from time to time, proposes to sell or issue
following the date hereof. A Stockholder's pro rata portion, for
purposes of this Section 2.6, is the product of (i) a fraction, the
numerator of which is the number of outstanding Shares which such
Stockholder then owns and the denominator of which is the total number
of Shares of Common Stock then actually outstanding on a fully diluted
basis after giving effect to the exercise of all vested Time Options
and vested and earned Performance Options, warrants and the like and
the conversion of all securities convertible into or exchangeable for
Common Stock, multiplied by (ii) the number of New Securities the
Company proposes to sell or issue.
(b) Definition of New Securities. "New Securities" shall mean
any Common Stock of the Company whether now authorized or not, any
rights, options or warrants to purchase Common Stock and any
indebtedness or preferred stock of the Company which is convertible
into Common Stock (or which is convertible into a
- 16 -
<PAGE>
security which is, in turn, convertible into Common Stock); provided
that the term "New Securities" does not include (i) indebtedness of the
Company which is not by its terms convertible into Common Stock; (ii)
Common Stock issued as a stock dividend to all holders of Common Stock
pro rata or upon any subdivision or combination of shares of Common
Stock; (iii) any employee stock options approved by the Board of
Directors of the Company; (iv) Common Stock issued in exchange for the
cancellation or retirement of any debt securities of the Company or in
connection with any restructuring or other financial workout of the
Company; (v) Common Stock or warrants to purchase Common Stock issued
to non-Affiliates of the Company as part of a bona fide debt offering
of units comprised of such Common Stock and a debt security of the
Company; (vi) Common Stock issued in connection with the acquisition of
another corporation or other entity by the Company by merger, purchase
of substantially all assets or other reorganization; or (vii) the
issuance of any Common Stock upon the exercise or conversion of any
rights, options or warrants to purchase Common Stock.
(c) Notice from the Company. In the event the Company proposes
to issue New Securities, the Company shall give each Stockholder who
has a preemptive right under this Section 2.6 written notice of such
proposal, describing the type of New Securities and the price and the
terms upon which the Company proposes to issue the same. For a period
of five (5) business days following the delivery of such notice by the
Company, the Company shall be deemed to have irrevocably offered to
sell to each Stockholder its pro rata share of such New Securities for
the price and upon the terms specified in the notice. Each Stockholder
may exercise its preemptive rights hereunder by giving written notice
to the Company and stating therein the quantity of New Securities to be
purchased.
(d) Sale by the Company. In the event any Stockholder who has
a preemptive right under this Section 2.6 fails to exercise in full its
preemptive right within said five (5) day period, the Company shall
have one hundred twenty (120) days thereafter to sell the New
Securities with respect to which the preemptive right was not
exercised, at a price and upon terms no more favorable to the
purchasers thereof than specified in the Company's notice given
pursuant to Section 2.6(c).
(e) Closing. The Closing for any such issuance shall take
place as proposed by the Company with respect to the Shares to be
issued, at which Closing the Company shall deliver certificates for the
shares in the respective names of the purchasing Stockholders against
receipt of payment therefor.
2.8 Confidentiality. Each Stockholder shall maintain the
confidentiality of any confidential and proprietary information of the Company
("Proprietary Information") using the same standard of care as it applies to its
own confidential information, except for any Proprietary Information which is
publicly available or a matter of public knowledge generally.
- 17 -
<PAGE>
Nothing herein shall prevent any Stockholder from using Proprietary Information
to monitor its investment in the Company or to enforce its rights under this
Agreement or from disclosing a summary of Proprietary Information to the
partners of such Stockholder as to the performance of the Company.
ARTICLE III
Miscellaneous
-------------
3.1 Remedies. Notwithstanding the provisions of Section 3.19 hereof,
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. In the event of a breach of
any material provision of this Agreement, the aggrieved party will be entitled
to institute and prosecute a proceeding in any court of competent jurisdiction
to enforce specific performance of such provision, as well as to obtain damages
for breach of this Agreement. Without limiting the foregoing, if any dispute
arises concerning the sale or other disposition of any of the Shares 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 connection therewith (including, without limitation,
restraining the sale or other disposition of such Shares or rescinding any such
sale or other disposition). 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.
3.2 Entire Agreement; Amendment; Waiver. This Agreement, together with
the Schedule hereto, sets forth the entire understanding of the parties, and as
of the closing contemplated by the Stock Purchase Agreement supersedes all prior
agreements and all other arrangements and communications, whether oral or
written, with respect to the subject matter hereof. The Schedule may be amended
to reflect changes in the composition of the Stockholders and changes in stock
ownership that may occur from time to time as a result of Permitted Transfers or
Transfers permitted under Article II hereof. Amendments to the Schedule
reflecting Permitted Transfers or Transfers permitted under Article II hereof
shall become effective when a copy of the Agreement as executed by any new
transferee, are filed with the Company, except as otherwise provided in Section
3.12 hereof. Any other amendments to, or the termination of, this Agreement
shall require the prior written consent of the Company and a majority in
interest of each of the Berkshire Stockholders and the Management Stockholders.
Notwithstanding any provisions to the contrary contained herein, any party may
waive any rights with respect to which such party is entitled to the benefits
under this Agreement. No waiver of or consent to any departure from any
provision of this Agreement shall be effective unless signed in writing by the
party entitled to the benefit thereof.
- 18 -
<PAGE>
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 and other communications necessary 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 three business days after mailing by certified
mail, when delivered by hand upon confirmation of receipt by telecopy, or one
day after sending by overnight delivery service, to the respective addresses of
the parties set forth below:
(a) For notices and communications to Company to:
Holmes Products Corp.
233 Fortune Boulevard
Milford, MA 01757
Attention: President
Facsimile: (508) 639-8397
for notices and communications to the Management
Stockholders, to their respective addresses set forth in the Schedule,
in either case, with a copy to:
Posternak, Blankstein & Lund
100 Charles River Plaza
Boston, Massachusetts 02114
Attention: Donald H. Siegel, P.C.
Facsimile: (617) 367-2315
(b) for notices and communications to the Berkshire
Stockholders, to their respective addresses set forth in the Schedule,
with a copy to:
Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Street
Boston, Massachusetts 02110
Attention: James Westra, Esq.
Facsimile: (617) 951-1295
(c) for notices and communications to any other Stockholders,
to their respective addresses set forth in the Schedule.
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.
- 19 -
<PAGE>
3.5 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and to their respective
transferees, successors and assigns; provided, however, that the rights under
this Agreement may not be assigned except as expressly provided herein, it being
understood that the Company's rights hereunder may be assigned by the Company to
any corporation which is the surviving entity in a merger, consolidation or like
event involving the Company. No such assignment shall relieve an assignor of its
obligations hereunder.
3.6 Governing Law. This Agreement shall be governed by the law of The
Commonwealth of Massachusetts (regardless of the laws that might otherwise
govern under applicable Massachusetts principles of conflicts of law) as to all
matters, including but not limited to matters of validity, construction, effect,
performance and remedies.
3.7 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 Shares, the provisions of
Article II 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 Shares; provided, that termination pursuant to
this Section 3.7 shall only occur in respect of a Stockholder after all
Permitted Transferees in respect thereof also no longer own any Shares.
Notwithstanding the foregoing, this Agreement shall terminate upon the
consummation of the first Public Offering; provided that the Company shall be
obligated to consummate the purchase of any vested and earned Performance
Options which have been called for purchase pursuant to Section 2.2.
3.8 Recapitalizations, Exchanges, Etc. The provisions of this Agreement
shall apply, to the full extent set forth herein with respect to Shares, 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 Shares,
by reason of a stock dividend, stock split, stock issuance, reverse stock split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise.
3.9 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.
3.10 Purchase for Investment; Legend on Certificate. Each of the
parties acknowledges that all of the Shares held by such party 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 Shares may be made
except in compliance with applicable federal and state securities laws. All the
certificates of Shares of the Company which are now or hereafter
- 20 -
<PAGE>
owned by the Stockholders and which are subject to the terms of this Agreement
shall have endorsed in writing, stamped or printed, thereon the following
legend:
"TRANSFER RESTRICTED
The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, offered for sale, pledged or hypothecated in
the absence of an effective registration statement as to the
securities under said Act or an opinion of counsel
satisfactory to the Company and its counsel that such
registration is not required.
The securities represented by this Certificate are subject to
the terms and conditions, including certain restrictions on
transfer, of a Stockholders' Agreement dated as of November
26, 1997, as amended from time to time, and none of such
securities, or any interest therein, shall be transferred,
pledged, encumbered or otherwise disposed of except as
provided in that Agreement. A copy of the Stockholders'
Agreement is on file with the Secretary of the Company and
will be mailed to any properly interested person without
charge within five (5) days after receipt of a written
request."
All shares shall also bear all legends required by federal and state
securities laws.
3.11 Effectiveness of Transfers. All Shares transferred by a
Stockholder (other than pursuant to an effective registration statement under
the Securities Act or pursuant to a Rule 144 Transaction) shall, except as
otherwise expressly stated herein, 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 (as though such party had so agreed pursuant to
Section 3.12 hereof) 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 date of such transfer,
then such transferee, as a condition to such transfer, shall confirm such
transferee's obligations hereunder in accordance with Section 3.12 hereof. No
Shares shall be transferred on the Company's books and records, and no transfer
of Shares 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.
3.12 Other Stockholders. Subject to the restrictions on transfers of
Shares contained herein, any person or entity who is not already a Stockholder
acquiring Shares, shall, on or before the transfer or issuance to it of Shares,
sign a counterpart to this Agreement in form reasonably satisfactory to the
Company and shall thereby become a party to this Agreement to be bound hereunder
as (i) a Management Stockholder if a Permitted Transferee or an employee
- 21 -
<PAGE>
of the Company or any of its Subsidiaries, (ii) a Berkshire Stockholder if a
Permitted Transferee or an employee or affiliate of Berkshire Partners LLC or
(iii) an "Other Stockholder" if such transferee does not fall within either
clause (i) or (ii) above. Each such "Other Stockholder" shall be listed on the
Schedule, as amended from time to time.
3.13 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 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.
3.14 Counterpart. 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.
3.15 Headings. All headings and captions in this Agreement are for
purposes of reference only and shall not be construed to limit or affect the
substance of this Agreement.
3.16 Number; Gender. When the context so requires, the singular shall
include the plural and the plural shall include the singular and the gender of
any pronoun shall include the other gender.
3.17 Consent to Jurisdiction. The Company and each of the Stockholders,
by its or his execution hereof, (i) hereby irrevocably submit to the exclusive
jurisdiction of the state courts of The Commonwealth of Massachusetts for the
purposes of any claim or action arising out of or based upon this Agreement or
relating to the subject matter hereof, (ii) hereby waive, to the extent not
prohibited by applicable law, and agree not to assert by way of motion, as a
defense or otherwise, in any such claim or action, any claim that it or he is
not subject personally to the jurisdiction of the above-named courts, that its
or his property is exempt or immune from attachment or execution, that any such
proceeding brought in the above-named court is improper, or that this Agreement
or the subject matter hereof may not be enforced in or by such court, and (iii)
hereby agree not to commence any claim or action arising out of or based upon
this Agreement or relating to the subject matter hereof other than before the
above-named courts nor to make any motion or take any other action seeking or
intending to cause the transfer or removal of any such claim or action to any
court other than the above-named courts whether on the grounds of inconvenient
forum or otherwise. The Company and each of the Stockholders hereby consent to
service of process in any such proceeding in any manner permitted by
Massachusetts law, and agree that service of process by registered or certified
mail, return receipt requested, at its address specified pursuant to Section 3.4
hereof is reasonably calculated to give actual notice.
3.18 Costs and Expenses. The Company shall pay its own costs and
expenses incurred and the reasonable costs and expenses incurred by each
Management Stockholder in
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<PAGE>
connection with this Agreement, and any and all other documents furnished
pursuant hereto or in connection herewith.
3.19 Arbitration. Except as provided in Section 3.1, any dispute,
controversy or claim arising out of, in connection with, or in relation to this
Agreement or any breach thereof shall be finally settled by arbitration in
Boston, Massachusetts, pursuant to the rules then in effect of the American
Arbitration Association. Any award shall be final, binding and conclusive upon
the parties and a judgment upon the award rendered thereon may be entered in any
court having jurisdiction thereof. In any such arbitration action, the party
which is determined in the arbitration proceeding to be breaching parties, the
arbitrator shall assign the responsibility for the payment of such costs based
upon the relative nature and extent of the breach by each such party.
[Remainder of Page Intentionally Left Blank]
- 23 -
<PAGE>
HOLMES PRODUCTS CORP.
STOCKHOLDERS' AGREEMENT
Counterpart Signature Page
--------------------------
MANAGEMENT STOCKHOLDERS:
/s/ Jordan A. Kahn
---------------------------------
Jordan A. Kahn
/s/ Stanley Rosenzweig
---------------------------------
Stanley Rosenzweig
/s/ Gregory F. White
---------------------------------
Gregory F. White
/s/ Liu Woon Fai
---------------------------------
Liu Woon Fai
S-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date and year first above written.
HOLMES PRODUCTS CORP.
By:
-------------------------------------
PENTLAND GROUP, PLC
By: /s/ N.P.H. Webster
-------------------------------------
N.P.H. Webster
Attorney
ASCO INVESTMENTS, LTD.
By: /s/ N.P.H. Webster
-------------------------------------
N.P.H. Webster
Attorney
-----------------------------------------
Jordan A. Kahn
-----------------------------------------
Stanley Rosenzweig
-----------------------------------------
Gregory F. White
<PAGE>
HOLMES PRODUCTS CORP.
STOCKHOLDERS' AGREEMENT
Counterpart Signature Page
--------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first above written.
HOLMES PRODUCTS CORP.
By: /s/ Jordan A. Kahn
---------------------------------------
Name:
Title:
ASCO:
ASCO INVESTMENT LTD.
By: /s/ James B. Carlson
---------------------------------------
Name: James B. Carlson
Title: Attorney-In-Fact
S-1
<PAGE>
HOLMES PRODUCTS CORP.
STOCKHOLDERS' AGREEMENT
Counterpart Signature Page
--------------------------
BERKSHIRE STOCKHOLDERS:
BERKSHIRE FUND IV, L.P.
By: Fourth Berkshire Associates, L.L.C.
By: /s/ Richard K. Lubin
------------------------------------------
Name:
Title: Managing Member
BERKSHIRE INVESTORS LLC
By: /s/ Richard K. Lubin
------------------------------------------
Name:
Title: Managing Member
FSC CORP.
By: /s/ Mary Reilly
------------------------------------------
Name: Mary Reilly
Title: Vice President
BAIN SECURITIES, INC.
By: /s/ Gary Wilkinson
------------------------------------------
Name: Gary Wilkinson
Title: Treasurer
SQUAM LAKE INVESTORS II, L.P.
By: GPI, Inc., its General Partner
By: /s/ Gary Wilkinson
------------------------------------------
Name: Gary Wilkinson
Title: Treasurer
S-2
<PAGE>
HOLMES PRODUCTS CORP.
STOCKHOLDERS' AGREEMENT
Counterpart Signature Page
--------------------------
BERKSHIRE STOCKHOLDERS (continued):
THE PANGAEA GROUP, INC.
By: /s/ Gordon Pan
------------------------------------------
Name: Gordon Pan
Title: President
<PAGE>
EXHIBIT A
Schedule of Stockholders
No. of Shares of
Name and Address of Stockholder Common Stock
- ------------------------------- ----------------
BERKSHIRE STOCKHOLDERS:
Berkshire Fund IV, L.P. 266.60475
Berkshire Investors LLC 26.66048
c/o Berkshire Partners LLC
One Boston Place
Boston, Massachusetts 02108
Attention: Richard K. Lubin
Facsimile No: (617) 227-6105
FSC Corp. 6.75570
c/o BankBoston
100 Federal Street
Boston, MA 02110
Attn: Mary Reilly
Bain Securities, Inc. 8.84998
Squam Lake Investors II, L.P. 18.17285
c/o Bain & Company
Two Copley Place
Boston, MA 02116
Attn: Gary Wilkinson
The Pangaea Group, Inc. 0.13511
358 Chestnut Hill Avenue #303
Brookline, MA 02146
Attn: Gordon Pan
MANAGEMENT STOCKHOLDERS:
Jordan A. Kahn 94.57989
Gregory F. White 8.10685
Stanley Rosenzweig 13.51141
c/o Holmes Products Corp.
233 Fortune Boulevard
Milford, MA 01757
Facsimile No: (508) 634-8374
<PAGE>
Liu Woon Fai 5.40456
Asco General Supplies (Far East) Ltd.
Harbor Crystal Center
13th Floor
100 Grandville
Tsimshatsui East, Kowloon Hong Kong
ASCO:
Asco Investments Ltd. 24.11787
c/o Pentland Group plc
The Pentland Centre
Lakeside, Squires Lane
London N3 2QL
United Kingdom
Attn: Nicholas P.H. Webster
OTHER STOCKHOLDERS:
EXECUTION COPY
--------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Agreement dated as of November 26, 1997 is entered into by and
among Holmes Products Corp., a Massachusetts corporation (the "Company"), those
persons listed on Schedule 1 hereto (the "Berkshire Investors"), those persons
listed on Schedule 2 hereto (the "Management Stockholders") and Asco Investments
Ltd., a Bahamas corporation ("Asco;" and at times, together with the Berkshire
Investors and the Management Stockholders, the "Stockholders").
WHEREAS, the Berkshire Investors own an aggregate of 327.17887 shares
of Common Stock, $0.01 par value per share (the "Common Stock") of the Company,
following (i) the consummation of the transactions contemplated by the Stock
Purchase and Redemption Agreement, dated as of October 24, 1997, by and among
the Company, Holmes Acquisition LLC and the other parties named therein (the
"Purchase Agreement") and (ii) that certain Stock Purchase Agreement dated as of
October 24, 1997 by and between Jordan A. Kahn and Holmes Acquisition LLC;
WHEREAS, the Management Stockholders own an aggregate of 121.60271
shares of Common Stock and Asco owns an aggregate of 24.11787 shares of Common
Stock;
WHEREAS, the Stockholders have required, as a condition to the
consummation of the transactions contemplated by the Purchase Agreement, that
the Company provide for certain arrangements with respect to the registration of
the shares of Common Stock under the Securities Act of 1933, as amended, and the
parties are willing to execute this Agreement and to be bound by the provisions
hereof.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Common Stock" means the common stock, $.01 par value per share, of the
Company.
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
<PAGE>
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means the expenses described in Section 7.
"Registrable Shares" means (i) any shares of Common Stock now owned or
hereafter acquired by the Stockholders and (ii) any shares of Common Stock
issued in respect of such shares (because of stock splits, stock dividends,
reclassification, recapitalizations, or similar events); provided, however, that
shares of Common Stock which are Registrable Shares shall cease to be
Registrable Shares (x) upon any sale pursuant to a Registration Statement or
Rule 144 under the Securities Act or (y) upon any sale in any manner to a person
or entity which, by virtue of Section 19 of this Agreement, is not entitled to
the rights provided by this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
2. Demand Registrations.
(a) If, either (i) prior to the initial public offering of
equity securities of the Company, or (ii) after 180 days following a public
offering of equity securities of the Company, the Company shall receive a
written request (specifying that it is being made pursuant to this Section 2(a))
from the Berkshire Investors requesting that the Company file a registration
statement under the Securities Act or a similar document pursuant to any other
statute then in effect corresponding to the Securities Act, covering the
registration of Registrable Shares then owned by such Berkshire Investors, then
the Company shall not later than one hundred eighty (180) days after receipt by
the Company of such a written request, file a registration statement with the
Commission relating to such Registrable Shares as to which such request for a
demand registration relates and the Company shall use its best efforts to cause
the offering of such Registrable Shares to be registered under the Securities
Act. The Company shall be obligated to effect only two (2) registrations
pursuant to this Section 2(a); provided, however, that (i) no registration
initiated hereunder shall count as a registration initiated hereunder unless and
until it shall have been declared effective by the Commission and (ii) the
Berkshire Investors shall only have the right to request a registration pursuant
to this Section 2(a) if (A) at the time of any such request, the Berkshire
Investors hold in the aggregate an amount equal to at least fifteen percent
(15%) of the Registrable Shares or (B) any such request is a request to register
at least 50% of the Registrable Shares then owned by the Berkshire Investors.
(b) If, pursuant to Section 3, the total amount of Registrable
Shares that all Stockholders request to be included in an offering made pursuant
to this Section 2 exceeds the
- 2 -
<PAGE>
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 good faith opinion of such
underwriters, can be sold, in the following order: first, the Registrable Shares
requested to be included by the Berkshire Investors; second, that number of
shares which the Company desires to include pursuant to Section 2(d); and third,
the Registrable Shares requested to be included by all Stockholders pursuant to
Section 3 hereof pro rata based on the number of Registrable Shares each of them
owns.
(c) The underwriter of any registration requested under this
Section 2 shall be selected by the Berkshire Investors and shall be reasonably
acceptable to the Company.
(d) The Company may include shares in any registration
requested under this Section 2 if the inclusion of such shares would not limit
the number of Registrable Shares sought to be included by the Berkshire
Investors making the demand or reduce the offering price thereof; provided that
if the number of shares sold by the Berkshire Investors is less than one-half of
the number of shares subject to such registration as a result of the shares
included by the Company, then such registration shall be deemed to have been
effected under Section 3 hereof and shall not count as one of the two
registrations which may be requested by the Berkshire Investors making the
demand pursuant to this Section 2.
3. Piggyback Registration. If, at any time, the Company determines to
register any of its equity securities (excluding the registration of any equity
security issued to non-affiliates of the Company as part of a bona fide debt
offering of units comprised of such equity security and a debt security of the
Company) for its own account or for the account of others under the Securities
Act in connection with the public offering of such securities, the Company
shall, at each such time, promptly give each Stockholder written notice of such
determination no later than fifteen (15) business days before the effective date
of any such registration. Upon the written request of any Stockholder received
by the Company within ten (10) business days after the giving of any such notice
by the Company, the Company shall use its best efforts to cause to be registered
under the Securities Act all of the Registrable Shares of each Stockholder that
such Stockholder has requested be registered. If the total amount of Registrable
Shares that are to be included by the Company (or other person (including any
Stockholder) for whose account the registration is made) for its own account and
at the request of Stockholders pursuant to this Section 3 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, the equity securities of the Company (or other
person at whose request the registration is made);
(ii) second, if the registration is not for the account of the
Company, the equity securities of the Company; and
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<PAGE>
(iii) third, the Registrable Shares requested to be included
by the Stockholders pro rata based on the number of Registrable Shares
which each of them owns; provided, however if an underwriter who is not
an affiliate of any Stockholder or the Company, in good faith, requests
for the success of the offering that the number of Registrable Shares
to be sold by any of the Stockholders exercising piggyback rights
pursuant to this Section 3 be apportioned or excluded, such number of
Registrable Shares of such Stockholders shall be reduced or not
included to the extent so requested by said underwriter.
4. Registration on Form S-3. The Company shall use its best efforts to
qualify for registration on Form S-3 or any comparable or successor form; and to
that end the Company shall register (whether or not required by law to do so)
the Common Stock under the Exchange Act in accordance with the provisions of the
Exchange Act following the effective date of the first registration of any
securities of the Company on Form S-1 or any comparable or successor form. After
the Company has qualified for the use of Form S-3, in addition to the rights
contained in Section 2 hereof, the Stockholders shall have the right to request
an unlimited number of registrations on Form S-3 (such requests shall be in
writing and shall state the number of shares of Registrable Shares to be
disposed of and the intended methods of disposition of such shares by such
Stockholder or Stockholders), provided that in no event shall the Company be
required to register shares with an aggregate market value of less than Three
Million Dollars ($3,000,000) and the Company shall not be required to register
Shares under this Section 4 more than twice in any twelve (12) month period.
5. Obligations of the Company.
(a) Whenever required under Sections 2 or 3 hereof to use its
best efforts to effect the registration of any Registrable Shares, the Company
shall:
(1) Prepare and file with the Commission a registration
statement with respect to such Registrable Shares and use its best
efforts to cause such registration statement to become and remain
effective, including, without limitation, filing of post-effective
amendments and supplements to any registration statement or prospectus
necessary to keep the registration statement current;
(2) as expeditiously as reasonably possible, prepare and file
with the Commission 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 Securities 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 Securities Act) by such actions as may be necessary
or appropriate for a period of up to 180 days (if, in the reasonable
discretion of the Stockholders owning securities covered by such
registration statement, such period of time is necessary for the
successful completion of
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<PAGE>
the offering of such securities) after the effective date of such
registration statement, all as requested by such Stockholders;
(3) as expeditiously as reasonably possible furnish to the
Stockholders such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Shares owned by
them;
(4) as expeditiously as reasonably possible use its best
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 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;
(5) use its best efforts to cause all Registrable Shares
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition or such Registrable Shares;
(6) notify each seller of Registrable Shares covered by such
registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities 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, and at the request of any such seller or
Stockholders promptly prepare to furnish to such seller or Stockholders
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;
(7) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as
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<PAGE>
reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen 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 Securities Act, and will furnish to
each such seller of Registrable Shares at least two (2) business days
prior to the filing thereof a copy of any post-effective 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 Securities Act or of the rules or
regulations thereunder;
(8) provide and cause to be maintained a transfer agent and
registrar for all Registrable Shares covered by such registration
statement from and after a date not later than the effective date of
such registration statement; and
(9) use its best efforts to list all Registrable Shares
covered by such registration statement on any securities exchange on
which any class of Registrable Shares is then listed.
(b) The Company will furnish to each Stockholder on whose
behalf Registrable Shares have been registered pursuant to this Agreement a
signed counterpart, addressed to such Stockholder, an opinion of counsel for the
Company dated the effective date of such registration statement, and such
opinion of counsel shall cover those matters which are customarily covered in
opinions of issuer's counsel delivered to underwriters in connection with
underwritten public offerings of securities.
(c) To the extent then permitted under applicable professional
guidelines and standards, obtain a comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by comfort letters and an opinion from the Company's counsel
in customary form and covering such matters of the type customarily covered in a
public issuance of securities, in each case addressed to the Stockholder, and
provide copies thereof to the Stockholders;
(d) Except as otherwise set forth in Section 3, if the Company
at any time proposes to register any of its equity securities under the
Securities Act, whether or not for sale for its own account, 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 Stockholder who requests
registration of Registrable Shares in connection therewith pursuant to Section 2
or 3 hereof, to arrange for such underwriters to include such Registrable Shares
among the securities to be distributed by or through such underwriters.
(e) In connection with the preparation and filing of each
registration statement registering Registrable Shares under this Agreement, the
Company will give the Stockholders on
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<PAGE>
whose behalf such Registrable Shares are to be so registered and 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 Commission, 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 necessary, in the
opinion of such Stockholders or such underwriters or their respective counsel,
in order to conduct a reasonable and diligent investigation within the meaning
of the Securities Act.
6. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the Stockholders shall furnish to the Company such information regarding them,
the Registrable Shares held by them, 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.
7. Expenses of Registration. All expenses incurred in connection with a
registration pursuant to Sections 2 or 3 hereof (excluding underwriters'
discounts and commissions, which shall be borne by the sellers), 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 Stockholders
(which counsel shall be selected by a majority in interest of such Stockholders)
shall be borne by the Company; provided, however, that the Stockholders
requesting a demand registration pursuant to Sections 2(a) or 2(b) may withdraw
such request, in which event so long as such Stockholders agree to pay all
expenses incurred by the Company in connection with such requested registration,
such withdrawn request shall be deemed for all purposes herein not to have been
made.
8. Underwriting Requirements. In connection with any registration of
Registrable Shares under this Agreement, the Company will, if requested by the
underwriters for any Registrable Shares 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. The
Stockholders on whose behalf Registrable Shares 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 Stockholders. The Company shall use its reasonable best
efforts to cause the underwriting agreement to comply with Section 9 to this
Agreement.
9. Indemnification. In the event any Registrable Shares are included in
a registration statement as provided in this Agreement:
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<PAGE>
(a) To the fullest extent permitted by law, the Company will
indemnify and hold harmless each Stockholder requesting or joining in a
registration, any underwriter (as defined in the Securities Act) for
it, and each person, if any, who controls such Stockholder or such
underwriter within the meaning of the Securities 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 Securities 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 therein not misleading, or
arise out of any alleged violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration; provided, however, that the
indemnity agreement contained in this Section 9(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 Stockholder, underwriter or control person.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Stockholder, underwriter or
control person and shall survive the transfer of such securities by
such Stockholder.
(b) To the fullest extent permitted by law, each Stockholder
requesting or joining in a registration will indemnify and hold
harmless the Company, as the case may be, 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 Securities
Act, and each agent and any underwriter for the Company and any person
who controls any such agent or underwriter and each other Stockholder
and any person who controls such Stockholder (within the meaning of the
Securities Act) against any losses, claims, damages or liabilities to
which the Company or any such director, officer, control person, agent,
underwriter, or other Stockholder may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) 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
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<PAGE>
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, preliminary or final
prospectus, or amendments or supplements thereto, in reliance upon and
in conformity with written information furnished by such Stockholder
with respect to such Stockholder expressly for use in connection with
such registration; and such Stockholder will reimburse any legal or
other expenses reasonably incurred by the Company or any such director,
officer, control person, agent, underwriter, or other Stockholder in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided however, the indemnity obligation
of each such Stockholder hereunder shall be limited to and shall not
exceed the net proceeds actually received by such Stockholder upon a
sale of Registrable Shares pursuant to a registration statement
hereunder; and provided, further that the indemnity agreement contained
in this Section 9(b) shall not apply to amounts paid in settlements
effected without the consent of such Stockholder (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, Stockholder, underwriter
or control person and shall survive the transfer of such securities by
such Stockholder.
(c) Any person seeking indemnification under this Section 9
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, unless
the indemnifying party is materially 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.
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<PAGE>
(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 9,
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 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.
10. Lock-Up Agreement. If required by the underwriter, each Stockholder
agrees not to sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company 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 such period (not to exceed 180 days if such
registration is the Company's initial public offering and not to exceed 90 days
if such registration is other than the Company's initial public offering) as is
acceptable to the underwriter following the effective date of each registration
statement of the Company filed under the Securities Act which includes
securities to be sold to the public in an underwritten offering. The Company may
impose stop transfer instructions with respect to the shares (or securities)
subject to the foregoing restriction until the end of said period.
11. No Inconsistent Agreements. The Company agrees that it has not
entered into, and it will not hereafter enter into, any Agreement with respect
to the registration of its securities that is inconsistent with (or superior to)
the rights granted to the Stockholders in this Agreement.
12. Stock Split. If, on or after the receipt by the Company of a
request for registration of a public offering pursuant to Section 2 hereof, the
proposed managing underwriter or underwriters of such offering reasonably
believes that the number of shares to be registered is less than the minimum
number necessary for the success of such offering, the Company shall use its
best efforts to cause each share of its outstanding Common Stock to be converted
into such number of shares of such Common Stock so that the number of shares of
Registrable Shares to be registered is equal to the minimum number which such
managing underwriter or underwriters reasonably believes is necessary for the
success of such offering. If necessary in connection therewith, the Company
shall use its best efforts to cause to be recommended, approved and adopted by
its Board of Directors and approved and adopted by its stockholders, and, if so
approved and adopted, file and cause to become effective, an amendment to its
certificate of incorporation increasing the number of shares of Common Stock
which the Company is authorized to issue. Each Stockholder hereby agrees to vote
the shares of Common Stock held by it in favor of adopting such amendment.
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<PAGE>
13. Rule 144 Requirements. After the earlier of (i) the closing of the
sale of securities of the Company pursuant to a Registration Statement or (ii)
the registration by the Company of a class of securities under Section 12 of the
Exchange Act, the Company agrees:
(a) to comply with the requirements of Rule 144(c) under the
Securities Act with respect to current public information about the Company;
(b) to use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) to furnish to any holder of Registrable Shares upon
request (i) a written statement by the Company as to its compliance with the
requirements of said Rule 144(c), and the reporting requirements of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), (ii) a copy of the most recent annual or quarterly
report of the Company, and (iii) such other reports and documents of the Company
as such holder may reasonably request to avail itself of any similar rule or
regulation of the Commission allowing it to sell any such securities without
registration.
14. Mergers, Etc. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company under this Agreement, and for that purpose
references hereunder to "Registrable Shares" shall be deemed to be references to
the securities which the Stockholders would be entitled to receive in exchange
for Registrable Shares under any such merger, consolidation or reorganization;
provided, however, that the provisions of this Section 14 shall not apply in the
event of any merger, consolidation or reorganization in which the Company is not
the surviving corporation if the Stockholders are entitled to receive in
exchange for their Registrable Shares consideration consisting solely of (i)
cash, (ii) securities of the acquiring corporation which may be immediately sold
to the public without registration under the Securities Act, or (iii) securities
of the acquiring corporation which the acquiring corporation has agreed to
register within (90) days of completion of the transaction for resale to the
public pursuant to the Securities Act.
15. Exception to Registration. The Company shall not be required to
effect a registration under this Agreement if (i) in the written opinion of
counsel for the Company, which counsel and the opinion so rendered shall be
reasonably acceptable to the Stockholders holding Registrable Shares, such
Stockholders may sell without registration under the Act all Registrable Shares
for which they requested registration under the provisions of the Act and in the
manner and in the quantity in which the Registrable Shares were proposed to be
sold or (ii) if the Company determines in its good faith judgment that the use
of any prospectus would require the disclosure of material information that the
Company has a bona fide business purpose for preserving as confidential or the
disclosure of which would impede the Company's ability to
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<PAGE>
consummate a transaction which the Company is not otherwise required by
applicable securities laws or regulations to disclose, upon written notice of
such determination by the Company, the rights of the Stockholders to offer, sell
or distribute any Registrable Shares or to require the Company to take action
with respect to the registration or sale of any Registrable Shares pursuant to
this Agreement shall be suspended until the date upon which the Company notifies
the Stockholders in writing (the "Suspension Termination Notice") that
suspension of such rights for the grounds set forth in this Section 15 is no
longer necessary. The Company agrees to give Suspension Termination Notice as
promptly as practicable following the date that such suspension of rights is no
longer necessary (but in any event any such suspension shall be effective for a
period not in excess of 180 days in any calendar year). If the Company shall
give any Suspension Termination Notice, the time periods set forth in Section 2
above shall be extended by the number of days during which the period from and
including the date of the giving of such notice of suspension to and including
the date the Company delivers the Suspension Termination Notice.
The Stockholders each agree not to offer, sell, contract to sell or
otherwise dispose of any Registrable Shares, or any securities convertible into
or exchangeable or excisable for such securities during any period when, and to
the same extent that, any officers of the Company are restricted in connection
with an offering of securities by the Company. The Company shall give reasonable
advance notice to each such Stockholder of such offering.
16. Listing Application. If shares of any class of stock of the Company
shall be listed on a national securities exchange, the Company shall, at its
expense, include in its listing application all of the shares of the listed
class then eligible for listing owned by any Stockholder.
17. Damages. The Company recognizes and agrees that the holder of
Registrable Shares shall not have an adequate remedy if the Company fails to
comply with the provisions of this Agreement, and that damages will not be
readily ascertainable, and the Company expressly agrees that in the event of
such failure any Stockholder shall be entitled to seek specific performance of
the Company's obligations hereunder.
18. Termination. All of the Company's obligations to register
Registrable Shares under this Agreement shall terminate on the fifteenth
anniversary of this Agreement.
19. Transfers of Rights. This Agreement, and the rights and obligations
of each Stockholder hereunder, may be assigned by such Stockholder to any person
or entity acquiring Registrable Shares owned by such Stockholder, and such
transferee shall be deemed a "Stockholder" for purposes of this Agreement. Any
Registrable Shares owned by a transferee hereunder who acquired such Registrable
Shares pursuant to a Permitted Transfer (as such term is defined in the
Company's Stockholders' Agreement), shall be deemed to be owned, for all
purposes of this Agreement, by a member of the Stockholder group of which the
transferring Stockholder is or was a member.
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<PAGE>
20. General.
(a) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company or a Berkshire Investor, c/o Berkshire Partners LLC,
One Boston Place, Boston, Massachusetts 02108, Attention: Richard K. Lubin, or
at such other address or addresses as may have been furnished in writing by the
Company to the Stockholders, with a copy to Hutchins, Wheeler & Dittmar, A
Professional Corporation, 101 Federal Street, Boston, Massachusetts 02110,
Attention: James Westra, Esq.
If to a Management Stockholder, at such address or addresses as may
have been furnished to the Company in writing by such Management Stockholder,
with a copy to Posternak, Blankstein & Lund, L.L.P. 100 Charles River Plaza,
Boston, Massachusetts 02114, Attention:
Donald H. Siegel, P.C.
If to an Other Stockholder, at the address set forth on Schedule 3
hereto.
Notices provided in accordance with this Section 20(a) shall be deemed
delivered upon personal delivery or two (2) business days after deposit in the
mail.
(b) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
(c) Amendments and Waivers. Neither this Agreement nor any
provision hereof may be waived, modified, amended or terminated except by a
written agreement signed by the parties hereto; provided, however, that
Stockholders owning at least 80% of the Registrable Shares owned by all
Stockholders may effect any such waiver, modification, amendment or termination
on behalf of all of the Stockholders; provided, further, that, without the
consent of all parties to this Agreement who own Registrable Shares, no
amendment or addition to this Agreement may be made which (i) modifies this
Section 20(c) or (ii) would affect the holders of Registrable Shares in a
disproportionate manner; and provided, further, that no amendment or addition to
this Agreement which affects any Stockholder's rights under Section 2 or 3
hereof may be made without the consent of such Stockholder. For purposes hereof,
the term "disproportionate manner" shall refer to any event which would impair
the rights of one Stockholder while not impairing similar rights held by another
Stockholder. No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
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<PAGE>
(d) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall be one and the same document.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the law of The Commonwealth of Massachusetts
(regardless of the laws that might otherwise govern under applicable
Massachusetts principles of conflicts of law) as to all matters, including, but
not limited to, matters of validity, construction, effect, performance and
remedies.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
HOLMES PRODUCTS CORP.
REGISTRATION RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first written above.
COMPANY:
HOLMES PRODUCTS CORP.
/s/ Jordan A. Kahn
----------------------------------
Name: Jordan A. Kahn
Title: President
ASCO:
ASCO INVESTMENT LTD.
By: /s/ James B. Carlson
------------------------------
Name: James B. Carlson
Title: Attorney-In-Fact
S-1
<PAGE>
HOLMES PRODUCTS CORP.
REGISTRATION RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
BERKSHIRE INVESTORS:
BERKSHIRE FUND IV, L.P.
By: Fourth Berkshire Associates, L.L.C.
By: /s/ Richard K. Lubin
----------------------------------
Name: Richard K. Lubin
Title: Managing Member
BERKSHIRE INVESTORS LLC
By: /s/ Richard K. Lubin
----------------------------------
Name: Richard K. Lubin
Title: Managing Member
FSC CORP.
By: /s/ Mary Josephs Reilly
----------------------------------
Name: Mary Josephs Reilly
Title: Vice President
BAIN SECURITIES, INC.
By: /s/ Gary Wilkinson
----------------------------------
Name: Gary Wilkinson
Title: Treasurer
SQUAM LAKE INVESTORS II, L.P.
By: GPI, Inc., its General Partner
By: /s/ Gary Wilkinson
----------------------------------
Name: Gary Wilkinson
Title: Treasurer
S-2
<PAGE>
HOLMES PRODUCTS CORP.
REGISTRATION RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
BERKSHIRE INVESTORS (continued):
THE PANGAEA GROUP, INC.
By: /s/ Gordon Pan
----------------------------------
Name: Gordon Pan
Title: President
S-3
<PAGE>
HOLMES PRODUCTS CORP.
REGISTRATION RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
MANAGEMENT STOCKHOLDERS:
/s/ Jordan A. Kahn
----------------------------------
Jordan A. Kahn
/s/ Stanley Rosenzweig
---------------------------------
Stanley Rosenzweig
/s/ Gregory F. White
---------------------------------
Gregory F. White
/s/ Liu Woon Fai
---------------------------------
Liu Woon Fai
S-4
HOLMES PRODUCTS CORP.
1997 STOCK OPTION PLAN
1. Purpose of the Plan. This stock option plan (the "Plan") is intended
to provide incentives: (a) to the officers and other employees of Holmes
Products Corp., a Massachusetts corporation (the "Company"), and any present or
future subsidiaries of the Company by providing them with opportunities to
purchase stock in the Company pursuant to options granted hereunder which
qualify as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); and (b) to officers,
directors, employees, consultants and other key persons of the Company and any
present or future subsidiaries of the Company by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified
Options"). As used herein, the terms "parent" and "subsidiary" mean "parent
corporation" and "subsidiary corporation," respectively, as those terms are
defined in Section 424 of the Code and the Treasury Regulations promulgated
thereunder (the "Regulations").
2. Stock Subject to the Plan.
(a) The total number of shares of the authorized but unissued shares of
the common stock, no par value, of the Company ("Common Stock") for which
options may be granted under the Plan shall not exceed 73.86833 shares, subject
to adjustment as provided in Section 11 hereof.
(b) If an option granted hereunder shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares subject
thereto shall again be available for subsequent option grants under the Plan.
(c) Stock issuable upon exercise of an option granted under the Plan
may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Committee (as defined in Section 3
below).
3. Administration of the Plan. At the discretion of the Company's Board
of Directors, the Plan shall be administered by the Board of Directors or by a
committee (the "Committee") consisting of two or more members of the Company's
Board of Directors, to whom the Board of Directors may (except as provided in
Section 4 hereof) delegate its authority hereunder. In the event that the Board
of Directors is the administrator of the Plan, reference herein to the Committee
shall be deemed to include the Board of Directors. The decisions of the
Committee as to all questions of interpretation and application of the Plan
shall be final, binding and conclusive on all persons. The Committee shall have
the authority to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any option agreement granted hereunder in the manner and to the
extent it shall deem expedient to carry the Plan into effect and shall be the
sole and final judge of
<PAGE>
such expediency. No Committee member shall be liable for any action or
determination made in good faith.
If any such Committee is appointed, the Board may from time to time
appoint a member or members of the Committee in substitution for or in addition
to the member or members then in office and may fill vacancies on the Committee
however caused. The Committee shall choose one of its members as Chairman and
shall hold meetings at such times and places as it shall deem advisable. A
majority of the members of the Committee shall constitute a quorum and any
action may be taken by a majority of those present and voting at any meeting.
Any action may also be taken without the necessity of a meeting by a written
instrument signed by a majority of the Committee.
4. Eligibility.
(a) Options designated as ISOs may be granted only to key employees
(including officers who are also employees) of the Company or any of its
subsidiaries, including subsidiaries which become such after the adoption of
this Plan. Non-Qualified Options may be granted to any director, officer,
employee, consultant or key person (including, without limitation, prospective
employees) of the Company or of any of its subsidiaries, including subsidiaries
which become such after the adoption of this Plan.
(b) In determining the eligibility of an individual to be granted an
option, as well as in determining the number of shares to be optioned to any
individual, the Board of Directors shall take into account the position and
responsibilities of the individual being considered, the nature and value to the
Company or its subsidiaries of his or her service and accomplishments, his or
her present and potential contribution to the success of the Company or its
subsidiaries, and such other factors as the Board of Directors may deem
relevant.
(c) No option designated as an ISO shall be granted to any employee of
the Company or any subsidiary if such employee owns, immediately prior to the
grant of an option, stock representing more than 10% of the total combined
voting power of all classes of stock of the Company or a parent or a subsidiary,
unless the purchase price for the stock under such option shall be at least 110%
of its fair market value at the time such option is granted and the option, by
its terms, shall not be exercisable more than five years from the date it is
granted. In determining the stock ownership under this paragraph, the provisions
of Section 424(d) of the Code shall be controlling. In determining the fair
market value under this paragraph, the provisions of Section 6 hereof shall
apply.
(d) The maximum number of shares of the Company's Common Stock with
respect to which an option or options may be granted to any employee in any one
taxable year of the Company shall not exceed 50.00000 shares, taking into
account shares granted during such taxable year under options that are
terminated or repriced, and subject to adjustment under Section 11 hereof.
-2-
<PAGE>
(e) To the extent that any portion of an option designated as an ISO
hereunder shall fail to qualify as such, such portion shall thereafter be deemed
to constitute a Non-Qualified Option.
5. Option Agreement. Each option shall be evidenced by an option
agreement (the "Agreement") duly executed on behalf of the Company and by the
optionee to whom such option is granted, which Agreement shall comply with and
be subject to the terms and conditions of the Plan. The Agreement may contain
such other terms, provisions and conditions which are not inconsistent with the
Plan as may be determined by the Board of Directors, provided that options
designated as ISOs shall meet all of the conditions for ISOs as defined in
Section 422 of the Code. The date of grant of an option shall be as determined
by the Board of Directors. More than one option may be granted to an individual.
6. Exercise Price. The exercise price or prices of shares of the
Company's Common Stock for options designated as Non-Qualified Options shall be
as determined by the Board of Directors. The exercise price or prices of shares
of the Company's Common Stock for ISOs shall be the fair market value of such
Common Stock at the time the option is granted as determined by the Board of
Directors in accordance with the Regulations promulgated under Section 422 of
the Code. If such shares are then listed on any national securities exchange,
the fair market value shall be the mean between the high and low sales prices on
such exchange on the business day immediately preceding the date of the grant of
the option or, if no sales were reported, on the nearest date preceding the
grant date for which sales were reported. If the shares are not then listed on
any such exchange, the fair market value of such shares shall be the mean
between the high and low sales prices as reported on the Nasdaq National Market
for the business day immediately preceding the date of the grant of the option,
or, if no sales were reported, on the nearest date preceding the grant date for
which sales were reported. If the shares are not then either listed on any such
exchange or quoted on the Nasdaq National Market, the fair market value shall be
the mean between the average of the "Bid" and the average of the "Ask" prices as
reported on the Nasdaq system for the business day immediately preceding the
date of the grant of the option, or, if no such prices were reported, on the
nearest date preceding the grant date for which such prices were reported. If
the fair market value cannot be determined under the preceding three sentences,
it shall be determined in good faith by the Board of Directors.
7. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options, (ii) shares of
Common Stock of the Company owned by the optionee for at least six (6) months
having a fair market value (determined in accordance with the provisions of
Section 6 hereof, as applicable) equal in amount to the exercise price of the
options being exercised, or (iii) any combination of (i) and (ii), provided,
however, that the payment of the exercise price by delivery of shares of capital
stock of the Company owned by such optionee may be made only if such payment
does not result in a charge to earnings of the Company for financial accounting
purposes as determined by the Committee.
-3-
<PAGE>
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Payment in full of the
option exercise price need not accompany the written notice of exercise provided
the notice directs that the certificate or certificates for the shares for which
the option is being exercised be delivered to a securities broker acceptable to
the Company as the agent for the person exercising the option and, at the time
such certificate or certificates are delivered, the broker tenders to the
Company cash (or cash equivalents acceptable to the Company) equal to the option
exercise price plus the amount (if any) of federal and/or other taxes that the
Company may, in its judgment, be required to withhold with respect to the
exercise of the option.
8. Exercise of Options. Subject to the provisions of paragraphs 9
through 11, each option granted under the Plan shall be exercisable as follows:
(a) Vesting. The option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as provided
for in the Option Agreement executed pursuant to Section 5 hereof.
(b) Full Vesting of Installments. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
option, unless otherwise specified by the Board of Directors.
(c) Partial Exercise. Each option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total number
of shares with respect to which it is then exercisable.
(d) Acceleration of Vesting. The Board of Directors shall have the
right at any time to accelerate the vesting of any installment of any option;
provided that the Board of Directors shall not, without the consent of an
optionee, accelerate the exercise date of any installment of any option granted
to any employee as an ISO if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code.
9. Term of Options; Exercisability.
(a) Term. Each option shall expire not more than ten (10) years from
the date of the granting thereof, but shall be subject to earlier termination as
may be provided in the Agreement.
(b) Exercisability. Except as otherwise provided in the Agreement or by
the Board of Directors at any time, an option granted to an employee optionee
who ceases to be an employee of the Company or one of its subsidiaries shall be
exercisable only to the extent that the right to purchase shares under such
option has accrued and is in effect on the date such optionee ceases to
-4-
<PAGE>
be an employee of the Company or one of its subsidiaries. The Agreement may
specify a period or periods of time following such termination of employment
within which the option may be exercised.
10. Options Not Transferable. Except as otherwise provided by the Board
of Directors at any time, the right of any optionee to exercise any option
granted to him or her shall not be assignable or transferable by such optionee
otherwise than by will or the laws of descent and distribution or the rules
thereunder, and any such option shall be exercisable during the lifetime of such
optionee only by the optionee. Except as otherwise provided by the Board of
Directors at any time, any option granted under the Plan shall be null and void
and without effect upon the bankruptcy of the optionee to whom the option is
granted, or upon any attempted assignment or transfer, except as herein
provided, including without limitation any purported assignment, whether
voluntary or by operation of law, pledge, hypothecation or other disposition,
attachment, divorce, trustee process or similar process, whether legal or
equitable, upon such option.
11. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to options granted to him or her hereunder shall
be adjusted as hereinafter provided, unless otherwise specifically provided in
the written agreement between the optionee and the Company relating to such
option:
(a) Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) Consolidations or Mergers. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or substantially all
of the Company's assets or otherwise (an "Acquisition"), the Board of Directors
or the board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding options, either (i)
make appropriate provision for the continuation of such options by substituting
on an equitable basis for the shares then subject to such options the
consideration then payable with respect to the outstanding shares of Common
Stock in connection with the Acquisition; or (ii) upon written notice to the
optionees, provide that all options must be exercised, to the extent then
exercisable, within a specified number of days of the date of such notice, at
the end of which period the options shall terminate; or (iii) terminate all
options in exchange for a cash payment equal to the excess of the fair market
value of the shares subject to such options (to the extent then exercisable)
over the exercise price thereof.
(c) Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph (b) above) pursuant to which securities of the Company
or of another corporation are issued with respect to
-5-
<PAGE>
the outstanding shares of Common Stock, an optionee upon exercising an option
shall be entitled to receive for the purchase price paid upon such exercise the
securities he would have received if he had exercised his option prior to such
recapitalization or reorganization.
(d) Modification of ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs (a), (b) or (c) with respect to ISOs
shall be made only after the Board of Directors, after consulting with counsel
for the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the Code)
or would cause any adverse tax consequences for the holders of such ISOs. If the
Board of Directors determines that such adjustments made with respect to ISOs
would constitute a modification of such ISOs, it may refrain from making such
adjustments.
(e) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the Board of
Directors, provided that prior to such dissolution or liquidation, the vesting
of any option shall automatically accelerate as if such dissolution or
liquidation is deemed to be a Change of Control. For purposes of this Plan, a
"Change in Control" shall be deemed to have occurred if any person, or any two
or more persons acting as a group, and all affiliates of such person or persons,
who prior to such time owned shares representing less than fifty percent (50%)
of the voting power at elections for the Board of Directors of the Company,
shall acquire, whether by purchase, exchange, tender offer, merger,
consolidation or otherwise, such additional shares of the Company's capital
stock in one or more transactions, or series of transactions, such that
following such transaction or transactions, such person or group and affiliates
beneficially own fifty percent (50%) or more of the voting power at elections
for the Board of Directors of the Company.
(f) Issuances of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
(g) Fractional Shares. No fractional shares shall be issued under the
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
(h) Adjustments. Upon the happening of any of the events described in
subparagraphs (a), (b) or (c) above, the class and aggregate number of shares
set forth in Section 2 hereof that are subject to options which previously have
been or subsequently may be granted under the Plan shall also be appropriately
adjusted to reflect the events described in such subparagraphs. The Board of
Directors or the Successor Board shall determine the specific adjustments to be
made under this paragraph 11 and, subject to Section 3, its determination shall
be conclusive.
-6-
<PAGE>
If any person or entity owning restricted Common Stock obtained by
exercise of an option made hereunder receives shares or securities or cash in
connection with a corporate transaction described in subparagraphs (a), (b) or
(c) above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Board of
Directors or the Successor Board.
12. No Special Employment Rights. Nothing contained in the Plan or in
any option granted under the Plan shall confer upon any option holder any right
with respect to the continuation of his employment by the Company (or any
subsidiary) or interfere in any way with the right of the Company (or any
subsidiary), subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of the option holder from the rate in existence at the time of
the grant of an option.
13. Withholding. The Company's obligation to (i) deliver shares upon
the exercise of any option granted under the Plan or (ii) make payments under
Section 11 hereof, shall be subject to the option holder's satisfaction of all
applicable Federal, state and local income, excise and employment tax
withholding requirements. The Company and employee may agree to withhold shares
of capital stock purchased upon exercise of an option to satisfy the
above-mentioned withholding requirements.
14. Restrictions on Issue of Shares.
(a) Notwithstanding the provisions of Section 7, the Company may delay
the issuance of shares covered by the exercise of an option and the delivery of
a certificate for such shares until one of the following conditions shall be
satisfied:
(i) The shares with respect to which such option has been
exercised are at the time of the issue of such shares effectively registered or
qualified under applicable Federal and state securities acts now in force or as
hereafter amended; or
(ii) Counsel for the Company shall have given an opinion,
which opinion shall not be unreasonably conditioned or withheld, that such
shares are exempt from registration and qualification under applicable Federal
and state securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be effective,
and the Company shall use its best efforts to bring about compliance with the
above conditions within a reasonable time, except that the Company shall be
under no obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any option may be
exercised, except as otherwise agreed to by the Company in writing.
-7-
<PAGE>
15. Purchase for Investment; Rights of Holder on Subsequent
Registration. Unless the shares to be issued upon exercise of an option granted
under the Plan have been effectively registered under the Securities Act of
1933, as now in force or hereafter amended, the Company shall be under no
obligation to issue any shares covered by any option unless the person who
exercises such option, in whole or in part, shall give a written representation
and undertaking to the Company which is satisfactory in form and scope to
counsel for the Company and upon which, in the opinion of such counsel, the
Company may reasonably rely, that he or she is acquiring the shares issued
pursuant to such exercise of the option for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the Securities Act of 1933, or any other applicable law, and
that if shares are issued without such registration, a legend to this effect may
be endorsed upon the securities so issued. In the event that the Company shall,
nevertheless, deem it necessary or desirable to register under the Securities
Act of 1933 or other applicable statutes any shares with respect to which an
option shall have been exercised, or to qualify any such shares for exemption
from the Securities Act of 1933 or other applicable statutes, then the Company
may take such action and may require from each optionee such information in
writing for use in any registration statement, supplementary registration
statement, prospectus, preliminary prospectus or offering circular as is
reasonably necessary for such purpose and may require reasonable indemnity to
the Company and its officers and directors and controlling persons from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission 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.
16. Loans. The Company may make loans to optionees to permit them to
exercise options. If loans are made, the requirements of all applicable Federal
and state laws and regulations regarding such loans must be met.
17. Approval of Stockholders. The Plan shall be subject to approval by
the vote of stockholders holding at least a majority of the voting stock of the
Company voting in person or by proxy at a duly held stockholders' meeting, or by
written consent of stockholders holding at least a majority of the voting stock
of the Company, prior to or within twelve (12) months after the adoption of the
Plan by the Board of Directors and shall take effect as of the date of adoption
by the Board of Directors upon such approval. The Board of Directors may grant
options under the Plan prior to such approval, but any such option shall become
effective as of the date of grant only upon such approval and, accordingly, no
such option may be exercisable prior to such approval.
18. Termination and Amendment. Unless sooner terminated as herein
provided, the Plan shall terminate ten (10) years from the date upon which the
Plan was duly adopted by the Board of Directors of the Company. The Board of
Directors may at any time terminate the Plan
-8-
<PAGE>
or make such modification or amendment thereof as it deems advisable; provided,
however, that except as provided in this Section 18, the Board of Directors may
not, without the approval of the stockholders of the Company obtained in the
manner stated in Section 17, increase the maximum number of shares for which
options may be granted or change the designation of the class of persons
eligible to receive options under the Plan. The Board of Directors may grant
options hereunder after an amendment to the Plan by the Board of Directors
requiring shareholder approval under this Section 18, but any such option shall
become effective as of the date of grant only upon such approval and,
accordingly, no such option may be exercisable prior to such approval. The Board
of Directors may terminate, amend or modify any outstanding option with or
without the consent of the option holder, provided, however, that, except as
provided in Section 11, without the consent of the optionee, the Board of
Directors shall not change the number of shares subject to an option, nor the
exercise price thereof, nor extend the term of such option.
19. Reservation of Stock. The Company shall at all times during the term
of the Plan reserve and keep available such number of shares of stock as will be
sufficient to satisfy the requirements of the Plan and shall pay all fees and
expenses necessarily incurred by the Company in connection therewith.
20. Limitation of Rights in the Option Shares. An optionee shall not be
deemed for any purpose to be a shareholder of the Company with respect to any of
the options except to the extent that the option shall have been exercised with
respect thereto, the exercise price shall have been paid in full, the optionee
shall have complied with all applicable provisions of the Plan and Agreement
pursuant to which such option was granted and, in addition, a certificate shall
have been issued theretofore and delivered to the optionee.
21. Notices. Any communication or notice required or permitted to be
given under the Plan shall be in writing, and mailed by registered or certified
mail or delivered by hand, if to the Company, to its principal place of
business, attention: President, and, if to an optionee, to the address as
appearing on the records of the Company.
Adopted by the Board of Directors: November 26, 1997
Adopted by the Stockholders: November 26, 1997
* * *
-9-
Exhibit 12.1
<TABLE>
<CAPTION>
Holmes Products Corp.
Computation of Ratio of Earnings to Fixed Charges
Dollars in thousands, except for Ratio
Nine Months Pro Forma
Year ended December 31, Ended September 30, Twelve Months
---------------------------------------------------- -------------------------- ended
Pro forma Pro forma September 30,
1992 1993 1994 1995 1996 1996(1) 1996 1997 1997(1) 1997(1)
------ ------ ------- ------- ------- -------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income
taxes and minority interest (2) $2,921 $2,956 $7,730 $6,370 $9,416 $3,821 $3,493 $4,490 $ (56) $5,203
Fixed charges:
Interest expense and amortization
of debt discount on all
indebtedness $ 980 $1,215 $2,104 $5,231 $6,570 $14,798 $5,072 $4,850 $10,828 $14,372
Portion of rental expense
representing interest 194 270 567 813 1,021 1,021 684 613 613 1,028
------ ------ ------- ------- ------- -------- ------- ------ -------- -------
Total fixed charges, as defined $1,174 $1,485 $ 2,671 $ 6,044 $ 7,591 $ 15,819 $ 5,756 $5,463 $ 11,441 $15,400
------ ------ ------- ------- ------- -------- ------- ------ -------- -------
Income before income taxes, minority
interest and fixed charges, as
defined $4,095 $4,441 $10,401 $12,414 $17,007 $ 19,640 $ 9,249 $9,953 $ 11,385 $20,603
------ ------ ------- ------- ------- -------- ------- ------ -------- -------
Ratio of earnings to fixed charges 3.5 3.0 3.9 2.1 2.2 1.2 1.6 1.8 1.0 1.3
====== ====== ======= ======= ======= ======== ======= ====== ======== =======
</TABLE>
(1) The Pro Forma amounts reflect the ratio of earnings to fixed charges as if
the transactions and employment agreements described in the Prospectus
comprising part of this Registration Statement had been entered into at the
beginning of the periods presented.
(2) The minority interest is in a subsidiary with fixed charges.
EXHIBIT 21.1
------------
SUBSIDIARIES OF REGISTRANT
--------------------------
I. Holmes Products Corp., the registrant
a. Holmes Manufacturing Corp., a Massachusetts corporation
b. Holmes Air (Taiwan) Corp., a Massachusetts corporation
c. Holmes Air (Canada) Corp., an Ontario corporation
d. Holmes Products (Far East) Limited, a Bahamas corporation
i) Esteem Industries Limited, a Hong Kong corporation
1) Dongguan Huixin Electrical Products Co. Ltd.,
a People's Republic of China corporation
ii) Raider Motor Corporation, a Bahamas corporation
1) Dongguan Raider Motor Corporation Ltd., a People's
Republic of China corporation
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of our report dated March 18, 1997, except as
to the first paragraph of Note 15 which is as of June 4, 1997 and the second
paragraph of Note 15 which is as of November 26, 1997, relating to the
consolidated financial statements of Holmes Products Corp., which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the three years ended December 31, 1996 shown
under Item 21(b) of this Registration Statement when such schedule is read in
conjunction with the financial statements referred to in our report. The audits
referred to in such report also included this schedule. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Boston, Massachusetts
January 16, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
----------------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b) (2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-186-7445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq., Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
--------------------------
(Exact name of obligor as specified in its charter)
MASSACHUSETTS 04-276-8914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
233 FORTUNE BOULEVARD
MILFORD, MASSACHUSETTS 01757
(Address of principal executive offices) (Zip Code)
9-7/8% SENIOR SUBORDINATED NOTES, SERIES B
(Title of indenture securities)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY
TO WHICH IT IS SUBJECT.
Department of Banking and Insurance of The
Commonwealth of Massachusetts, 100 Cambridge
Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance
Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or
of its parent, State Street Corporation. References
to the "obligor" herein shall be deemed to mean
Holmes Products Corp.
(See note on page 4.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW
IN EFFECT.
A copy of the Articles of Association of the
trustee, as now in effect, is on file with the
Securities and Exchange Commission as Exhibit 1 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by
reference thereto.
2
<PAGE>
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO
COMMENCE BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF
ASSOCIATION.
A copy of a Statement from the Commissioner of
Banks of Massachusetts that no certificate of
authority for the trustee to commence business was
necessary or issued is on file with the Securities
and Exchange Commission as Exhibit 2 to Amendment
No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by
reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE
CORPORATE TRUST POWERS, IF SUCH AUTHORIZATION IS NOT
CONTAINED IN THE DOCUMENTS SPECIFIED IN PARAGRAPH (1) OR
(2), ABOVE.
A copy of the authorization of the trustee to
exercise corporate trust powers is on file with the
Securities and Exchange Commission as Exhibit 3 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by
reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in
effect, is on file with the Securities and Exchange
Commission as Exhibit 4 to the Statement of
Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE
OBLIGOR IS IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED
BY SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section
321(b) of the Act is annexed hereto as Exhibit 6
and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE
PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS OF ITS
SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the
trustee published pursuant to law or the
requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a
part hereof.
3
<PAGE>
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 7th of January, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Andrew M. Sinasky
--------------------------------
NAME: ANDREW M. SINASKY
TITLE: ASSISTANT VICE PRESIDENT
4
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by HOLMES
PRODUCTS CORP. of their 9 7/8% SENIOR SUBORDINATED NOTES, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Andrew M. Sinasky
--------------------------------
NAME: ANDREW M. SINASKY
TITLE: ASSISTANT VICE PRESIDENT
DATED: January 7, 1998
5
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust
Company, Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this commonwealth
and a member of the Federal Reserve System, at the close of business September
30, 1997, published in accordance with a call made by the Federal Reserve Bank
of this District pursuant to the provisions of the Federal Reserve Act and in
accordance with a call made by the Commissioner of Banks under General Laws,
Chapter 172, Section 22(a).
Thousands of
Dollars
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin....... 1,380,475
Interest-bearing balances................................ 8,821,855
Securities........................................................ 10,461,989
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary...................... 6,085,138
Loans and lease financing receivables:
Loans and leases, net of unearned income..... 5,769,090
Allowance for loan and lease losses.......... 74,031
Allocated transfer risk reserve.............. 0
Loans and leases, net of unearned income and allowances.. 5,518,415
Assets held in trading accounts................................... 917,895
Premises and fixed assets......................................... 390,028
Other real estate owned........................................... 779
Investments in unconsolidated subsidiaries........................ 34,278
Customers' liability to this bank on acceptances outstanding...... 83,470
Intangible assets................................................. 227,659
Other assets...................................................... 1,969,514
-----------
Total assets...................................................... 35,891,495
==========
LIABILITIES
Deposits:
In domestic offices.................................... 8,095,559
Noninterest-bearing................ 5,962,025
Interest-bearing................... 2,133,534
In foreign offices and Edge subsidiary................. 14,399,173
Noninterest-bearing................ 86,798
Interest-bearing................... 14,312,375
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary...................... 7,660,881
Demand notes issued to the U.S. Treasury and Trading Liabilities.. 1,107,552
Other borrowed money.............................................. 589,733
Subordinated notes and debentures................................. 0
6
<PAGE>
Bank's liability on acceptances executed and outstanding.......... 85,600
Other liabilities ................................... 1,830,593
Total liabilities ................................... 33,769,091
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus..................... 0
Common stock ................................... 29,931
Surplus ............................................ 437,183
Undivided profits and capital reserves/Net unrealized holding
gains (losses).................................................... 1,660,158
Cumulative foreign currency translation adjustments............... (4,868)
Total equity capital.............................................. 2,122,404
-----------
Total liabilities and equity capital.............................. 35,891,495
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
7
LETTER OF TRANSMITTAL
HOLMES PRODUCTS CORP.
OFFER TO EXCHANGE
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ANY AND ALL OF THE OUTSTANDING
9 7/8% SENIOR SUBORDINATED NOTES, DUE 2007
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 5:00P.M.,
NEW YORK CITY TIME, ON[ ], 1998, UNLESS THE OFFER IS EXTENDED,
STATE STREET BANK AND TRUST COMPANY
(THE "EXCHANGE AGENT")
By Mail By Facsimile Transmission By Hand or
Overnight Courier:
(registered or certified (617) 664-5232
mail recommended): (for Eligible Institutions only)
State Street Bank Confirm by Telephone State Street Bank and
and Trust Company or for Information Call: Trust Company
Corporate Trust Department (617) 973-6292 Corporate Trust Department
P.O. Box 778 4th Floor
Boston, MA 02102-0078 Two International Place
Boston, MA 02110
Delivery of this instrument to an address other than as set forth above
or transmission of instructions via a facsimile number other than as set forth
above will not constitute a valid delivery.
The instructions accompanying this Letter of Transmittal should be read
carefully before this Letter of Transmittal is completed.
By execution hereof, the undersigned hereby acknowledges receipt of the
Prospectus dated November 19, 1997 (the "Prospectus") of Holmes Products
Corp.(the "Company") and this Letter of Transmittal, which together constitute
the Company's offer (the "Exchange Offer") to exchange $1,000 in principal
amount of its 9 7/8% Senior Subordinated Notes due 2007, Series B (the "Exchange
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for each $1,000 in principal amount of its outstanding 9
7/8% Senior Subordinated Notes due 2007 (the "Notes"). The term "Expiration
Date" shall mean 5:00 p.m., New York City time, on [ ], 1998, unless the
Exchange Offer is extended, in which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is extended. Capitalized terms
used but not defined herein have the meaning given to them in the Prospectus.
<PAGE>
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List on the next page the Notes to which this Letter of Transmittal
relates. If the space indicated is inadequate, the Certificate or Registration
Numbers and the Principal Amounts should be listed on a separately signed
schedule affixed hereto.
- --------------------------------------------------------------------------------
Description of Senior Subordinated Notes Tendered Hereby
- --------------------------------------------------------------------------------
NAMES(S) AND CERTIFICATE OR AGGREGATE PRINCIPAL
ADDRESS(ES) OF REGISTRATION AMOUNT REPRESENTED
REGISTERED OWNER(S) NUMBERS* BY NOTES
(PLEASE FILL IN)
TOTAL:
* Need not be completed by Book-Entry Holders.
** Unless otherwise indicated, the Holder will be deemed to have tendered the
full amount represented by such Notes. All tenders must be in integral
multiples of $1,000
This Letter of Transmittal is to be used (i) if certificates
representing Notes are to be forwarded herewith, (ii) if tender of Notes is to
be made by book-entry transfer to an account maintained by the Exchange Agent at
The Depository Trust Company (the "Depository" or "DTC"), pursuant to the
procedures set forth in the Prospectus under "The Exchange Offer -- Procedures
for Tendering" or (iii) if tender of the Notes is to be made according to the
guaranteed delivery procedures described in the Prospectus under "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2. DELIVERY OF
DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
Holders of Existing Notes that are tendering by book-entry transfer to the
Exchange Agent's account at the Depository Trust Company ("DTC") can execute the
tender through the DTC Automated Tender Offer Program ("ATOP") for which the
transaction will be eligible. DTC participants should transmit their acceptance
to DTC, which will verify the acceptance and execute a book-entry delivery to
the Exchange Agent's account at DTC. DTC will then send an Agent's Message to
the Exchange Agent for its acceptance. DTC participants may also accept the
Exchange Offer by submitting a notice of guaranteed delivery through ATOP.
Unless the context requires otherwise, the term "Holder" with respect
to the Exchange Offer means any person (i) in whose name Notes are registered on
the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder or (ii) whose Notes are held of
record by DTC who desires to deliver such Notes by book-entry transfer at DTC.
The undersigned has completed, executed and delivered this Letter of Transmittal
to indicate the action the undersigned desires to take
<PAGE>
with respect to the Exchange Offer. Holders who wish to tender their Notes must
complete this letter in its entirety.
<PAGE>
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
DEPOSITORY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution___________________________________________________
Account Number__________________________________________________________________
Transaction Code Number_________________________________________________________
Holders whose Notes are not immediately available or who cannot deliver
their Notes and all other documents required hereby to the Exchange Agent on or
prior to the Expiration Date may tender their Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures. "See Instruction 2.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)____________________________________________________
Name of Eligible Institution that Guaranteed Delivery___________________________
IF DELIVERY BY BOOK-ENTRY TRANSFER:
Account Number__________________________________________________________________
Transfer Code Number____________________________________________________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE TEN
ADDITIONAL COPIES OF THE PROSPECTUS AND TEN COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:__________________________________________________________________
Address:_______________________________________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
such Notes tendered hereby, the
<PAGE>
undersigned hereby exchanges, sells, assigns and transfers to, or upon the order
of, the Company all right, title and interest in and to such Notes as are being
tendered hereby, including all rights to accrued and unpaid interest thereon as
of the Expiration Date. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent as the true and lawful agent and attorney-in-fact of
the undersigned (with full knowledge that said Exchange Agent acts as the agent
of the Company in connection with the Exchange Offer) to cause the Notes to be
assigned, transferred and exchanged. The undersigned represents and warrants
that it has full power and authority to tender, exchange, sell, assign and
transfer the Notes tendered hereby and to acquire Exchange Notes issuable upon
the exchange of such tendered Notes, and that when the same are accepted for
exchange, the Company will acquire good and unencumbered title to the tendered
Notes, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim.
The undersigned represents to the Company that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned; (ii) neither the undersigned nor any such other
person has an arrangement or understanding with any person to participate in a
distribution of such Exchange Notes; and (iii) the undersigned and any such
other person acknowledge that, if they are participating in the Exchange Offer
for the purpose of distributing the Exchange Notes, (a) they cannot rely on the
position of the staff of the Securities and Exchange Commission enunciated in
Exxon Capital Holdings Corporation (available April 13, 1989), Morgan Stanley &
Co., Inc. (available June 5, 1991) or similar no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with the
resale transaction and (b) failure to comply with such requirements in such
instance could result in the undersigned or any such other person incurring
liability under the Securities Act for which such persons are not indemnified by
the Company. If the undersigned or the person receiving the Exchange Notes
covered by this letter is an affiliate (as defined under Rule 405 of the
Securities Act) of the Company, the Exchange Notes may not be offered for
resale, resold or otherwise transferred by the undersigned or such other person
without registration under the Securities Act or an exemption therefrom. If the
exchange offeree is a broker-dealer holding Notes acquired for its own account
as a result of market-making activities or other trading activities, it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes received in respect of such Notes
pursuant to the Exchange Offer; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, sale, assignment and
transfer of tendered Notes or transfer ownership of such Notes on the account
books maintained by a book-entry transfer facility. The undersigned further
agrees that acceptance of any tendered Notes by the Company and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full by the
Company of its obligations under the Registration Rights Agreement and that the
Company shall have no further obligations or liabilities thereunder for the
registration of the Notes or the Exchange Notes.
<PAGE>
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the Notes tendered hereby
and, in such event, the Notes not exchanged will be returned to the undersigned
at the address shown below the signature of the undersigned.
All authority herein conferred or agreed to be conferred shall survive
the death, bankruptcy or incapacity of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. TENDERED NOTES MAY
BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Notes, and any Notes delivered herewith but not exchanged, will be
registered in the name of the undersigned and shall be delivered to the
undersigned at the address shown below the signature of the undersigned. If an
Exchange Note is to be issued to a person other than the person(s) signing this
Letter of Transmittal, or if the Exchange Note is to be mailed to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address different than the address
shown on this Letter of Transmittal, the appropriate boxes of this Letter of
Transmittal should be completed. If Notes are surrendered by Holder(s) that have
completed either the box entitled "Special Registration Instructions" or the box
entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (as defined in Instruction 2).
SPECIAL REGISTRATION
INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the To be completed ONLY if the Exchange
Exchange Notes are to be issued Notes are to be sent to someone other than
in the name of someone other the undersigned, or to the undersigned at an
than the undersigned. address other than that shown above under
"Description of Senior Subordinated Notes
Issue check and/or certificate(s): Tendered Hereby."
Name:_____________________________ Mail check and/or certificate(s) to:
(Please Print)
Address:__________________________ Name:_____________________________
(Please Print)
__________________________________ Address:___________________________
(Include Zip Code)
___________________________________ ___________________________________
(Employer Identification or Include Zip Code)
Social Security No.)
<PAGE>
(Complete Substitute Form W-9
on the Reverse)
(Please print or type)
REGISTERED HOLDER(S) OF NOTES SIGN HERE (IN ADDITION, COMPLETE
SUBSTITUTE FORM W-9 BELOW)
X ______________________________________________________________________________
X ______________________________________________________________________________
______________________________________________________________________________
(Signature(s) of Registered Holder(s))
Must be signed by registered Holder(s) exactly as name(s) appear(s) on
the Notes or on a security position listing as the owner of the Notes or by
person(s) authorized to become registered Holder(s) by properly completed bond
powers transmitted herewith. If signature is by attorney-in-fact, trustee,
executor, administrator, guardian, officer of a corporation or other person
acting in a fiduciary capacity, please provide the following information.
(Please print or type):
Name and Capacity (full title):_________________________________________________
Address (including zip code): __________________________________________________
Area Code and Telephone Number:_________________________________________________
Taxpayer Identification or Social Security Number: _____________________________
Dated:__________________________________________________________________________
SIGNATURE GUARANTEE
(If Required -- See Instruction 4)
Authorized Signature:___________________________________________________________
________________________________________________________________________________
(Signature of Representative of Signature Guarantor)
Name and Title:_________________________________________________________________
Name of Plan:___________________________________________________________________
Area Code and Telephone Number:_________________________________________________
<PAGE>
Dated___________________________________________________________________________
PAYOR'S NAME: HOLMES PRODUCTS CORP.
THIS SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED
PLEASE PROVIDE YOUR SOCIAL SECURITY NUMBER OR OTHER TAXPAYER IDENTIFICATION
NUMBER ON THE FOLLOWING SUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT YOU ARE
SUBJECT TO BACKUP WITHHOLDING.
________________________________________________________________________________
PART 1 - PLEASE PROVIDE YOUR TIN
SUBSTITUTE IN THE BOX AT RI AND CERTIFY BY
FORM W-9 SIGNING AND DATING BELOW.
----------------------------------
DEPARTMENT OF THE TREASURY
PART 2 - CHECK THE BOX IF YOU
INTERNAL REVENUE SERVICE ARE NOT SUBJECT TO BACKUP
WITHHOLDING UNDER THE
PROVISIONS OF SECTION
3406(A)(1)(C) OF THE INTERNAL
REVENUE CODE BECAUSE (1) YOU
ARE EXEMPT FROM BACKUP
WITHHOLDING, (2) HAVE NOT BEEN
NOTIFIED THAT YOU ARE SUBJECT
TO B WITHHOLDING AS A RESULT OF
FAILURE TO REPORT ALL INTEREST
OR DIVIDENDS OR (3) THE INTERNAL
REVENUE SERVICE HAS NOTIFIED
YOU THAT YOU ARE NO LONGER
SUBJECT TO BACKUP WITHHOLDING.
----------------------------------
CERTIFICATION: UNDER PENALTIES
PAYOR'S REQUEST FOR TAXPAYER OF PERJURY, I CERTIFY THIS FORM IS
IDENTIFICATION NUMBER ("TIN") TRUE, CORRECT AND COMPLETE.
SIGNATURE:__________________
DATE:________________________
________________________________________________________________________________
<PAGE>
NOTE: ANY FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY CASH PAYMENTS IN EXCESS OF $10.00 MADE TO YOU.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I CERTIFY UNDER PENALTIES OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER HAS
EITHER (A) I HAVE MAILED OR DELIVERED AN APPLICATION TO RECEIVE A TAXPAYER ID,
APPROPRIATE INTERNAL REVENUE SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OR
DELIVER AN APPLICATION IN THE NEAR FUTURE. I UNDERSTAND THAT IF I DO NOT PROVIDE
THE NUMBER WITHIN 60 DAYS, 31% OF ALL REPORTABLE PAYMENTS MADE TO ME THEREAFTER
WILL BE WITHHELD UNTIL SUCH TIME AS I PROVIDE A NUMBER.
________________________________________________________________________________
SIGNATURE
________________________________________________________________________________
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
All physically delivered Notes or confirmation of any book-entry
transfer to the Exchange Agent's account at a book-entry transfer facility of
Notes tendered by book-entry transfer, as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile thereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at any of its addresses set forth herein on or prior to the
Expiration Date. The method of delivery of this Letter of Transmittal, the
tendered Notes and all other required documents is at the election and risk of
the Holder. Instead of delivery by mail, it is recommended that Holders use an
overnight or hand delivery service. Except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
In all cases, sufficient time should be allowed to assure timely delivery to the
Exchange Agent before the Expiration Date.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Notes for exchange.
<PAGE>
Delivery to an address other than as set forth herein, or instructions
via a facsimile number other than the ones set forth herein, will not constitute
a valid delivery.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their Notes, and (i) whose Notes are not
immediately available, or (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent (or comply
with the procedures for book-entry transfer) prior to the Expiration Date, may
effect a tender if:
a. the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution");
b. prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Notes, the
certificate or registration number(s) of such Notes and the principal
amount of Notes tendered, stating that the tender is being made thereby
and guaranteeing that, within five (5) business days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof),
together with the certificate(s) representing the Notes to be tendered
in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Depository) and
any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and
c. such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Notes into
the Exchange Agent's account at the Depository) and all other documents
required by the Letter of Transmittal, are received by the Exchange
Agent within five business days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to Holders who wish to tender their Notes according to the
guaranteed delivery procedures set forth above. Any Holder who wishes to tender
Notes pursuant to the guaranteed delivery procedures described above must ensure
that the Exchange Agent receives the Notice of Guaranteed Delivery relating to
such Notes prior to the Expiration Date. Failure to complete the guaranteed
delivery procedures outlined above will not, of itself, affect the validity or
effect a revocation of any Letter of Transmittal form properly completed and
executed by a Holder who attempted to use the guaranteed delivery procedures.
3. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Notes evidenced by a
submitted certificate is tendered, the tendering Holder should fill in the
principal amount tendered in the column
<PAGE>
entitled "Principal Amount Tendered" of the box entitled "Description of Senior
Subordinated Notes Tendered Hereby." A newly issued Note for the principal
amount of Notes submitted but not tendered will be sent to such Holder as soon
as practicable after the Expiration Date. All Notes delivered to the Exchange
Agent will be deemed to have been tendered in full unless otherwise indicated.
Any Notes tendered pursuant to the Exchange offer may be withdrawn at
any time prior to the Expiration Date, after which tenders of Notes are
irrevocable.
To withdraw a tender of Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent by 5:00 p.m., New York City time, on the Expiration Date. Any such notice
of withdrawal must (i) specify the name of the person having deposited the Notes
to be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn
(including the certificate or registration number(s) and principal amount of
such Notes, or, in the case of Notes transferred by book-entry transfer, the
name and number of the account at the DTC to be credited), (iii) be signed by
the Depositor in the same manner as the original signature on this Letter of
Transmittal (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Notes
register the transfer of such Notes into the name of the Depositor withdrawing
the tender, (iv) specify the name in which such Notes are to be registered, if
different from that of the Depositor and (v) include a statement that such
Holder is withdrawing his election to have such Notes exchanged. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Notes so withdrawn will be deemed not to have
been validly tendered for purposes of the Exchange Offer, and no Exchange Notes
will be issued with respect thereto unless the Notes so withdrawn are validly
retendered. Any Notes which have been tendered but which are not accepted for
exchange, will be returned to the Holder thereof without cost to such Holder as
soon as practicable after withdrawal, rejection of tender or termination of
Exchange Offer.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered Holder(s) of
the Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration or enlargement or any
change whatsoever. If this Letter of Transmittal is signed by a participant in
the Depository, the signature must correspond with the name as it appears on the
security position listing as the owner of the Notes. If any of the Notes
tendered hereby are owned of record by two or more joint owners, all such owners
must sign this Letter of Transmittal.
If a number of Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Notes.
Signatures on this Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution unless the Notes
tendered hereby are
<PAGE>
tendered (i) by a registered Holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal or (ii) for the account of an Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or
Holders of Notes (which term, for the purposes described herein, shall include a
participant in the Depository whose name appears on a security listing as the
owner of the Notes) listed and tendered hereby, no endorsements of the tendered
Notes or separate written instruments of transfer or exchange are required. In
any other case, the registered Holder (or acting Holder) must either properly
endorse the Notes or transmit properly completed bond powers with this Letter of
Transmittal (in either case, executed exactly as the name(s) of the registered
Holder(s) appear(s) on the Notes, and, with respect to a participant in the
Depository whose name appears on a security position listing as the owner of
Notes, exactly as the name of the participant appears on such security position
listing), with the signature on the Notes or bond power guaranteed by an
Eligible Institution (except where the Notes are tendered for the account of an
Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate, in the applicable box, the name and
address (or account at the Depository) in which the Exchange Notes or substitute
Notes for principal amounts not tendered or not accepted for exchange are to be
issued (or deposited), if different from the names and addresses or accounts of
the person signing this Letter of Transmittal. In the case of issuance in a
different name, the employer identification number or social security number of
the person named must also be indicated, and the tendering Holder should
complete the applicable box.
If no instructions are given, the Exchange Notes (and any Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
Holder of the Notes or deposited at such Holder's account at the Depository.
6. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the
exchange of Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered Holder of the Notes
tendered, or if tendered Notes are registered in the name of any person other
than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered Holder or
<PAGE>
any other person) will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted
herewith, the amount of such transfer taxes will be billed directly to such
tendering Holder. Except as provided in this Instruction 6, it will not be
necessary for transfer stamps to be affixed to the Notes listed in the Letter of
Transmittal.
7. WAIVER OF CONDITIONS.
The Company reserves the right, in its reasonable judgment, to waive,
in whole or in part, any of the conditions to the Exchange Offer set forth in
the Prospectus. .
8. MUTILATED, LOST, STOLEN OR DESTROYED NOTES.
Any Holder whose Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter of Transmittal may be
directed to the Exchange Agent at the address and telephone number set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
may be directed to [ ], Holmes Products Corp., 233 Fortune Boulevard,
Millford, MA 01757.
10. VALIDITY AND FORM.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to
particular Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in this Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Neither the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Notes, nor shall any of them incur any
liability for failure to give such notification. Tenders of Notes will not be
deemed to have been made until such irregularities have been cured or waived.
Any Notes received by the Exchange Agent that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned without cost to such holder by the Exchange Agent to the tendering
Holders of Notes, unless otherwise provided herein, as soon as practicable
following the Expiration Date.
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Notes is required to
provide the Exchange Agent with such Holder's correct TIN on Substitute Form W-9
above. If such Holder is an individual, the TIN is the Holder's social security
number. The Certificate of Awaiting Taxpayer Identification Number should be
completed if the tendering Holder has not been issued a TIN and has applied for
a number or intends to apply for a number in the near future. If the Exchange
Agent is not provided with the correct TIN, the Holder may be subject to a $50
penalty imposed by the Internal Revenue Service. In addition, payments that are
made to such Holder with respect to tendered Notes may be subject to backup
withholding. Certain Holders (including, among others, all domestic corporations
and certain foreign individuals and foreign entities) are not subject to these
backup withholding and reporting requirements. Such a Holder, who satisfies one
or more of the conditions set forth in Part 2 of the Substitute Form W-9, should
execute the certification following such Part 2. In order for a foreign Holder
to qualify as an exempt recipient, that Holder must submit to the Exchange Agent
a properly completed Internal Revenue Service Form W-8, signed under penalties
of perjury, attesting to that Holder's exempt status. Such forms can be obtained
from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to
withhold 31% of any amounts otherwise payable to the Holder. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
10. PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder
with respect to the Exchange Notes, the Holder is required to notify the
Exchange Agent of his or her correct TIN by completing the form herein
certifying that the TIN provided on Substitute Form W-9 is correct (or that such
Holder is awaiting a TIN) and that (i) such Holder is exempt, (ii) such Holder
has not been notified by the Internal Revenue Service that he or she is subject
to backup withholding as a result of failure to report all interest or dividends
or (iii) the Internal Revenue Service has notified such Holder that he or she is
no longer subject to backup withholding.
11. WHAT NUMBER TO GIVE THE EXCHANGE AGENT
Each Holder is required to give the Exchange Agent the social security
number or employer identification number of the record Holder(s) of the Notes.
If Notes are in more than one name or are not in the name of the actual Holder,
consult the instructions on Internal Revenue Service Form W-9, which may be
obtained from the Exchange Agent, for additional guidance on which number to
report.
12. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
If the tendering Holder has not been issued a TIN and has applied for a
number or
<PAGE>
intends to apply for a number in the near future, write "Applied For" in the
space for the TIN on Substitute Form W-9, sign and date the form and the
Certificate of Awaiting Taxpayer Identification Number and return them to the
Exchange Agent. If such certificate is completed and the Exchange Agent is not
provided with the TIN within 60 days, the Exchange Agent will withhold 31% of
all payments made thereafter until a TIN is provided to the Exchange Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER
WITH NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE
AGENT ON OR PRIOR TO THE EXPIRATION DATE.
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
9-7/8% SENIOR SUBORDINATED NOTES DUE 2007
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
HOLMES PRODUCTS CORP.
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer of Holmes Products Corp. (the "Company") made pursuant to the
Prospectus, dated November 19, 1997 (the "Prospectus"), if certificates for the
outstanding 9 7/8% Senior Subordinated Notes due 2007 of the Company (the
"Notes") are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Exchange Agent prior to 5:00 p.m., New York
time, on the Expiration Date. Such form may be delivered or transmitted by
telegram, telex, facsimile transmission, mail or hand delivery to State Street
Bank and Trust Company (the "Exchange Agent") as set forth below. In addition,
in order to utilize the guaranteed delivery procedure to tender Notes pursuant
to the Exchange Offer, a completed, signed and dated Letter of Transmittal (or
facsimile thereof) must also be received by the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. Capitalized terms not defined
herein are defined in the Prospectus.
STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
By Mail By Facsimile Transmission By Hand or Overnight
(registered or certified (617) 664-5395
mail recommended):
State Street Bank and
Trust Company
Corporate Trust Department
State Street Bank Confirm by Telephone 4th Floor
and Trust Company or for Information Call: Two International Place
Corporate Trust Department (617) 664-5587 Boston, MA 02110
P.O. Box 778
Boston, MA 02102-0078
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS
<PAGE>
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
LADIES AND GENTLEMEN:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer -- Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of Notes Tendered:*
$____________________________________________
Certificate No(s). if available):
_____________________________________________
Total Principal Amount Represented by Certificate(s):
$____________________________________________
*Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
PLEASE SIGN HERE
__________________________________ ____________________________________
__________________________________ ____________________________________
Signature(s) of Owner(s) Date
or Authorized Signatory Date
Area Code and Telephone Number: ( )
------------------------------------------------
Must be signed by the Holder(s) of Notes as their name(s) appear(s) on
certificates for Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below. If Notes will be delivered by book-entry
transfer to The Depository Trust Company, provide account number.
<PAGE>
Please print name(s) and address(es)
Name(s): ______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Capacity: ______________________________________________________________________
Address(es ): __________________________________________________________________
Account Number: ________________________________________________________________
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution (including most banks, savings
and loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program, hereby
guarantees that the undersigned will deliver to the Exchange Agent the
certificates representing the Notes being tendered hereby or confirmation of
book-entry transfer of such Notes into the Exchange Agent's account at The
Depository Trust Company, in proper form for transfer, together with any other
documents required by the Letter of Transmittal within three New York Stock
Exchange trading days after the Expiration Date.
Name of Firm: __________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Area Code and Telephone No.: ( )
__________________________________________________
Authorized Signature: __________________________________________________________
Name:___________________________________________________________________________
(PLEASE TYPE OR PRINT)
Title:__________________________________________________________________________
Dated: ____________________________
NOTE: DO NOT SEND CERTIFICATES OF NOTES WITH THIS FORM.
<PAGE>
CERTIFICATES OF NOTES SHOULD BE SENT ONLY WITH A COPY OF THE PREVIOUSLY EXECUTED
LETTER OF TRANSMITTAL.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
1. An individual's account. The individual
The actual owner of
2. Two or more individuals (joint the account or, if
account) combined funds, the
first individual on
the account (1)
3. Custodian account of a minor The minor (2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor - trustee (1)
trust account (grantor is
also trustee)
b. So-called trust account The actual owner (1)
that is not a legal or valid
trust under state law
5. Sole proprietorship account The owner (3)
6. A valid trust, estate or Legal entity
pension trust
(Do not furnish the
identifying number of the
personal representative
or trustee unless the
legal entity itself is
not designated in the
account title) (4)
________________________________________________________________________________
________________________________________________________________________________
GIVE THE EMPLOYER
IDENTIFICATION
<PAGE>
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -------------------------------------------------------------------------
7. Corporate account The corporation
8. Partnership account held in The partnership
the name of the business
9. Association, club or other tax The organization
exempt organization
10. A broker or registered nominee The broker or nominee
11. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district or prison) that
receives agriculture program
payments
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner. The name of the business or the "doing
business as" name may also be entered. Either the social security
number or the employer identification number may be used.
(4) List first and circle the name of the legal trust, estate or pension trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you don't have a taxpayer identification number ("TIN") or you don't know
your number obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and apply
for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on all interest, dividends
and broker transactions payments include the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an
individual retirement plan, or a custodial account under Section
403(b)(7).
<PAGE>
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States
or any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government
or any agency or instrumentality thereof.
- An international organization or any agency or instrumentality
thereof.
- A registered dealer in securities or commodities registered in the
U.S. or a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described
in section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue. Payments of dividends and patronage
dividends not generally subject to backup withholding include the
following:
- Payments to nonresident aliens subject to withholding under section
1441.
- Payments to partnerships not engaged in a trade or business in the
U.S. and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid
in money.
- Payments made by certain foreign organizations.
- Payments made to a nominee. Payments of interest not generally
subject to backup withholding include the following:
- Payments of interest on obligations issued by individuals. NOTE: You
may be subject to backup withholding if this interest is $600 or
more, and is paid in the course of the payer's trade or business and
you have not provided your correct taxpayer identification number to
the payer.
- Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE FORM W-9 TO AVOID POSSIBLE ERRONEOUS
BACKUP WITHHOLDING. COMPLETE THIS SUBSTITUTE FORM W-9 AS FOLLOWS:
ENTER YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE
FORM, SIGN, DATE AND RETURN THE FORM TO THE PAYER.
Certain payments other than interest, dividends and patronage
dividends, that are not subject to information reporting are also not subject to
backup withholding. For details, see the sections 6041, 6041A(a), 6044, 6045,
6049, 6050A and 6050N and the regulations thereunder.
<PAGE>
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of
dividends, interest or other payments to give taxpayer identification numbers to
payers who must report the payments to IRS. IRS uses the numbers for
identification purposes and to help verify the accuracy of tax returns. Payers
must be given the numbers whether or not recipients are required to file tax
returns. Payers must generally withhold 31% of taxable interest, dividend and
certain other payments to a payee who does not furnish a taxpayer identification
number to a payer.
Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure which is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE STATEMENTS WITH RESPECT TO WITHHOLDING. If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying
certifications or affirmations, may subject you to criminal penalties including
fines and/or imprisonment.
(4) MISUSE OF TAXPAYER IDENTIFICATION NUMBERS. If the payer discloses or uses
taxpayer identification numbers in violation of Federal law, the payer may be
subject to civil and criminal penalties.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HOLMES PRODUCTS CORP. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 4,462 8,149
<SECURITIES> 0 0
<RECEIVABLES> 32,708 38,160
<ALLOWANCES> 1,113 1,156
<INVENTORY> 61,252 56,212
<CURRENT-ASSETS> 105,631 113,584
<PP&E> 35,710 37,342
<DEPRECIATION> 14,627 17,364
<TOTAL-ASSETS> 128,286 135,310
<CURRENT-LIABILITIES> 108,514 112,734
<BONDS> 737 890
0 0
0 0
<COMMON> 802 802
<OTHER-SE> 16,906 20,884
<TOTAL-LIABILITY-AND-EQUITY> 128,286 135,310
<SALES> 194,331 136,767
<TOTAL-REVENUES> 194,331 136,767
<CGS> 145,915 102,442
<TOTAL-COSTS> 145,915 102,442
<OTHER-EXPENSES> 5,520<F1> 3,637<F1>
<LOSS-PROVISION> 505 211
<INTEREST-EXPENSE> 6,570 4,850
<INCOME-PRETAX> 9,416<F2> 4,490<F2>
<INCOME-TAX> 2,787 292
<INCOME-CONTINUING> 6,221 3,978
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,221 3,978
<EPS-PRIMARY> 0<F3> 0<F3>
<EPS-DILUTED> 0<F3> 0<F3>
<FN>
<F1>Product development expenses.
<F2>Income before income taxes and minority interest in net income of
majority-owned subsidiaries.
<F3>The Company's shares are not publicly traded.
</FN>
</TABLE>
